Expanding legalization is a boon, but new roadblocks loom
DENVER (Dec. 8, 2020) — The legal sands are constantly shifting in the cannabis, hemp and CBD industries. As 2020 comes to a close, Henry Baskerville, partner and head of the cannabis practice at Fortis Law Partners, reviews the year’s highlights and provides an outlook for 2021.
“In spite of all the issues, 2020 still delivered some solid forward momentum,” said Baskerville. “We experienced a huge jump in cannabis sales during the pandemic, with projections indicating a 40% rise in the legal cannabis market this year. New U.S. markets are poised to blossom with major ballot measure victories in five states, and a path was paved for strong growth in international markets like Mexico, where the Senate recently approved a cannabis legalization bill that will create what is expected to be the world’s largest legal marijuana market. And, after a slow start, we saw a big uptick in cannabis M&A in Q3 of this year. Several multi-million dollar deals closed and the market experienced the type of consolidation that we expect to see more of in the future, with small or medium-sized operations getting scooped up by larger companies.”
In 2021, Baskerville will be closely following and counseling clients on the following key cannabis industry legal issues:
DEA goes after Delta-8 THC
A new DEA interim final rule seeks to criminalize certain cannabinoids, most notably Delta-8 tetrahydrocannabinol (THC). Use of Delta-8 has rapidly expanded due to its vast and therapeutic benefits and many in the industry are worried about the rule’s potential impact on this popular cannabinoid.
“In my opinion, this new rule appears to be a direct contravention of the letter and spirit of the Farm Bill,” said Baskerville. “The cannabis industry needs better clarity on what is and what is not legal. To the extent that the DEA was trying to resolve confusion with its interim rule, I applaud it. But it should be obvious by now that the result has generated more, not less, confusion.”
Prop 65 hits California, affecting businesses across the entire country
Beginning Jan. 3, 2021, the sweeping labeling requirements of California’s Proposition 65 will apply more broadly to cannabis and CBD products. California’s Office of Environmental Health Hazard Assessment (OEHHA) has added THC to its list of approximately 1,000 chemicals that may cause reproductive harm.
The requirement to provide a consumer warning applies regardless of whether a business is headquartered or manufactures products in California or out-of-state and covers any company that sells products in California whether via store, through the mail or on the internet.
“Some companies selling CBD or hemp extract products that contain negligible amounts of THC wrongly believe that these new labeling requirements do not apply to them,” said Baskerville. Confusion may stem from the fact that the 2018 Farm Bill exempted products that contained 0.3% or less of THC from the Federal Controlled Substances Act. However, federal law does not apply directly to Proposition 65 and Proposition 65 warnings will be required for all products sold in California that contain any detectable amount of THC.
Newly proposed federal drug testing rule pushes legal boundaries
Just as a new report shows that the positive drug test levels among U.S. workers have reached their highest level in 16 years, particularly for marijuana, a newly proposed federal rule seeks to expand workplace drug testing programs. The move would allow certain government and other employers in federally-regulated industries to collect and analyze samples of workers’ hair. Baskerville says implementation of this rule could be considered discriminatory against people of color due to hair follicle testing’s higher sensitivity to the melanin pigments found in darker hair.
THC hemp crop testing potentially moving to DEA registered labs
This year, USDA officials delayed implementing the roundly criticized requirement that all THC testing on hemp crops must be performed at laboratories registered with the U.S. Drug Enforcement Administration, stating “We now better understand how the limited number of DEA-registered labs will hinder testing and better understand that the associated costs with disposing of product that contains over 0.3% THC could make entering the hemp market too risky.”
However, implementation of this rule was delayed only until October 31, 2021, or until final regulations are published. It remains to be seen whether or not states will be expected to work with DEA-registered labs (of which there are currently less than four dozen in the U.S.) to achieve certification.
Ongoing struggles for vaping
Cannabis businesses already face a plethora of exclusions to their insurance policies due to the fact that many standard commercial general liability policies contain exclusions for Schedule 1 substances. Now, expect to see more insurance companies use the fact that COVID-19 is a respiratory illness as a reason to add more exclusions to policies particularly for businesses that specialize in vaping and/or other smokable cannabis products.
In addition, a new Colorado rule goes into effect on January 1, 2021, requiring cannabis manufacturers to test the vapor emissions from their products—i.e. what consumers are actually inhaling—in addition to the oil itself.
For more analysis on any of these topics or to schedule an interview with Baskerville, please contact Shawna Seldon McGregor at 917-971-7852 or shawna@themaverickpr.com.
About Fortis Law Partners
Fortis Law Partners offers broad expertise to help clients achieve effective legal solutions, from the simplest matters to the most challenging business problems. Whether a successful outcome means winning at trial, dismissing a lawsuit, negotiating a settlement, closing a transaction, or just getting thoughtful legal advice, Fortis lawyers get results. Our business-minded problem-solving approach, coupled with a persistent dedication to client service, enables us to create unmatched value. Practices include Commercial Litigation, Corporate / Securities / M&A; Employment Law; Tax; Compliance Programs and Internal Investigations; and Real Estate & Development. For more information, visit FortisLawPartners.com. Continue the conversation on LinkedIn and Facebook.
