Top 10 Lessons from Cannabis for the Future Regulated Psychedelic Industry

On November 3, 2020, voters in Oregon approved Measure 109, paving the way for a regime of psilocybin for therapeutic uses in a few years.

• Oregon and Psilocybin: Does the Approved Ballot Measure Language Stand a Chance
• Oregon Psychedelics: Petition to Legalize Psilocybin for Therapy Moves Forward
• Oregon Psychedelics: Psilocybin on the Ballot this November!
• Oregon 2020 Election: Vote Yes! on Measure 109
• Oregon Psilocybin: Does Measure 109 Go Far Enough? Does it Go Too Far?

Large cities across the country have also adopted decriminalization measures for psilocybin and other entheogenic (psychedelic) plants, including Ann Arbor, Denver, Oakland, Santa Cruz, and most recently, Washington, D.C. (but we note that decriminalization is not legalization). It’s only matter of time before states follow Oregon’s approach and start regulating psilocybin.

Assuming the federal government does not change federal law first (and this is certainly a possibility given the Food and Drug Administration’s approval of drug trials for psilocybin), it’s very likely that many of the legal issues that will face the regulated psilocybin will be similar, if not identical, to issues facing the state-regulated cannabis industry.

In a previous post, we discussed similarities and differences between the movements to legalize psilocybin and cannabis. In this post, we’ll look at the top eight issues that will likely carry over from cannabis to psychedelic drugs more generally.

1. Federal Legality

Even if states follow Oregon’s move and legalize psilocybin therapy, that won’t change federal law. Currently, psilocybin is a Schedule I narcotic under the federal Controlled Substances Act (CSA). This means that it and other entheogenic plants or psychedelic substances are treated the same way as heroin. It remains to be seen whether the federal government would take the same path of non-enforcement of the CSA against psilocybin operators in states that regulate psilocybin uses or sales. In other words, it’s unclear whether there will ever be anything like a Cole Memo for psilocybin. But inevitably, there will be tension between state and federal law.

2. Contract Issues

Whether or not the federal government takes a position of non-enforcement, psilocybin contracts will face serious issues given the state of federal law. Federal (and possibly even state) courts may refuse to enforce contracts that involve a federally illegal substance, even if authorized by state law. This issue still comes up for cannabis operators and can be a huge concern. For some of our articles on federal legality, see:

• Cannabis Litigation: Another Blow to the Illegality Defense (Kennedy v. Helix TCS, Inc.)
• Federal Courts are Going Backward on Cannabis

3. Tax Problems

The bane of many cannabis operators’ existence is Internal Revenue Code § 280E, and things will be no different for psychedelics companies so long as psychedelics remain on Schedule I of the CSA. This section states:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

In other words, companies that traffic in certain controlled substances have immense limitations on what they can deduct when paying federal taxes. State law doesn’t change this. For more of our analysis on § 280E, see:

• Marijuana Businesses and IRC 280E – More Clarity?
• Marijuana Taxes: The IRS On Section 280E
• Why we love the Harborside § IRC 280E Appeal

4. Access to Banking

On par with 280E in terms of annoyance for cannabis companies is lack of access to banking. Despite the fact that in 2014, the Financial Crimes Enforcement Network (FinCEN) issued a memo providing guidance for banks that wanted to bank cannabis monies, many banks didn’t jump on board. Even today, it can be difficult for cannabis companies in regulated states to gain access to banking. It can even be a challenge for hemp companies to access banks, even though hemp is now legal and even though FinCen and the National Credit Union Association have provided hemp banking guidance. These problems will no doubt persist for psychedelics businesses.

5. No Federal Trademarks

Trademarks will not be issued for goods or services that are not legal (you can read our analysis of trademark legality issues here). If states regulate psilocybin, they may allow licensees to obtain state-level trademarks, but those same companies will not be able to obtain trademark registrations from the United States Patent and Trademark Office unless and until federal law changes. This means that, like cannabis companies, psilocybin companies will only be able to have very limited trademark protection.

6. No Bankruptcy Protection

Bankruptcy protection is not available for cannabis companies due to federal illegality (see our analysis here). Those problems will persist for psychedelics companies as well.

7. RICO Suits

Historically, our cannabis lawyers have seen a ton of civil RICO litigation in federal courts across the United States. RICO (the Racketeer Influenced and Corrupt Organizations Act) is a federal statute that provides for a civil cause of action for acts performed as part of an ongoing criminal organization (in addition to criminal penalties). These suits were often filed by neighbors of cannabis cultivators trying to allege a conspiracy in an effort to shut down the cultivator and their suppliers. They have become less and less common over the years but we fully anticipate seeing a plethora of RICO suits for psychedelics companies in regulated states.

For more on cannabis RICO litigation, check out the following:

• Much Ado about RICO
• Much Ado About RICO and Cannabis, Part 2
• Much Ado About RICO and Cannabis, Part 3
• Much Ado About RICO and Cannabis, Part 4
• Much Ado About Rico and Cannabis, Part 5: Multi-State Update
• The Neighborhood “Gangbusters”: Avoiding RICO Cannabis Lawsuits
• Cannabis RICO Lawsuits are Failing: Oregon and Colorado Updates
• Federal Court Dismisses RICO Claims: Remedies Would Violate Federal Law

8. Leasing Issues

Federal legality also affects leasing. As we explained previously for cannabis leases:

once the landlord’s bank uncovers that it is leasing its property to a cannabis tenant (because its paid in cash one too many times or because the bank checks up on the collateral), mortgage violations abound. Why? Because this (usually) boilerplate document dictates that no waste or illegal activity take place on the collateral real property, and a cannabis tenant directly violates federal law and therefore the mortgage agreement between the landlord and its bank. This situation should be quarterbacked from the outset of the cannabis tenant and landlord relationship since it’s highly unlikely that the landlord will be able to successfully push back on the bank and will face losing the property to the bank as a result.

In other words, leasing to psilocybin tenants will be a risk for landlords, even in the event of state regulations. This usually translates to much higher rent and much more aggressive lease terms (e.g., tons of guarantees from affiliates and owners of the tenant, hyper-aggressive termination rights, and maybe even security interests).These businesses will also have problems with bank financing for real property.

9. Insurance

Companies who traffic in Schedule I controlled substances will have issues getting insurance. Everything from using title insurance to facilitate real estate transactions to obtaining ordinary insurance policies will be more of a challenge for the psychedelic industry. Today, insurance is fairly available for cannabis businesses, but this was not always the case. Expect to see many issues in the early stages of legalization and regulation.

10. Immigration

Any non-U.S. citizen who participates in the future psychedelics industry, even if it is state legal, will risk being denied entry into the United States, banned from the United States, or denied citizenship. While the Biden Administration will take less of an aggressive role on immigration policy than President Trump, risks based on violating federal law probably won’t go away. Business owners will need to seriously consider the impact of immigration laws on their proposed business model. For some posts on cannabis immigration issues, see:

• Cannabis and Immigration: Marijuana Activity a Conditional Bar to Obtaining U.S. Citizenship
• Bumps Ahead: The U.S. Border After Canada Cannabis Legalization

Conclusion

Once states get around to regulating psilocybin and other entheogens, it’s clear that businesses will face many hurdles. Fortunately enough, the regulatory lessons learned in the cannabis industry seem like they will all apply, at least to the extent that the federal government takes the same position it has taken for the cannabis industry, which remains to be seen. Stay tuned to the Canna Law Blog for more updates.

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EDPB adopts recommendations on international data transfers following Schrems II decision

On 11 November 2020, the European Data Protection Board (“EDPB”) issued two draft recommendations relating to the rules on how organizations may lawfully transfer personal data from the EU to countries outside the EU (“third countries”).  These draft recommendations, which are non-final and open for public consultation until 30 November 2020, follow the EU Court of Justice (“CJEU”) decision in Case C-311/18 (“Schrems II”).  (For a more in-depth summary of the CJEU decision, please see our blog post here and our audiocast here. The EDPB also published on 24 July 2020 FAQs on the Schrems II decision here).

The two recommendations adopted by the EDPB are:

• Recommendations 01/2020 on measures that supplement transfer tools to ensure compliance with the EU level of protection of personal data (“Draft Recommendations on Supplementary Measures”); and
• Recommendations 02/2020 on the European Essential Guarantees for surveillance measures (“Recommendations on EEG”).

Draft Recommendations on Supplementary Measures

The EDPB in its Draft Recommendations on Supplementary Measures sets out a six-step process that organizations should follow when they transfer personal data from the EU to a third country.

The six steps are as follows:

1. Data exporters should know their transfers, by recording and mapping their transfers, including onward transfers—for instance, where processors outside the EEA transfer personal data to a sub-processor in the same or another third country.
2. Data exporters should identify the transfer tools relied on for their transfers, which may include adequacy decisions, Article 46 GDPR transfer tools (including the SCCs and Binding Corporate Rules), or derogations under Article 49 GDPR.
3. If relying on an Article 46 GDPR transfer tool (such as SCCs), data exporters should assess whether the mechanism affords a level of protection in the third country that is “essentially equivalent” to that guaranteed in the EU. (The CJEU in Schrems II established this principle that the protections in the third country should be “essentially equivalent” to that in the EU.)  The EDPB states that this assessment should be conducted with due diligence and thoroughly documented (paragraph 42).
   • The EDPB emphasises that this assessment should pay close attention to any laws in the third country that lay down requirements to disclose personal data to public authorities or grant public authorities powers to access personal data (e.g., for criminal law enforcement, regulatory supervision, and national security purposes). The EDPB emphasises that such assessments should be based on publicly available legislation as well as other sources of information, including “precedent” and “practice”.
   • The EDPB’s Recommendations on EEG (discussed below) set out the specific elements to be considered when determining whether such requirements or powers granted to public authorities are limited to what is regarded as justifiable interference—and therefore not impinging on the commitments taken in the Article 46 GDPR transfer tool.
4. If the assessment under step 3 reveals that the Article 46 GDPR transfer tool is not effective, data exporters should, in collaboration with the data importer, adopt supplementary measures to ensure that the data transferred is afforded in the third country a level of protection essentially equivalent to that in the EU.
   • The EDPB considers that supplementary measures may have a contractual, technical or organizational nature, and emphasises the role of technical measures.
   • Annex 2 of the Draft Recommendations sets out detailed guidance on supplementary measures that may be adopted in specific scenarios.
5. Data exporters should take any procedural steps required to implement effective supplementary measures—for example, by obtaining authorization from a competent EU supervisory authority to adopt any supplementary measures that contradict the SCCs.
6. Data exporters, in collaboration with data importers, should re-evaluate at appropriate intervals the developments in the third country to which the personal data has been transferred. Data transfers should be promptly suspended or ended where the data importer has breached or is unable to honour the commitments it has taken in the Article 46 GDPR transfer tool or the supplementary measures are no longer effective in that country.

Recommendations on EEG

The Recommendations on EEG identify four European Essential Guarantees, which must be respected to ensure that interferences with the rights to privacy and protection of personal data do not go beyond what is necessary and proportionate in a democratic society, as required by settled CJEU and European Court of Human Rights (“ECtHR”) case law.  These European Essential Guarantees are:

1. The processing should be based on clear, precise and accessible rules;
2. The measures adopted must be necessary and proportionate with regard to the legitimate objectives pursued, and the necessity and proportionality of such measures need to be demonstrated;
3. An independent oversight mechanism must be in place; and
4. Individuals whose data is processed must have access to effective remedies.

When data exporters assess a third country’s laws to determine whether the level of protection in the third country that is essentially equivalent to that are guaranteed in the EU, they must assess whether any laws allowing public authorities to demand disclosure or obtain access to personal data meet these European Essential Guarantees.  These European Essential Guarantees should therefore form the backbone of transfer impact assessments that organizations carry out following the Schrems II decision and to take the third step outlined in the Draft Recommendations on Supplementary Measures discussed above.

Next Steps

Taken together, the Draft Recommendations on Supplementary Measures and the Recommendations on EEG raise a number of practical challenges. We encourage companies to provide their feedback on the Recommendations on Supplementary Measures as part of the public consultation process, which is open from 11 November 2020 to 30 November 2020.  If you have any questions concerning the material discussed in this blog post, please contact the Covington team.

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New York’s Proposed Hemp Products Rules: A Model for the Industry

On October 27, the New York Department of Health (the “DOH”) released much anticipated proposed rules to regulate the processing, manufacturing, sale and marketing of cannabinoid hemp products in the state (the “Rules”).

In accordance with A08977, which Governor Andrew Cuomo enacted at the beginning of this year, the DOH was tasked with creating a program that will license both cannabinoid hemp processors and retailers and set quality control standards for these products.

While New York is one of many states that have expressly legalized the manufacture and sale of hemp-derived products these past few months, the state is proposing one of the most comprehensive – if not the most comprehensive – regulatory framework released to date. Moreover, many of the regulations found in the DOH’s proposed draft address regulatory issues of huge significance to the industry but that had not been discussed by other state regulators. Some of the most remarkable regulations are covered below.

Nomenclature

The Rules contain key terms and definitions that are rarely found in hemp state regulations.

Specifically, the Rules regulate Cannabinoid Hemp Product and define the term Cannabinoid to mean:

any phytocannabinoid found in hemp, including but not limited to, Tetrahydrocannabinol (THC), tetrahydrocannabinolic acid (THCA), cannabidiol (CBD), cannabidiolic acid (CBDA), cannabinol (CBN), cannabigerol (CBG), cannabichromene (CBC), cannabicyclol (CBL), cannabivarin (CBV), tetrahydrocannabivarin (THCV), cannabidivarin (CBDV), cannabichromevarin (CBCV), cannabigerovarin (CBGV), cannabigerol monomethyl ether (CBGM), cannabielsoin (CBE), cannabicitran (CBT).”

The use of these terms shows that the DOH is cognizant of the need to regulate cannabinoids other than CBD, which have become increasingly popular but have yet to be expressly regulated by most states.

The Rules also expressly define terms that have become standard in the industry but that few regulators have included in their rules: Full Spectrum, Broad Spectrum, Distillate, and Isolate, which are defined as follows:

• Full spectrum means “a cannabinoid hemp product that is: (1) derived from a hemp extract; (2) contains cannabinoids, aromatics, essential vitamins and minerals, fatty acids, protein, chlorophyll, flavonoids, or terpenes; and (3) has not been reformulated or has not had cannabinoid isolates or distillates added to it.”
• Broad spectrum means “a concentrate extracted from hemp containing multiple cannabinoids, but where all Δ9-Tetrahydrocannabinol (THC) has been removed.”
• Distillate means “a concentrate where a segment of cannabinoids from an initial extraction are selectively concentrated through heating and cooling, with all impurities removed.”
• Isolate means “a concentrate that is more than 95 percent comprised of a single cannabinoid compound created by a chemical extraction process.”

By defining these commonly used terms, the DOH is helping manufacturers comply with labeling laws but is also providing consumers with the transparence they need to understand the content of these products.

THC Limits for Various Stages of the Supply Chain

Like most state regulations that authorize the manufacture, sale and marketing of hemp-derived products, the DOH requires that these finished products contain no more than 0.3% total THC. But what sets the Rules apart is that they also address the legality of hemp extract (i.e., intermediary hemp not intended for end use consumers) and hold that the possession and the intermediate sale of hemp extract by and between licensed cannabinoid hemp processors, is permitted, provided:

• when the extract leaves the licensed premises it is accompanied by (a) a certificate of analysis certifying that the extract contains less than 3% THC and (b) a copy of the cannabinoid hemp processor’s license; and
• the hemp extract is only transported intra-state.

The legality of intermediary hemp is particularly relevant in light of the U.S. Drug Enforcement Administration (the “DEA”)’s release of a rule in August that seems to unjustly criminalize the hemp material, which is part of the extraction process where THC levels almost always spike.

Specific Concentration Limits Per Serving and Per Product

The Rules also impose cannabinoid concentration limits. Specifically, the Rules provide that if the cannabinoid hemp product is a food or a beverage, it cannot contain more than 25 milligrams of cannabinoids; and if it is a dietary supplement, it cannot contain more than 3,000 milligrams per product.

The Rules also state that the cannabinoid hemp products cannot contain less than 90% or more than 110% of the concentration of total THC listed on the label. Note that the Rules mention that the DOH may impose total THC cap in milligram per serving and per package based on a product’s form, volume, number of servings and CBD to THC ratio.

Specific Regulations Imposed on Cannabinoid Hemp Products Intended for Inhalation

The Rules mandate that all inhalable cannabinoid hemp products, which exclude cigarettes, cigars and pre-rolls containing hemp flower, shall meet the following additional requirements:

• be a closed system with a pre-filled disposable cartridge that attaches to a rechargeable battery, or a single-use product that cannot be recharged;
• electronic vaporization devices shall have internal or external temperature controls to prevent combustion and have a heating element made of inert material such as glass, ceramic or stainless steel and not plastic or rubber;
• not be sold to persons under the age of 21;
• except for hemp-derived terpenes, excipients and ingredients must be pharmaceutical grade unless otherwise approved by the DOH, and shall not include:
  1. synthetic terpenes;
  2. polyethylene glycol (PEG);
  3. vitamin E acetate;
  4. medium chain triglycerides (MCT oil);
  5. medicinal compounds;
  6. illegal or controlled substances;
  7. artificial food coloring;
  8. benzoic acid;
  9. diketones; and
  10. any other compound or ingredient as determined by the DOH;

• not contain any flavors or flavoring agents, except for hemp-derived terpenes; and
• starting on June 1, 2021, include a DOH-approved symbol in a manner that is clear and conspicuous.
  

Labeling & Packaging Requirements

In addition to requirement the inclusion of labeling requirements that have become standard across states where the sale and marketing of these products is allowed, the Rules also require that labels include:

• the name of the state or country of origin for the hemp used in the cannabinoid hemp product; and
• means to report serious adverse events and/or side effects caused by the product.

In addition, hemp cannabinoid products sold in New York will have to be contained in temper-evident packaging that minimizes the oxygen and light exposure to prevent the degradation of the products and of the cannabinoids.

As this brief overview of the Rules reveals, the DOH’s proposed regulations could serve as a template for other states and even inspire the federal regulatory framework of these products. Stay tuned for updates.

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Oregon Marijuana: OLCC to Adopt “Fix-it or Ticket” Approach for Some Rule Violations

Last month, along with streamlined licensing, the Oregon Liquor Control Commission (OLCC) announced a significant (and welcome) change to its compliance function by instituting a new Verification of Compliance program (VOC) that will focus on education rather than penalties for certain types of marijuana rule violations. The VOC launched in early October and arose from meetings with the industry this past summer. The OLCC is in the process of formal permanent rulemaking for the VOC program, which I expect will take several months.

The VOC program allows OLCC inspectors to issue VOC paperwork (the “ticket”) to licensees for a select number of violations. Where the licensee is able to fix the problem within the required timeframe, the OLCC will not commence further proceedings against the licensee. This is great news! But beware– the OLCC reserves discretion to pursue “ticket” violations if a licensee shows a general disregard for rules and laws. So licensees should not treat cavalierly rule violations which may qualify for a “fix-it ticket.”

What kinds rule violations may qualify for the VOC? The OLCC identified four criteria relevant to this determination.

1. The violation must be potentially fixable, i.e. the licensee has the capability of fixing or correcting the problem. (Not an example: selling marijuana to a minor.)
2. The corrective action must be measurable by the OLCC. This means licensees and regulatory specialists must be able to point to tangible/concrete action to demonstrate compliance. (Example: fixing camera coverage).
3. The violations eligible for VOC should be teachable, learnable, and executable. (Example: issues with METRC). This narrows the list of eligible violations considerably and reflects that the VOC is designed to address relatively common violations with a low probability of recurrence.
4. The VOC should provide a positive impact for both licensees by educating licensees and for OLCC staff by reducing the workload volume of enforcement cases presently routed through the administrative hearing division.

Has the OLCC identified violations that qualify for VOC? Yes, the OLCC’s compliance education bulletin identifies five violations that meet the above criteria. These are video recording, Seed-to-Sale tracking with METRC, inventory reconciliation with METRC, security requirements, and UID tags. But note this list may change as the OLCC implements the program and develops permanent rules.

This is excellent work by the OLCC, which continues to demonstrate its desire to work with, rather than against, Oregon’s marijuana industry. The VOC program reflects the maturation of the industry on the West Coast—last year Washington State took steps to shift from adversarial enforcement to compliance for its marijuana licensees— and aligns with statements by the OLCC that it seeks “willing partners” in the cannabis industry.

You can find the OLCC’s news release on the VOC here and its Compliance Education Bulletin here. And for more information concerning the OLCC’s enforcement of the marijuana rules and regulations and what to do if your marijuana business find itself in trouble with the OLCC, see:

• Oregon Cannabis: Recent OLCC Settlement Trends
• Oregon Cannabis: What to Do If You Receive an OLCC Notice of Proposed License Cancellation or Other “Charging Document”
• On the Horizon: New Oregon Cannabis Regulations
• Oregon Cannabis and Liquor: Why is OLCC Harder on Marijuana Licensees?

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The “Right to Try” Psilocybin and New Drug Therapies

I was talking to another lawyer about last week’s vote by Oregonians to legalize psilocybin therapy here in the state. We discussed how licensed facilities won’t be up and running for a few more years, and how, in the meantime, people will have to make do with general decriminalization under Measure 109 and maybe, in certain cases, reliance on Right to Try access.

Public Law 115-176 (“Right to Try”) is a federal law enacted in 2018 that creates a uniform system for terminal patients seeking access to investigational treatments. It’s quite restrictive. Right to Try was first introduced as state legislation, with similar laws in 41 states (the federal law does not contain preemption language). Specifically, Right to Try amends the Federal Food, Drug, and Cosmetic Act,

to exempt, from specified requirements and restrictions under that Act and other laws, the provision of certain unapproved, investigational drugs to a terminally ill patient who has exhausted approved treatment options and is unable to participate in a clinical trial involving the drugs.

Unlike with many precursor state laws, no institutional review board review is required. However, Right to Try requires that the manufacturer or sponsor of an “eligible investigational drug” report annually to the Food and Drug Administration (FDA) on any provision of a drug. And the FDA is required to post a summary of such use on its website.

To date, FDA has not been particularly helpful about the new law. This may be due to the fact that Right to Try was designed specifically “to diminish the  FDA’s powers over people’s lives.” Or because Right to Try is similar to FDA’s existing expanded access program (often referred to as the “compassionate use” program). Or, it could be because FDA is sort of a drag about everything.

On July 24, 2020, the agency finally published a proposed rule to facilitate Right to Try reporting requirements (I’m not sure this was even necessary). Comments closed at the end of September. Because the reporting protocol is not yet final, it’s unclear how many patients have received drugs under Right to Try over the past few years, what drugs they have received, or how any of this is really working out for people. Things seem pretty slow overall.

In any case, it’s important to note that Right to Try does not encompass any drug or treatment under the sun. Eligible investigational drugs must: 1) have completed an FDA-approved Phase 1 clinical trial; 2) be in an active clinical trial intended to form the basis of an application for approval, or subject of an approval application; and 3) be in ongoing active development or production. As one might expect, Right to Try also limits the liability of “a sponsor, manufacturer, prescriber, or dispenser that provides, or declines to provide, an eligible investigational drug to an eligible patient in accordance with the bill.”

Obviously, a big question here is which “eligible investigational drugs” qualify under the three prongs identified above. The answer to that will always be a question of timing, but our read is that psilocybin and MDMA preparations should currently qualify. The question for doctors and patients will be whether these drugs are worth a look in each case scenario, and beyond that, whether dealing with Right to Try or one of the state law analogues is worth it. A terminal patient wishing to try psilocybin in Oregon, for example, might be inclined to source a few stems and caps locally rather than try to obtain a distilled preparation from an FDA pharmaceutical applicant.

Let’s see how it all goes. In the meantime, we will continue to monitor federal and state right-to-try laws, along with other possible “safe harbors” for psychedelic drugs use, including everything from religious exemptions to state licensed service providers to broad decriminalization. Psilocybin in particular is being modeled on all of these paths today. It’s a very promising compound and we are definitely here for it.

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California Voters Expand Commercial Cannabis Opportunities Across the State: Part I

Election day this year proved to be a big step forward in terms of drug policy reform, with Arizona, Montana, New Jersey, and South Dakota legalizing adult-use cannabis, Mississippi legalizing medicinal cannabis, Washington DC decriminalizing a host of psychedelic plants, and Oregon leading the way by legalizing psilocybin for therapeutic use and decriminalizing non-commercial possession of ALL controlled substances.

But here in California, at least thirty-five cities and counties were also voting on cannabis-related issues, and those ballot initiatives were largely successful. As Marijuana Business Daily noted in their overview of the successful initiatives, “as of June, only 168 of California’s 540 cities and counties allowed for any type of legal MJ retail operations, and many of those don’t allow adult-use retail, only medical,” and across California, there are currently only about 700 storefront retailers, which is arguably woefully insufficient.

In this two-part series of posts, we’ll provide a rundown of what happened with cannabis at the local level in this year’s election, and how in some jurisdictions, that might pave the way for new commercial cannabis opportunities across California.

Artesia: Measure Q

Voters in Artesia, a suburb in Los Angeles County, voted to authorize a tax on marijuana businesses of 15% of gross receipts and $20 per square foot for cultivation. Proponents of the measure estimated that these taxes could generate $200,000-400,000 per year in revenue for city services.

Banning: Measure L

Voters in Banning, located in Riverside County, authorized a tax of up to 10% on marijuana distribution facilities to provide an estimated $20,289-$405,790 per year for general city services.

Benicia: Measure D

Voters in the Bay Area city of Benicia approved an opinion that new marijuana dispensaries should be permitted within the city. Measure D was put on the ballot as a nonbinding, advisory question with no ability to change local law.

Calaveras County: Measure G

Voters in Calaveras County approved a new tax structure, establishing a maximum marijuana activities tax, not exceeding $7.00 per square-foot for cultivation area and 8% of receipts for other marijuana activities, generating an estimated $1.5 – $3 million per year to be used locally.

Calabasas: Measure SB

Voters in Calabasas approved a cannabis tax structure, authorizing a 10% tax on marijuana businesses generating an estimated $10,000 per year to fund city services.

Commerce: Measure SB

Voters in Commerce rejected a measure that would have approved six marijuana company-development agreements struck between city officials and businesses.

Costa Mesa: Measure Q

Voters paved the way for the City of Costa Mesa to allow commercial cannabis retail stores by approving a measure allowing a 4%-7% gross receipts tax on retail marijuana businesses generating an estimated $3 million per year for city services, and the regulation of marijuana business locations.

Encinitas: Measure H

Voters approved the City of Encinitas’ authorization of commercial cannabis activities, including retail sales, cultivation, manufacturing with certain restrictions. Encinitas currently bans all commercial cannabis activity.

Fairfield: Measure C

Voters in Fairfield authorized a marijuana business tax of 6% of gross receipts for retail businesses, 4% of gross receipts for other businesses, and $10 per square foot for cultivation generating an estimated $237,500 – $360,000 per year.

Grass Valley: Measure N

Voters in Grass Valley approved an 8% gross-receipts tax for retailers, a 6% gross-receipts tax for other businesses and a cultivation tax of up to $7 per square foot.

Hawthorne: Measure CC

Voters in Hawthorne authorized a 5% tax on marijuana businesses generating no revenue until marijuana businesses are permitted in Hawthorne.

Jurupa Valley: Measure U

Voters in Jurupa Valley rejected a measure that would have expanded the number of retailers allowed in the city from seven to nine and increased taxes on cannabis businesses.

King City: Measure P

Voters in King City approved a tax of up to 5% of gross receipts for the sale of marijuana and marijuana products and up to 2% of gross receipts for the distribution of marijuana and marijuana products from outside King City generating an estimated $150,000 per year.

Laguna Woods: Measure V

Voters in Laguna Woods approved the opinion that marijuana dispensaries for retail sale of medical and non-medical marijuana should be permitted within city limits. Measure V was put on the ballot as a nonbinding, advisory question with no ability to change local law.

La Habra: Measure W

Voters in La Habra authorized permits for up to four marijuana delivery businesses and a gross receipts tax of up to 6% on commercial marijuana businesses generating an estimated $1-2 million per year for general services including emergency responses, public safety, addressing homelessness, senior programs, open space preservation, and small businesses.

Lemon Grove: Measure J

Voters in Lemon Grove, near San Diego, authorized a tax on marijuana retail business of up to 8% and on other marijuana businesses of up to 4% of gross receipts generating an estimated revenue of between $560,000 and $1.12 million per year for general city services.

Madera: Measure R

Voters in Madera authorized a tax on marijuana businesses of 6% of gross receipts for retail businesses, 4% of gross receipts for other marijuana businesses, and no more than $10 per square foot for cultivation generating an estimated $720,000 – $1.08 million per year. Madera currently prohibits commercial cannabis activity.

Marina: Measure Z

Voters in Marina authorized restrictions on marijuana business proximity to parks and recreation centers, maintaining a 5% gross receipts tax on marijuana businesses and the cap of three adult retailers and three medical dispensaries, and continuing to prohibit recreational sales to individuals under 21.

Marysville: Measure N

Voters in Marysville authorized a tax on marijuana businesses of 6% of gross receipts for retail, 4% of gross receipts for other marijuana businesses, and $10 per square foot for cultivation, generating an estimated $300,000 – $470,000 per year for municipal services including law enforcement, fire services, roads and recreation.

Mount Shasta: Measure L

Voters in Mount Shasta rejected a measure that would have authorized regulations and licensing requirements for industrial marijuana businesses.

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We’ll cover the remainder of the cannabis-related election results here in California in the next installment of this two-part series of posts.

 

The post California Voters Expand Commercial Cannabis Opportunities Across the State: Part I appeared first on Harris Bricken.

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Puerto Rico: The Recent Election May Still Be Good News for Recreational Cannabis

Last month, in Puerto Rico: November Surprise for Recreational Cannabis?, we proposed that a victory by opposition candidate Charlie Delgado “might be Puerto Rico’s best shot at recreational cannabis legalization.” As of 2:00 PM local time on November 5, Delgado has not conceded the race. However, the results so far suggest that the island’s next governor will be Pedro Pierluisi, who previously served as Puerto Rico’s congressional delegate. While in Congress, Pierluisi caucused with the Democrats, but his main affiliation is with the pro-statehood New Progressive Party (PNP).

At first glance, a Pierluisi administration does not appear to bode well for cannabis legalization. Back in 2015, Pierluisi expressed “concern” over then-Gov. Alejandro García Padilla’s executive order legalizing medical cannabis. In 2013, he plainly stated he was against cannabis decriminalization.

Of course, five or seven years are a long time in politics, especially when it comes to issues where public opinion is fast-shifting. It is therefore possible Pierluisi’s views on cannabis have evolved since then. However, there is no indication of such a shift in the public record.

At this stage, it is hard to envision any impetus for cannabis reform from the governor’s mansion. The legislature, however, might be a different story. Delgado’s party, the Popular Democratic Party (PPD) appears set to take a greater number of seats than the PNP in both chambers, plus there will be a greater third-party presence than in years past; the PPD may need to work together with these parties to achieve working majorities. Alexandra Lúgaro, the leader of one of the newly represented parties, is openly in favor of cannabis legalization, as is the leader of the Puerto Rican Independence Party (PIP), Juan Dalmau (the PIP has been around since 1946, but under Dalmau its gubernatorial vote grew sixfold).

Overall, forces outside the traditional PNP-PPD duopoly had an unprecedentedly strong showing in this year’s elections. Pierluisi will surely be aware of the fact he was elected with around 33% of the vote, compared to the 42% received by former Gov. Ricardo Rosselló in 2016. Lúgaro took over 14% of the vote and Dalmau was not far behind, while another third-party candidate won a further 7% of the vote, showing a growing desire for nontraditional political alternatives. It is reasonable to expect Pierluisi will look for ways to counter this rising tide. At a minimum, it may give him pause before opposing measures seeking to legalize recreational cannabis.

Even within the PNP there might be changes. As more U.S. states—even highly conservative ones—welcome recreational cannabis, the pro-statehood party may increasingly warm up to legalization.

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