The global COVID-19, or coronavirus, pandemic has caused instability, uncertainty, and a downturn in most industries, and the cannabis industry has not been immune. The pandemic has caused several cannabis companies to terminate deals or modify contracts. However, the ability to terminate deals or modify contracts relies heavily on provisions within the applicable contracts. If a cannabis company is looking to modify a contract or terminate a deal they should begin by looking at the applicable contract and whether or not it contains a “Force Majeure” provision.

For further details on how Force Majeure may apply to your cannabis company’s situation, our firm has written the following articles/blogs on the issue:

 

In Illinois, 75 new adult use dispensary licenses were scheduled to be awarded on May 1, 2020. But, because of COVID-19, those licenses have been delayed by Governor Pritzker’s Executive Order 2020-34 for the duration of the Gubernatorial Disaster Proclamations or until the Illinois Department of Financial and Professional Regulation announces a new date.

Recently, the IDFPR offered relief to applicants that intended to qualify as a Social Equity Applicant by hiring a certain number of qualifying employees. One way to qualify as a Social Equity Applicant in Illinois is to hire a minimum of 10 full-time employees at the time of application, with at least 51% of those employees either (i) currently residing in a Disproportionately Impacted Area or (ii) having been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement under the Cannabis Regulation and Tax Act or a member of an impacted family.

The licensing delay causes additional problems for these applicants because the individuals must be full-time employees and must have been full-time employees at the time the applications were submitted, which were due on or before January 2, 2020. Due to the severe economic conditions resulting from the COVID-19 pandemic, these applicants can now submit an Attestation form to the IDFPR and will no longer be required (for now) to maintain all employees that help satisfy the social equity criterion throughout the duration of the application scoring period. If the applicant does eventually receive a dispensary license, the applicant will be required to, within 60 days of receiving the license, employ the required number of individuals with the required status to meet the statutory qualifications of a Social Equity Applicant.

As COVID-19 continues to rapidly spread, individuals are seeking remedies to prevent or mitigate the effects of COVID-19. Some companies are claiming their CBD products can provide a variety of immunities from COVID-19. These unsubstantiated claims pose not only a threat to consumers who believe these claims but also to the credibility of other cannabis businesses and the cannabis industry as a whole.

State and federal government agencies keep a close eye on health-related claims made by companies that provide CBD products, specifically those relating to the potential health benefits of CBD. States with medical or recreational cannabis regulations generally contain provisions prohibiting advertising that contains any false or misleading information. Without scientific evidence substantiating the claims made, government agencies are reluctant to permit advertising that states there are health benefits to consuming CBD products.

On April 1, the Federal Trade Commission and the Food and Drug Administration sent a warning letter to the headquarters of Neuro XPF — a CBD products company — demanding the company cease the sale and advertising of products for the mitigation, prevention, treatment, diagnosis or cure of COVID-19. The FDA stated in its letter that such claims qualify the CBD products as “unapproved new drugs sold in violation of the Federal Food, Drug, and Cosmetic Act (FD&C Act)” and as “misbranded drugs under section 502 of the FD&C Act.” Neuro XPF had a page of its website titled “CRUSH CORONA,” which stated the best defense against COVID-19 starts with a strong immune system. The company wanted “everyone to take CBD and take advantage of its potential to help prepare your body to fight against a coronavirus infection.” Neuro XPF promptly removed the page from its website.

Attorney generals are dealing with this issue on the state level as well. For example, the Oregon Attorney General’s Office forced a Portland CBD store to take down advertising claiming its products could increase lung support immunity to fight COVID-19. While the store did not intend to mislead consumers with their advertising, the attorney general interpreted the sign as a claim that CBD provides an immunity from COVID-19. Similarly, New York Attorney General Letitia James ordered a CBD products company to cease and desist the marketing of its product, which the company claimed provided “Protection from Corona Virus with Immunity Oil.”

It is important during this time that cannabis businesses remain accountable and ensure they are following state and federal regulations regarding advertising. Without scientific evidence, cannabis businesses may not claim CBD provides any form of immunity or cure to COVID-19. Businesses should refrain from making any claims that suggest their CBD products may prevent or mitigate the effects of COVID-19.

SanitizerAs the country grapples with the COVID-19 pandemic and drastic changes to the business environment, some cannabis companies have decided to pitch in and use some of their manufacturing and processing capacity to produce hand sanitizer. In California, companies such as CannaCraft and The Galley have converted portions of their processing facilities to produce hand sanitizer. In Massachusetts, the Commonwealth Dispensary Association partnered with the Massachusetts Health & Hospital Association to produce sanitizer, and its members believe they may be able to produce as much as 5,000 gallons of sanitizer per week, if needed. North of the border, Canadian extractor and processor The Valens Company recently announced that it will begin production of hand sanitizer liquid and plans to donate 40,000 bottles to frontline health care workers.

Cannabis processors that use ethanol in their extraction processes can easily pivot to the production of hand sanitizer, as ethanol is one of the three key ingredients used in most hand sanitizers. However, any cannabis business that wishes to get involved in the production of hand sanitizer should consider some important issues.

First, in order to avoid any issues with the Food and Drug Administration, all hand sanitizer products should be prepared in accordance with the guidance recently released by the U.S. Department of Health and Human Services, titled “Temporary Policy for Preparation of Certain Alcohol-Based Hand Sanitizer Products During the Public Health Emergency (COVID-19) – Guidance for Industry.” A copy of that policy can be found here. Per the policy, sanitizer may only be prepared using the specified list of approved ingredients and in accordance with the formula detailed in the policy, and any company that produces hand sanitizer must register with the FDA as an over-the-counter drug manufacturer.

The other issue for cannabis companies to consider is their insurance coverage, since the production of hand sanitizer could be considered a change in the company’s line of business. The first step is to review your current policy to see if it already covers other manufacturing activities. If not, the next step would be to contact your insurer to revise the policy. If hand sanitizer is produced in accordance with the HHS policy described above the insurance company may not have any issue, as it may view those activities as a lesser risk than cannabis processing. In that case the insurance premiums should, at worst, remain steady.

It’s great to see cannabis companies doing their part to alleviate shortages of hand sanitizer, and attorneys at Fox are ready to help protect those companies that choose to produce sanitizer to protect others.

Cannabis companies have been locked out from most of the COVID-19 relief loan and grant programs due to their legal status at the federal level. Those companies, however, are not prohibited from some tax relief provided in the CARES Act and provided by most states. Here, we have compiled a list of the tax relief offered by each state with a legal cannabis program. The tax relief provided by the CARES Act and the states will most likely not help as much as it would having access to the other relief programs, but hopefully they can offer some breathing room while navigating this pandemic.

Yesterday, several adult-use marijuana establishments, and one medical marijuana patient, filed suit against Massachusetts Governor Charlie Baker requesting preliminary and permanent injunctive relief challenging his Covid-19 Order No. 13 and Covid-19 Order No. 21 (Orders) issued in relation to the current COVID-19 pandemic.

The Orders closed adult-use retail establishments at noon on March 24, and won’t allow them to reopen, at the earliest, until May 4.  The Orders, however, declared that medical marijuana establishments (MME) and liquor stores were “essential businesses” and permitted that they remain open during the crisis. The public rationale the Governor provided for this decision was to deter out of state residents from coming to Massachusetts to buy weed, as it is the only state in the region to allow recreational sales.  Specifically the Governor stated:

If we make recreational marijuana available, we are going to have to deal with the fact that people are going to come here from all over the place, across the northeast and create issues for us with respect to the fundamental issue we are trying to solve for here — which is to stop the spread…

Massachusetts seems to be the only state that has deemed medical marijuana essential but adult-use/recreational marijuana non-essential.  States such as California, Colorado and Illinois have declared both medicinal and recreational establishments “essential,” and states like Michigan and Alaska have permitted licensed cannabis businesses to remain open (for a more detailed analysis regarding the current status of cannabis businesses around the country see the Fox Cannabis Group’s alert, which can be found here).

The crux of the plaintiffs’ argument is that the Orders are an equal protection violation under both the United States and Massachusetts Constitutions.  Plaintiffs allege that “by classifying adult-use marijuana establishments as non-essential, while classifying similar regulated businesses—such as liquor stores and medical marijuana dispensaries—as essential, the Executive Orders violate the constitutional rights of the plaintiffs and exceed the Governor’s executive authority.” They argue that there is no legitimate or rational basis to allow liquor stores and MMEs to remain open while mandating that adult-use stores close their doors, or to differentiate between the people who frequent those stores.

Despite Massachusetts adult-use operators pledging that they are willing to follow social distancing guidelines, implement curbside pickup and appointment only sales, and only sell to Massachusetts residents, Governor Baker has stuck with his decision in the Orders.  As a result, the plaintiffs say the Orders have effectively closed 43 licensed stores, employing approximately 8,000 people, and prevented at least 21 provisionally licensed stores from opening.

We have previously written about the fact that marijuana-based cannabis companies will not be eligible for SBA loans or other federal loan assistance issued under the CARES Act.  The Fox team has prepared a summary of some state law alternatives which cannabis companies are eligible for, which can be found here.

 

109396039 – black market of drugs trade, dollars and cannabis concept photo

Cannabis companies operating in the marijuana space face some unique difficulties when it comes to the COVID-19 crisis.   As my colleague posted about last week, those companies will not be able to take advantage of the SBA loans offered under the CARES Act.  It is likely they will also not be able to access the CARES Act’s payroll protection loans because those loans are administered by the SBA.  Companies operating in the hemp space should be able to take advantage of the various loan programs.  The Fox team has prepared a list of state loan programs that cannabis companies may be able to take advantage of.

Although marijuana businesses may not receive the financial benefits of the CARES Act, they must comply with the CARES Act, the Families First Coronavirus Response Act (FFCRA), and  other related legislation. Fox has a number of resources covering these requirements in our Coronavirus Resource Center, including this recent piece focusing on certain FFCRA requirements and small business exemptions from FFCRA.

The Illinois Department of Agriculture recently released a policy for cultivators regarding the use of hemp in medical and adult use cannabis products.  The complete version of the policy can be found here. The policy will be in effect through October 31, 2020, although it is subject to change at any time by the Department.

First, the policy clarifies that the term “cannabis” does not include industrial hemp as defined and authorized under the Illinois Industrial Hemp Act. Under that Act, the term “industrial hemp” means any part of the cannabis plant, whether growing or not, which has a Delta-9 THC concentration of less than three percent, on a dry weight basis, and that has been cultivated under a license issued under the Industrial Hemp Act or is otherwise lawfully present in Illinois.

The policy provides that cannabis business organizations licensed to cultivate, grow, process, manufacture and/or infuse medical and/or adult-use cannabis (collectively, “Cannabis Cultivation Centers”) that wish to use industrial hemp (e.g., add industrial hemp CBD to cannabis products) must obtain a Hemp Processor’s Registration through the Department of Agriculture.

Once a Cannabis Cultivation Center obtains such license, it can purchase and extract industrial hemp flower and biomass from licensed growers and/or processors in Illinois or any other state with a regulated industrial hemp program. If requested by the Department of Agriculture or the Illinois State Police, Cannabis Cultivation Centers must provide a copy of the applicable hemp grower or processor’s state license for any purchased hemp flower or biomass.

The industrial hemp may be procured and/or processed in distillate or isolate form solely as an ingredient in cannabis-infused products offered for sale to licensed dispensaries, and may not be sold to dispensaries in hemp flower form.  All processed hemp derivatives must be accompanied with a certificate of analysis showing potency levels for Delta-9 THC, THCa, CBD and CBDa, and representative samples of all final products containing industrial hemp or hemp derivatives must undergo the same testing required for other medical and adult-use cannabis products.

As mentioned above, the policy is subject to change at any time by the Department of Agriculture. We will provide updates on this blog regarding any future changes.

  

On March 28th, Illinois Governor JB Pritzker issued an Executive Order extending the deadline for submitting applications for adult use Craft Grower, Infuser and Transporter licenses until April 30, 2020 and directing all applications to be submitted via certified mail. Applications delivered in person or sent via FedEx or UPS will not be accepted. Additional details are available at the Department of Agriculture’s website.