Not Quite Legal In All 50 States, Part 1

By Michael Chernis, Esq., Chernis Law Group P.C., Santa Monica, California

Cannabidiol (CBD) is the new rage in the alternative treatment of various health conditions. It is increasingly associated with treating serious illnesses, and alleviating ordinary symptoms of illnesses, without creating the high or psychoactive effect of its cannabinoid sister THC. And, unlike THC products, which will practically always violate the Federal Controlled Substances Act (CSA) there is a colorable argument as to why CBD products derived from Industrial Hemp are federally legal. In fact, in this past year, CBD products have become pervasive on the shelves of national retail supermarket and drug store chains, and of course in wellness spas.

The visibility of these products on the shelves of national retail outlets and leading spas leads one to conclude they must be legal. And indeed, it is common for purveyors of CBD products to market them as legal in all 50 states. The legality of these products is far more complex.

Historically, the federal government treated CBD no differently then THC, and thus considered it to be a Schedule I controlled substance. This was based on the premise that CBD could only be derived from the flowering portions of the Marijuana plant, as opposed to portions of the plant not considered illegal, and thus constituted illegal Marijuana under the CSA.

This changed in 2014 when Congress in the 2014 Farm Bill gave federal protection to “Industrial Hemp.” While Industrial Hemp is still a cannabis plant, it refers to strains of the plant that only produce .3% of THC or less, and thus do not tend to create any psychoactive effect. In 2014, it thus became federally legal to grow Industrial Hemp through a State approved program, known as a “pilot program.”

The 2014 Farm Bill, however, did not expressly provide federal protection for derivatives of State-approved Industrial Hemp, such as CBD or extracts containing CBD, as distinguished from the plant material itself. In the 2018 Farm Bill, Congress expressly made all derivatives and extracts of Industrial Hemp federally legal. While the 2018 Farm Bill still leaves it up to individual states to permit or prohibit the cultivation of Industrial Hemp, all states are prohibited from interfering with the transport across that State of Industrial Hemp or derivative products. However, to be clear, that does not mean it is legal to sell CBD products in every state, as an individual State may still prohibit cultivation and sale of CBD and Industrial Hemp products within its borders, even if it must allow the transport of the products across State lines. And a handful of states, including Idaho, still treat CBD no different from illegal marijuana and prohibit its sale.

Thus, the claim that a CBD product is legal in all 50 states is simply, untrue. It is thus incumbent on a retailer, including a spa owner, to ensure that the state they operate in does not regulate CBD products more stringently then the federal government. This is not difficult to ascertain, although it may require consultation with a lawyer.

There are two other points to be aware of regarding the legality of CBD products under the 2018 Farm Bill. First, the 2018 Farm Bill replaces State cultivation “Pilot Programs” with broader programs that must be approved by the US Department of Agriculture, and which must include among other things testing protocols for Industrial Hemp. However, the USDA is still in the process of passing its own regulations, and will not approve any State programs until federal regulations are in effect. Until then, 2014 Farm Bill Pilot Program Industrial Hemp is still legal federally. The distinction is not terribly important, except in those States, like Idaho, which take the position that while the 2018 Farm Bill mandates it must ultimately allow transport of Industrial Hemp across its border, Pilot Program Hemp does not merit the same protection. This is an uncommon position, is at odds with USDA’s own view of the law, and merely emphasizes the need to know the laws in place in your State.

The second and even more complicated nuance, is that the 2018 Farm Bill, while expanding federal protection for Industrial Hemp and derivatives, does not alter or pre-empt the FDA regulatory authority concerning CBD products. The FDA has taken the position that any ingestible product containing CBD is illegal. This issue will be addressed in Part 2 of this series

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Feds Keep Seizing Lawful Hemp Imports, CBD Co. Tells Court

Law360 (October 21, 2019, 6:07 PM EDT) — U.S. Customs and Border Protection will likely continue to seize lawful hemp shipped from foreign countries, a hemp importer said in a brief filed Monday in California federal court, giving renewed urgency to its proposed class action seeking an injunction against federal authorities.

California-based Innovative Nutraceuticals told that court that its putative class action should proceed as a single case because, among other reasons, the CBP continues to restrict the import of hemp nationwide, despite the passage of two federal farm bills that broadly legalized the crop.

The 2014 farm bill legalized the cultivation of hemp, defined as cannabis with less than 0.3% concentration of THC on a dry weight basis, for limited, industrial purposes. The 2018 farm bill kept the same legal limit of THC, while expanding legal protections for hemp by removing it from the Controlled Substances Act.

“The seizures are part of a pattern of officially sanctioned behavior violative of the federal rights of [Innovative] and the class members,” the filing said. “Since the defendants have repeatedly engaged in these injurious acts in the past, and have continued to do so, there is a sufficient possibility they again will engage in them.”

The brief is the latest volley in a suit initiated in July 2018 after federal authorities seized four shipments of foreign hemp bound for Innovative at airports in California, New Jersey and Kentucky between 2015 and 2018.

The hemp, which had been intended for the processing of CBD, was in violation of the Controlled Substances Act because it contained trace amounts of THC, the psychoactive component of cannabis, authorities said at the time. But the seized hemp had THC levels that were within legal limits as dictated by the 2014 farm bill, Innovative said in court documents.

In their second amended complaint, filed in July, Innovative said that seizures of legal hemp and CBD have continued even after the passage of the 2018 bill.

Innovative is seeking injunctions granting the return of seized hemp and compensatory damages on behalf of any parties who had their hemp or CBD confiscated by CBP or its parent agency, the U.S. Department of Homeland Security, since July 2012. Innovative also sought an injunction barring the federal authorities from seizing shipments of hemp or CBD in the future.

The government moved in September to dismiss most of the claims in the second amended complaint, arguing that Innovative lacked standing or that the cases should be litigated separately in the jurisdictions where the seizures actually took place.

Michael Chernis, an attorney for Innovative, told Law360 in an email that the government’s assertions were flimsy “technical arguments, along the lines of our client failed to touch third base before heading home.”

“In this way, the government is advancing a policy of CBP being beyond legal review. Fortunately, we don’t believe any of their arguments have merit, and firmly believe that this case will proceed one way or another, despite the government’s stalling efforts,” Chernis said.

An attorney with the U.S. Department of Justice, representing the government entities, did not immediately respond to a request for comment Monday.

Innovative is represented by Michael S. Chernis of Chernis Law Group PC, Paul L. Gabbert of Paul L. Gabbert Law Offices and Eric Honig of the Law Office of Eric Honig PLC.

The government is represented by Jasmin Yang, David M. Harris and Joanne S. Osinoff of the U.S Attorney’s Office for the Central District of California

The case is Innovative Nutraceuticals LLC v. United States of America et al., case number 5:18-cv-01400, in the U.S. District Court for the Central District of California.

–Additional reporting by Diana Novak Jones. Editing by Alanna Weissman.

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End of an era: After Jan. 9, California’s unlicensed medical cannabis collectives/co-ops illegal


By John Schroyer

On Jan. 10, California’s legal cannabis industry is expected to get even smaller.

Medical marijuana collectives and cooperatives will become illegal without a state license that day, per guidance that the Bureau of Cannabis Control (BCC) issued in January 2018.

Cannabis industry experts have suggested the impact of the deadline has already made its mark on the California marijuana industry by forcing nonprofits to either get licenses or close up shop.

But in many cases, the collectives/co-ops might just keep selling, turning their back on the regulations in hopes of avoiding law enforcement as long as possible.

Technically, unlicensed MMJ collectives and co-ops were allowed to operate through 2018 without state permits, because they were given a legal defense from prosecution as medical collectives under state law.

But that grandfathering period ends Jan. 9, meaning any collective or co-op being run without a state permit on Jan. 10 could be raided by law enforcement and shut down, with employees and operators facing possible criminal charges or civil fines.

While it’s unclear how many collectives and co-ops may still be operating in California to date – neither the BCC nor the California Department of Tax and Fee Administration had any firm data on existing collectives/co-ops – industry insiders estimated the number could easily be in the hundreds.

“It’s significant because, at this point, if you don’t have a license, whatever legal protection you have goes away,” said Los Angeles cannabis attorney Michael Chernis.

“And the stark reality is that for many places in California, licenses are not available,” Chernis noted, a reference to the fact that roughly two-thirds of California’s cities and counties still have MJ business bans in effect.

The issue is perhaps most pronounced in Chernis’ home region, Los Angeles, because the city has been so slow to issue licenses for cannabis retailers, including many that operated through 2018 under the same collective/co-op model that’s about to end.

“The big losers,” Chernis said, “are the businesses that have been around as long as anyone who’s been licensed, and they have to face a really difficult choice right now:

“Do they completely cease operations because the city of L.A. hasn’t gotten around to offering them a legitimate pathway to license … or do they continue operating in the black market?”

‘Symbolic’ impact or uptick in raids?

The broadest impact of the disappearing collective/co-op model will probably be on medical patients, caregivers and small local collectives and co-ops that weren’t really focused on the business end of the industry, but rather, were actually operating as nonprofit medical charities, said Ellen Komp, deputy director of California NORML.

“There will be patients who will have their access interrupted, and some of them won’t be able to access or afford a licensed facility where they can find their medicine,” she said.

“And collective owners will get caught up in the laws, prosecuted civilly or criminally for not having a license.”

Komp also noted the BCC was originally slated to perform a study on nonprofit MMJ collectives before the regulated market launched in January 2018, but that deadline was pushed back to January 2020, leaving any still-existing medical collectives in “legal limbo” for another year.

Komp and several other industry sources said it’s possible that after the collectives and co-ops become illegal there may be an uptick in enforcement efforts against unlicensed MJ shops.

“You’re still going to have a pretty robust illicit market, and what we’ve seen over the course of this past year is cities that are choosing to crack down on the illicit market … will continue to do so in the manner they have this past year, which is through code enforcement violations,” San Diego attorney Kimberly Simms said.

“I don’t think you’re going to see this huge uptick in raids,” Simms added, saying she doesn’t believe most communities have extra resources to devote to combating unlicensed cannabis shops.

“It is the sort of symbolic end to what people felt like has governed the industry for the last 20 years,” Simms said.

Hard-to-quantify impact

Another longtime MJ attorney, Oakland-based Bill Panzer, said many of the dispensaries that will face the choice Chernis referred to were never nonprofit collectives or co-ops.

Panzer said that before 2018, when all MMJ businesses were required to be nonprofits, “if you looked at the shops that were operating in California under the collective model under a magnifying glass, at least 90% would not pass muster.”

The ones that would, he added, have either already transitioned to the for-profit market and obtained state licenses, or have already exited the market.

“They’ve already been impacted,” Panzer said. “I don’t think there’s going to be many more … because the state has taken the position that nonprofits still have to get licenses. And a lot of these places can’t afford it, so they’ve been being shut down over the last year.

“I personally don’t know any (collectives) that have gotten a license and have still continued to operate as a nonprofit.”

Enforcement mostly falls to local authorities

Others aren’t as optimistic that law enforcement will turn a blind eye to unlicensed cannabis collectives and co-ops.

“Enforcement is likely to increase, because that (collective) defense isn’t there anymore,” stressed Omar Figueroa, another longtime MJ industry lawyer.

BCC spokesman Alex Traverso wrote in an email to Marijuana Business Daily that his agency will continue to use a carrot-over-stick approach and try to coax illegally operating collectives/co-ops into getting state licenses, instead of coming down hard on those without permits.

Traverso noted that, in the past month, the BCC issued more than 1,300 temporary cannabis business licenses, including to many currently operating as collectives or cooperatives.

For those companies to become fully legal and sustainable, however, they’re going to have to obtain full annual permits – a much harder threshold.

That also doesn’t exempt unlicensed collectives and co-ops from prosecution by local authorities, which have largely been running point in combating California’s illicit market over 2018.

In many of those cases, however, misdemeanors, not felonies, have been the only charges filed.

John Schroyer can be reached at johns@mjbizdaily.com.

https://mjbizdaily.com/

 

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Michael Chernis named by MG Magazine as one of “30 Powerful Cannabis Attorneys You Should Know”

Broadly defined, litigation is the process of resolving a dispute between opposing parties through the court system. In business, any relationship–with vendors, suppliers, employees, customers, or competitors–is subject to misunderstanding and miscommunication that can result in litigation. In the burgeoning legal cannabis industry, the opportunity for such occurrences is greatly pronounced.

Matters most often turning up in litigation involve issues such as ownership or partnership disputes, commercial contracts, employment disputes, trademarks and patents, real estate and landlord disputes, product liability, taxes, insurance, and even appellate advocacy, though more rarely than the aforementioned. For each such concern, there are litigating attorneys who specialize in the intricacies.


MICHAEL CHERNIS

Chernis Law Group PC, California
Practice areas: Criminal defense, regulatory law, corporate law, civil litigation
Alma mater: Fordham University Law School
Hard facts: Demonstrating his clients’ compliance with the “collective defense” created by SB420, Chernis has obtained dismissals, reductions of charges, agreements not to file charges, and returns of confiscated goods in a variety of cases. Among the most noteworthy: dismissal of Los Angeles District Attorney charges against a Berkeley manufacturer and return of its cannabis oil cartridges in 2016 and the non-filing and return of goods in a 2014 CO2 manufacturing lab raid and seizure in Riverside County. (ChernisLaw.com)

Michael Chernis

See the full list here: www.mgretailer.com

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California’s New Batch Testing Requirements

By Michael Jensen, Chernis Law Group

California’s new batch testing requirements are proving difficult to meet for the California cannabis industry. Beginning July 1, 2018, testing requirements for products became fully implemented. Under the new rules, all products must be batch tested for pesticides, microbial impurities, residual solvents, homogeneity, foreign material, and moisture.

The Bureau of Cannabis Control—the regulatory authority for retailers, distributors, and testing laboratories—has started to release weekly data on passing and failing products. The most recent reports from October 9 and 15 are reproduced below. In the October 9 report, of the 16,050 batches tested, 2,684 failed (16.7%). In the October 15 report, of the 16,869 batches tested, 2,804 failed (16.6%).

Diving deeper into the numbers, it is clear that testing compliance is most difficult for manufacturers of edibles, tinctures, and topicals, which have a failing rates of nearly 30%. Additionally, label claims are the most common reason for noncompliance.

Under the title 17 of the California Code of Regulations (CCR), section 40405(a)(4), respective THC and CBD contents for a package must be included on the label. To pass testing for THC and CBD content, the product must test within 10% of the content indicated on the label. Title 16, CCR § 5724(d). Fortunately, inaccurate label claims are curable, and a may be re-labeled by certain distributors. Title 16, CCR § 5303(c).

Navigating the regulated cannabis market in California is becoming more complicated than ever. If you are operating a licensed cannabis business and need assistance with regulatory compliance, Chernis Law Group is ready to assist you.

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Michael Chernis is our Latest Featured Speaker!

By Pincus Professional Education

Our latest featured speaker is Michael Chernis from Chernis Law Group!

Michael will be on the faculty panel at our upcoming Recreational and Medical Marijuana Law and Business in California seminar in Los Angeles on November 1-2! Michael first spoke for us at our 2017 Marijuana Law conference, where attendees’ evaluations said he was very informative and gave a fantastic presentation. We are excited to have Michael back!

Michael Chernis is one of California’s premier experts on marijuana legal issues whether it’s criminal, civil, federal, or business related. His law firm, Chernis Law Group P.C. in Santa Monica California, serves the varied needs of collectives, dispensaries, deliveries, cultivators, manufacturers and other medical cannabis clients, including a number of leading cannabis brands. His experience as a federal criminal defense attorney gives him a unique perspective on federal enforcement issues as they pertain to the cannabis industry. As Policy Director of the Los Angeles Cannabis Task Force, he has been at the forefront of driving ballot issues and working with lawmakers to enact changes in the law that will benefit existing and prospective stakeholders.

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