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.

On March 23, the federal Small Business Administration (SBA) stated that cannabis businesses will not be eligible for loans under its Economic Injury Disaster Loan (EIDL) Program, despite expanding the program in response to COVID-19 (Coronavirus). However, the SBA noted that businesses that produce or sell hemp and hemp-derived products may apply for such loans.

In the Weeds - The Fox Rothschild Cannabis Law Blog

An EIDL can provide low-interest financial assistance to a business that suffers substantial economic harm as a result of a federally-declared disaster. In the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, Congress included provisions allowing the SBA to provide EIDLs to businesses affected by the Coronavirus, and President Trump announced that he authorized the SBA to offer an additional $50 billion of such loans.

As a testament to the fast-paced environment in which businesses and government find themselves in the wake of the Coronavirus, the “announcement” came in the form of tweets from the SBA’s Pacific Northwest division:

When asked to provide their reasoning, the SBA pointed to the federal prohibition on marijuana:

Given the federal government’s stance on marijuana, this policy seems unlikely to change. However, additional developments or a more formal announcement from the SBA could shed light on  more nuanced situations (for example, a parent company that does not “touch the plant” or an entity that produces both cannabis and hemp products). We will continue to keep apprised of any developments from the SBA. Stay tuned…

Every business and individual has been or will be impacted by the 2019 novel Coronavirus that causes the disease known as COVID-19. The legal questions and concerns raised by this ongoing, widespread and unpredictable crisis are changing day to day. Fox attorneys are closely monitoring the legal and regulatory landscape to provide our clients with useful information to assist in their plans. For more information, see Fox Rothschild’s Coronavirus Resource Page.

Like all businesses navigating the current COVID-19 crisis, cannabis companies are eager to understand how state and local orders will impact their operations.  As states issue orders requiring all but essential businesses to close, a key question is whether cannabis businesses can continue to operate.

Some states have explicitly included cannabis companies as essential businesses, while others have not given explicit guidance.   The Fox Cannabis Group is closely following the evolving landscape and team members have prepared an alert regarding the current status in key states, which can be found here.

In recent days, the Governors of both New Jersey and Pennsylvania have ordered the closure of certain businesses deemed non-essential as part of each state’s COVID-19 mitigation efforts. Further guidance from both states has made clear that medical marijuana dispensaries are deemed essential businesses and can remain open until further notice.

Medical cannabis

The official within New Jersey Department of Health who oversees the program confirmed last week that all dispensaries in the state will remain open. In Pennsylvania, Governor Wolf’s announcement indicated that pharmacies and other healthcare facilities were deemed “essential.” The Pennsylvania Department of Health later clarified in a statement that medical marijuana dispensaries fall into the same classification as pharmacies, and can remain open as essential businesses.

Dispensaries in these states (and nationally) have taken measures to ensure “social distancing,” such as limiting the number of individuals who may enter the dispensary at once and prohibiting patients from entering if they are exhibiting symptoms of COVID-19. Licensed dispensaries should consider enacting similar measures in order to mitigate the potential for exposure to COVID-19 by its employees and customers. Fox Rothschild has created several resources for business seeking to implement a Coronavirus response plan, which can be found here.

Every business and individual has been or will be impacted by the 2019 novel coronavirus that causes the disease known as COVID-19. The legal questions and concerns raised by this ongoing, widespread and unpredictable crisis are changing day to day. Fox attorneys are closely monitoring the legal and regulatory landscape to provide our clients with useful information to assist in their plans. For more information, see Fox Rothschild’s Coronavirus Resource Page.

Illinois Craft Grower, Infuser and Transporter Applications are Now Due March 30, 2020

 On March 12th, due to concerns about COVID-19, Illinois Governor JB Pritzker issued an Executive Order extending the deadline for submitting applications for adult use Craft Grower, Infuser and Transporter licenses by two weeks, until March 30, 2020. The Executive Order also directed all applications to be submitted via USPS certified mail. Applications delivered in person or sent via FedEx or UPS will not be accepted.

Ohio Company Accused of Misrepresenting Minority Ownership

In Ohio, a cannabis company was accused of misrepresenting its ownership structure in order to qualify as a minority-owned business. The company is 51% owned and controlled by a businesswoman who is a member of an “economically disadvantaged group.” However, the Ohio Board of Pharmacy claimed the businesswoman was only a 51% owner on paper, that she did not actually own and control the company and that the company committed fraud, misrepresentation or deception by including this ownership information in its application. The company did not admit to any violations or wrongdoing and resolved the issue by submitting an amended and restated operating agreement and agreeing to make a $500,000 donation to the Ohio Automated Rx Reporting System.

Social Equity Status in Illinois

Illinois’ cannabis applications are competitive, where licenses are granted based on a competitive scoring process. For new adult use licenses (dispensaries, craft growers, infusers and transporters), an applicant’s social equity status accounts for 20% of the available application points. Thus, most applicants attempt to qualify for social equity status. For example, applications for Illinois’ new 75 adult use dispensaries were due on January 2, 2020 and the Illinois Department of Financial and Professional Regulation reported that over 700 applicants submitted applications and that 600 of those applicants identified as qualifying for social equity status (those 75 licenses will be awarded on or before May 1, 2020).

There are three ways to qualify as a social equity applicant in Illinois:

  1. 51% ownership and control by one or more individuals who have resided for at least 5 of the last 10 years in a Disproportionately Impacted Area;
  2. 51% ownership and control by one or more individuals who: (i) have been arrested for, convicted of, or adjudicated delinquent for any offense that is eligible for expungement under the Act; or (ii) is a member of an impacted family; or
  3. A minimum of 10 full-time employees with at least 51% of current employees who: (i) currently reside in a Disproportionately Impacted Area; or (ii) have been arrested/convicted/adjudicated delinquent for an expungeable offense.

Do Not Misrepresent Social Equity Status

The above Ohio example is a reminder that statements and representations in cannabis applications are investigated by regulators. In Illinois, if you apply as a social equity applicant and claim your company is 51% owned and controlled by a social equity owner(s), that owner(s) must truly own and control the day to day activities of the company. If they do not, expect an investigation from the regulators.

See this post by Fox’s Kenneth A Rosenberg and Nicole D. Espin regarding recent developments in workers’ compensation law in New Jersey.

Two recent developments may lead to New Jersey employers being required to reimburse the cost of medical marijuana for workers’ compensation recipients. In a case of first impression, New Jersey’s Appellate Division, in Vincent Hager v. M&K Construction, affirmed a July 2018 order handed down by a workers’ compensation judge requiring an employer to reimburse the cost of medical marijuana used to treat pain resulting from a workplace injury. Following this decision, the New Jersey legislature introduced A1708, which would require all workers’ compensation carriers (in addition to private passenger automobile insurance carriers) to cover the costs of medical marijuana.

The Appellate Division’s decision is particularly important as an in-depth analysis of the interplay between New Jersey and federal laws addressing marijuana. Employers can view the decision as a guidepost for how future courts might evaluate marijuana as a reasonable and necessary treatment in workers’ compensation cases. However, the proposed legislation could change this evaluation, as workers’ compensation patients seeking reimbursement for medical marijuana would be required to first try an alternative treatment method.

Vincent Hager v. M&K Construction

The petitioner, Vincent Hager, a construction worker who was employed by M&K Construction, suffered a spinal injury in 2001 when a concrete delivery truck inadvertently dumped its load on him.  After 15 years of treatment, including multiple surgeries, Hager developed an addiction to opioids, which he had been prescribed for the chronic pain caused by his injuries.  Then, in April 2016, a doctor prescribed him medical marijuana.  At trial, Hager testified that the marijuana provided partial relief of his symptoms and allowed him to remain opioid free.  Based in large part on this testimony, the workers’ compensation judge granted Hager’s request to be reimbursed for his medical marijuana expenses. M&K Construction appealed the workers’ compensation judge’s order and made several arguments to overturn it.

The Controlled Substance Act (CSA) Does Not Preempt New Jersey’s Jake Honig Compassionate Use Medical Cannabis Act (the Compassionate Use Act)

First, the construction company argued that the CSA preempts the Compassionate Use Act and the workers’ compensation order.  In analyzing this argument, the court considered whether the CSA preempts the Compassionate Use Act in the context of a workers’ compensation judge ordering an employer to reimburse the cost of medical marijuana.  In doing so, the court noted that the CSA expressly states that it preempts state laws where there is a “positive conflict” between the CSA and the state law such that “the two cannot consistently stand together.”

The court recognized the tension between the CSA and the Compassionate Use Act, but nonetheless determined that the CSA did not preempt the workers’ compensation order because M&K Construction could lawfully comply with the CSA while still reimbursing Hager’s medical marijuana expenses.

The CSA classifies marijuana as a Schedule I drug, and accordingly under federal law, marijuana is not recognized as having any accepted medical use. As a Schedule I drug, it is a felony to manufacture, distribute or possess marijuana. On the other hand, under New Jersey law, the Compassionate Use Act permits the use of medical marijuana to treat certain illnesses or conditions, so long as the patient is registered as a medical marijuana user with the state.

In accordance with the Compassionate Use Act, the workers’ compensation judge recognized that medical marijuana was a medical treatment for Hager’s injuries and ordered M&K Construction to reimburse its costs. This order, the court found, did not create a positive conflict with the CSA because it did not require M&K Construction to manufacture, distribute or possess marijuana. In other words, because “reimbursement” is not a violation of the CSA, M&K Construction could comply with the order without violating the CSA.

The court further found that the order did not require M&K Construction to aid and abet Hager in violating the CSA because, although it is a logical necessity that Hager has to possess marijuana to have a need for its reimbursement, M&K Construction would lack the specific intent required to establish liability for aiding and abetting.

There Is No Legitimate Risk of Federal Prosecution When an Employer Reimburses the Cost of Medical Marijuana

Second, M&K Construction argued that it should not be required to reimburse Hager’s medical marijuana costs because it would unfairly put it at risk of federal prosecution under the CSA.  The court found that there was no significant risk of federal prosecution to M&K Construction because, although a majority of states have enacted medical marijuana laws, there have been no federal prosecutions against employers or insurance carriers for the reimbursement of state-authorized medical marijuana treatment.

Workers’ Compensation Is Not Treated the Same as a Private Insurer Under the Compassionate Use Act

Third, M&K Construction argued that it should be treated the same as a private insurance carrier under the Compassionate Use Act, which states, “[n]othing in this Act shall be construed to require a government medical assistance program or private health insurer to reimburse a person for costs associated with the medical use of cannabis.”  M&K Construction reasoned that as a workers’ compensation payor, it was analogous to a private health insurer and should be granted similar protections. The Appellate Division, however, found that because New Jersey’s Life and Health Insurance Code states that “[h]ealth insurance does not include workmen’s compensation coverages,” that the legislature understood workers’ compensation and health insurance as separate and distinct under the law.  Thus, the court reasoned, when the legislature used the term “private health insurer,” it did not intend for it to encompass workers’ compensation.

Marijuana is a Reasonable and Necessary Treatment for Chronic Pain

Finally, M&K Construction argued that, in Hager’s case, medical marijuana was not a reasonable and necessary treatment.  The Appellate Division rejected this argument and accepted the workers’ compensation judges’ finding, which was based on medical testimony presented by both sides, and found that medical marijuana was “necessary ‘to cure and relieve [Petitioner] of the effects of the injury and to restore the functions of the injured member or organ,’” the standard under the Workers’ Compensation Act. Particularly, the court found that marijuana was a reasonable and necessary treatment in comparison to opioids, the only alternative treatment option for Hager’s chronic pain.

A1708 Legislation

A1708 was introduced in the legislature on February 13, 2020.  If passed, the bill would require all workers’ compensation carriers to reimburse the costs of medical marijuana.  Consistent with the Compassionate Use Act, A1708 would not affect government medical assistance programs or private health insurance carriers.

This legislation would memorialize the Appellate Division’s holding that workers’ compensation carriers should not be treated the same as private health insurance carriers under the Compassionate Use Act.

Additionally, A1708 would require patients seeking medical marijuana reimbursement to suffer from a “debilitating medical condition” and to have attempted at least one other medication or treatment that was unsuccessful in treating such condition.  While this additional requirement is in line with the court’s reasoning in Hager, it goes one step further and places an added burden on individuals who are seeking medical marijuana reimbursement that other workers’ compensation patients do not face.

The bill does not address whether the reasonable and necessary standard will still apply to workers’ compensation carriers’ challenges to requests for reimbursement.

Implications

The Appellate Division’s decision and introduction of A1708 reflect New Jersey’s continuing public shift in favor of acceptance of the use of medical marijuana.  As we previously reported, the legislature amended the Compassionate Use Act in July 2019 to grant employees protection from adverse action from their use medical marijuana.

The decision does not mean that employers will be required to reimburse medically prescribed marijuana for work-related injuries or illnesses in every instance.  Indeed, the court focused on whether marijuana was a reasonably necessary treatment for Hager’s chronic pain, in light of the fact that the only alternative was opioid use.  Accordingly, in the future, employers may be able to challenge the reimbursement of medical marijuana when alternative treatments are available that are as effective as (or more effective than) marijuana and/or whose side effects are comparable to (or less serious than) the side effects associated with marijuana use.

Further, if A1708 becomes law, all workers’ compensation patients seeking reimbursement for medical marijuana use will also have to establish that they first tried another medical treatment and that the treatment was unsuccessful in aiding their debilitating medical condition.

A significant data breach involving software that is widely used by cannabis dispensaries spotlights the industry’s critical need to secure its customers’ personally identifiable information. THSuites, which makes point-of-sale and management software used by dispensaries across the country, recently experienced a vulnerability that exposed customers’ full names, dates of birth, phone numbers, emails, addresses, signatures, cannabis varieties and quantities purchased, amount of money spent and transaction dates. An estimated 85,000 files were exposed. As the industry continues to grow, cannabis companies must focus on data security and ensure that their information security processes are scaled and properly encrypted to avoid the damaging consequences stemming from leaks of consumer data. Linked here is a Fox Rothschild alert on this issue.

Although consumer appetite for CBD-containing products continues to grow, and the market for such products correspondingly expands, 2020 may be another year in which the regulatory roadmap remains unsettled. On one hand, legal hemp production is is expected to increase, as the USDA is in the process of reviewing hemp production plans submitted by various States and Tribes authorized under the 2018 Farm Bill. Furthermore, a majority of states now allow the use of CBD, and a new bipartisan bill, H.R. 5587, sponsored by Rep. Collin Peterson (D-MN) has been introduced in the House of Representatives. The proposed legislation  (full text here) would amend Federal Food, Drug and Cosmetic Act to recognize edible hemp-derived CBD products as a dietary supplement.  Such developments would loosen some restrictions on the marketing of CBD products and surely support the growth of hemp-derived CBD industry in 2020.

On another front, the most recent budget request by the Trump Administration, combined with the increase in FDA warning letters in late 2019 alleging unlawful marketing of CBD products, indicates a turbulent regulatory path for manufacturers and sellers. The FDA previously expressed concerns that a lack of appropriate processing controls and practices in the industry pose a real risk to consumers. Yet, it has exhibited reasonable restraint in bringing enforcement or a litigation action against such companies, appearing to focus on those companies making the most serious types of medical claims about their CBD-containing products or using CBD as a food additive.

The Trump Administration budget request for 2020-2021 hints that such restraint may soon be tested. With the Administration appearing to earmark $5 Million to prioritize activities relating to the regulation of cannabis and cannabis derivatives, and simultaneously focusing on “tracking and tracing of food from farm to fork,”  the FDA will likely continue to ramp up its regulatory and enforcement efforts to review health and safety issues relating to the CBD containing products.

The Takeaway

We are witnessing a brewing conflict between Congress and the FDA about how to treat commercialization of the hemp-derived CBD products, with some uncertainty about what the future holds. While the regulatory frameworks governing this industry will not remain settled in 2020, what remains certain is that FDA will continue to initiate enforcement actions against companies that market their CBD products using unproven medical claims, and may target companies using CBD as an additive to food or drinks.

At Fox Rothschild and the In the Weeds blog, we will continue to follow these developments, and bring you the most up-to-date information on the “state of play” in the hemp and CBD industries. For further information about the FDA’s regulation of Cannabis and CBD-Containing Products, I encourage you to review this helpful page on the FDA’s website.

This post was co-authored by Shahnam Sharareh, PharmD, RAC, a Princeton, NJ-based Partner in Fox Rothschild’s Intellectual Property and Pharma & Biotech practices. Shahnam can be contacted at 609-844-3030 or ssharareh@foxrothschild.com

Joseph McNelis works in Fox Rothschild’s Blue Bell, PA office. He focuses his practice on labor and employment matters, and also tracks legal developments in the cannabis industry in Pennsylvania and nationwide. Joe can be contacted at 610-397-2332 or jmcnelis@foxrothschild.com.

Last week, the California Bureau of Cannabis Control (BCC) gave notice of proposed emergency regulations that will require retailers to display their Quick Response Code certificate outside their storefronts. Distributors and retail delivery drivers will also be required to carry the certificate while transporting cannabis. The certificate will be required to be in a format set forth in the proposed regulations, including that the certificate be able to be scanned on a smartphone from a distance of three feet.  

The regulations come in response to continued reports of injuries attributed to vaping products. According to studies cited in the BCC’s Finding of Emergency and Notice of Proposed Emergency Regulations, nearly all individuals with injuries who used vaping products containing THC purchased those products from unlicensed sources. The BCC concluded that the risk of harm is greater from THC vaping products purchased from unlicensed sources.

The proposed regulations are intended to educate consumers and enable them to ensure that they are purchasing from a licensed retailer. The BCC noted that illegal retailer businesses are often mistaken for legal businesses due to having a similar appearance or name. The BCC also noted that requiring the certificate to be carried by delivery drivers and distributors will enable employees, law enforcement and others to confirm that a business is licensed.

Throughout 2019, our Cannabis Law Group has helped guide and structure deals worth more than $2 billion, facilitated industry-shaping mergers and acquisitions and served as regulatory strategists to lawmakers in preparation for the far-reaching changes that come with legalizing medical and recreational cannabis.

Responding to the evolving needs of businesses in the legalized cannabis industry, the group publishes several valuable resources: two state-by-state surveys of marijuana laws – a National Survey on Marijuana Laws and Regulations and a National Survey on Marijuana in the Workplace and Drug Testing Laws; a Cannabis Industry State Tax Guide; and this blog, “In the Weeds,” that monitors developments in marijuana law and business.

As a testament to the services we provide our clients in this highly regulated industry, the firm’s Cannabis Law Group has been named a 2019 “Practice Group of the Year” by Law360. The prestigious list “honors the firms behind the litigation wins and major deals that resonated throughout the legal industry in the past year.”

To read more about this announcement, and Fox Rothschild’s Cannabis Law Practice Group, click here!