Medical Cannabis Producers Enter Settlement to Resolve Allegations of Pervasive Irregularities. A group of Missouri-based medical cannabis producers including Archimedes Medical Holdings LLC, Holistic Health Capital LLC and FUJM LLC reached a comprehensive settlement agreement with the Missouri Department of Health and Senior Services to resolve alleged regulatory violations at the licensees’ facilities. The alleged violations involve “pervasive irregularities” that prevented regulators from evaluating whether products from the licensees’ cultivation facilities were properly tested for quality and safety, security camera outages that were not reported to regulators, and improper use of pesticides on their products.
Among other things, the settlement requires the licensees to surrender several of their facility licenses and ensure that remaining products are either destroyed or transferred to another licensed manufacturing facility for processing. In addition, the licensees must execute a management agreement with a third-party operator to manage and operate the remaining facilities that the department will continue to permit in compliance with state law. Further, the settlement requires the licenses be fully transferred by the end of November 2022 or they will be automatically surrendered on Dec. 1, 2022. Notably, as part of the settlement, the primary licensees will be ineligible for future licenses.
California Steps Up Tax Collection Efforts. The California Department of Tax and Fee Administration (CDTFA) has stepped up its attempts to collect about $200,000 in unpaid taxes from both illegal and licensed cannabis operations. The CDTFA has launched raids and auctioned off seized properties to collect unpaid taxes from illegal businesses that undercut legitimate businesses by skipping taxes and the licensing process. One of the CDTFA’s newest approaches is seizing and auctioning commercial properties connected to the illegal cannabis operations. The CDTFA auctioned three commercial properties related to illegal cannabis operations between March and May 2022, for a total of $616,000.
The CDTFA plans to escalate tax enforcement against legal cannabis businesses. The CDTFA has indicated that it cast a wide enforcement net to identify illegal businesses by partnering with agencies, such as the California Highway Patrol, local law enforcement, licensing authorities and other government agencies. CDTFA allows for anonymous online complaints and states that it has seized more than $32 million in cash and products since 2020.
U.S. Treasury Seeks Comment on Collecting Marijuana-Related Business Activity Information. On June 8, 2022, the U.S. Department of the Treasury’s Office of the Comptroller of the Currency (OCC) issued a notice and request for comment that proposes six new product, services and customer (PSC) categories to include on OCC’s annual risk summary form (RSF). PSCs are categories on an RSF to classify business based on known areas of anti-money laundering compliance issues. The new PSCs include cash transactions, marijuana-related businesses, ATM operators, crypto assets and stablecoin. The RSF assessment tool is designed to help OCC and a bank determine customer type for large risk analysis. OCC is asking banks to review any marijuana-related business information and include it on the annual RSF. It remains to be seen how this will develop. OCC is taking comments through Aug. 8, 2022.
In May 2020, OCC issued Supervisory Memorandum 2020-03 addressing frequently asked questions (FAQ) about financial services for marijuana-related businesses. In one FAQ, OCC addresses expectations for banks that choose to provide financial services to marijuana-related businesses. Such expectations include compliance with Bank Secrecy Act requirements for detecting and reporting transactions that are suspicious under federal law. These include, among others, conducting customer due diligence, assessing money laundering and terrorist financing risks and implementing appropriate oversight and monitoring controls.
New York Senate Bill Would Mandate Medical Marijuana Health Insurance Coverage. On June 1, 2022, the New York State Senate approved Senate Bill S8837, which would require public payor health insurance programs to cover medical marijuana and would clarify that private or commercial payors also may decide to cover medical marijuana under their plans.
The bill would amend Public Health Law § 3368 to deem medical marijuana a “prescription drug,” “covered drug” or “health care service,” as necessary to authorize coverage under public healthcare payors, including Medicaid and workers compensation programs, among other public programs. Only public payor programs would be required to cover medical marijuana. The bill states that public health plans would be required to cover medical marijuana regardless of federal financial participation (FFP) in the health coverage plan. The state of New York already pays for the full cost of services not eligible for an FFP contribution for patients under public payor programs. The bill also would authorize the commissioner to certify medical marijuana dispensing sites as Medicaid providers solely for dispensing medical marijuana.
The policy justification the bill’s authors provide is that medical marijuana is safer and more effective as a medication than other drugs, especially opioids. The bill’s authors also seek to address the out-of-pocket expenses necessary to purchase medical marijuana as one of the primary barriers for patients to access New York’s medical marijuana program. By requiring public payors to cover the cost of medical marijuana, the public will have more access to the medical marijuana program. The bill still must pass the New York State Assembly before it can be delivered to the governor and signed into law.
Grassroots Federal/State Legislative Highlights
Connecticut Bans Commercial Gifting of Cannabis Products and Restricts Cannabis Advertising. Connecticut’s Public Act No. 22-103, signed by Gov. Ned Lamont on May 24, 2022, bans commercial gifting of cannabis products in the state. It provides that no person shall gift, sell or transfer cannabis to another person in any of the following circumstances:
- To induce, or in exchange for, any donation for any purpose, including but not limited to any charitable donation or any donation made to gain admission to an event.
- At any location, other than a dispensary facility, retailer or hybrid retailer
- where a consumer may purchase any item other than cannabis, a cannabis product or services related to cannabis; or
- that requires consideration, including but not limited to membership in any club, in order to gain admission to such location.
- As part of any giveaway associated with attendance at an event, including but not limited to a giveaway made by way of a door prize, goodie bag or swag bag.
The law allows municipalities to levy fines up to $1,000 per violation. Of note, the law does not outlaw “any gift of cannabis between individuals with a bona fide social relationship, provided such gift is made without consideration and is not associated with any commercial transaction.”
The law makes a few other noteworthy changes to the Connecticut cannabis landscape. First, it amends the regulations for medical cannabis, adding physician assistants to the list of providers who may issue written certification for medical use. Second, the law imposes new restrictions on advertising, providing that cannabis establishments may not advertise using image or visual representation of the cannabis plant and may not “engage in any advertising by means of electronic or illuminated billboard between the hours of six o’clock a.m. and eleven o’clock p.m.”
Connecticut’s adult-use legalization bill was signed by Gov. Lamont in June 2021, but adult-use sales have not yet opened in the state.
Delaware Unsuccessful in Overturning Governor’s Cannabis Veto. On June 7, 2022, Delaware lawmakers failed to overturn a motion to repass the governor’s veto of House Bill 371. House Bill 371 successfully passed in May but was subsequently vetoed by the governor. House Bill 371 would have removed all penalties for possession of one ounce or less of marijuana for anyone over 21. Possession of more than one ounce and public consumption would have remained an unclassified misdemeanor.
While vetoing the bill, the governor stated that he recognizes the positive effect marijuana can have for people with certain health conditions, and for that reason, supports the medical marijuana industry in Delaware. Even so, the governor stated that he does do not believe promoting or expanding the use of recreational marijuana is in the best interests of the state of Delaware and that concerns remain about the long-term health and economic impacts of recreational marijuana use, as well as serious law enforcement issues.
Washington, D.C., Bill Would Limit Disciplinary Measures Based on Failed Marijuana Tests. On June 7, 2022, the city council of the District of Columbia unanimously passed the Cannabis Employment Protections Act of 2022, which, if signed into law, would prohibit employers from “refus[ing] to hire, terminat[ing] from employment, suspend[ing], fail[ing] to promote, demot[ing], or penaliz[ing] an individual” due to the employee’s:
- “use of cannabis”;
- “status as a medical cannabis program patient”; or
- having “the presence of cannabinoid metabolites in [the individual’s] bodily fluids in an employer-required or requested drug test without additional factors indicating impairment.” “Impairment” for purposes of the bill is defined as where “the employee manifests specific articulable symptoms while working, or during the employee’s hours of work, that substantially decrease or lessen the employee’s performance of the duties or tasks of the employee’s job position, or such specific articulable symptoms interfere with an employer’s obligation to provide a safe and healthy workplace as required by District or federal occupational safety and health law.”
Employers also would be required to evaluate a qualifying employee’s use of “medical marijuana to treat a disability in the same manner as it would treat the legal use of a controlled substance prescribed by or taken under the supervision of a licensed health care professional.”
The bill would apply to all private employers in D.C., defined as any person who “for compensation, employs an individual,” and “any person acting in the interest of such employer, directly or indirectly,” but would not apply where the person employed is “the employer’s parent, spouse, or children engaged in work in and about the employer’s household.” The bill also would apply to certain public employers, including D.C. government, but excluding the D.C. court system and the federal government.
Employees that would be covered by the bill include “any individual employed by or seeking employment from an employer and shall include unpaid interns.” However, the bill would not cover any employee whose “position is designated as safety sensitive.” A “safety sensitive” position is defined as “an employment position as designated by the employer, in which it is reasonably foreseeable that, if the employee performs the position’s routine duties or tasks while under the influence of drugs or alcohol, he or she would likely cause actual, immediate and serious bodily injury or loss of life to self or others.” Such positions would include but are not limited to security officers, police officers, construction workers, power/gas line maintenance workers, employees handling hazardous materials, caretakers, medical practitioners and workers whose jobs require them to frequently operate heavy or dangerous machinery.
The bill would not cover employers’ action(s) taken in response to and/or required by a federal statute, federal regulation or federal contract or funding agreement.
Furthermore, an employer would be permitted to take disciplinary or other adverse action against an employee regardless of whether the individual is employed in a “safety sensitive” position if the employee uses, consumes, possesses, stores, delivers, transfers, displays, transports, sells, purchases or grows cannabis at the employee’s place of employment, while performing work for the employer, or during the employee’s hours of work, or where the employee is “impaired” by the use of cannabis.
The bill would permit employers to adopt a reasonable drug-free workplace or employment policy that:
- requires post-accident or reasonable-suspicion drug testing of employees for cannabis or other drugs;
- requires drug testing of employees in safety sensitive positions;
- is necessary to comply with federal law (including the Drug Free Workplace Act of 1988), a federal contract or funding agreement, if applicable to the employer;
- prohibits the use, consumption, possession, storage, delivery, transfer, display, transportation, sale, purchase or growing of cannabis at the employee’s place of employment, while performing work for the employer or during the employee’s hours of work; or
- prohibits employees from being impaired at the employee’s place of employment, while performing work for the employer or during the employee’s hours of work.
If the bill passes, employers must notify their employees of their new rights under the legislation and whether they are designated as “safety sensitive” employees, within 60 days of the applicable date of the law and annually thereafter, as well as upon hire for new employees.
For employer violations of the measure, employees would be permitted to file a complaint with the D.C. Office of Human Rights within one year after the alleged act of noncompliance. Employers could face penalties ranging from $1,000 to $5,000 per violation (with double penalties if an employer violated the measure’s provisions more than once in the previous year), as well as payment of lost wages and reasonable attorney’s fees. In addition to the above, equitable relief, including reinstatement, would be a remedy. Employees also would be permitted to file a private cause of action for failure to comply, after exhausting administrative remedies. The bill also would empower the attorney general to receive and investigate complaints under the measure.
Minnesota Legalizes Hemp-Derived Food and Drink Products. On June 2, 2022, Minnesota Gov. Tim Walz signed a bill legalizing non-intoxicating cannabinoids in consumable products. Specifically, the new law allows up to 5 milligrams of any tetrahydrocannabinol in a single serving or up to 50 milligrams of any tetrahydrocannabinol per package. Edible products must meet specific testing and labeling requirements.
In addition, such products may not, among other things: (i) bear the likeness or contain cartoon-like characteristics of a real or fictional person, animal or fruit that appeals to children; (ii) be modeled after a brand of products consumed or marketed to children; (iii) be made by applying an extracted or concentrated hemp-derived cannabinoid to a commercially available candy or snack food item; or (iv) contain an ingredient other than a hemp-derived cannabinoid that is not approved by the U.S. Food and Drug Administration for use in food. Packaged food products must be in packaging or a container that is child-resistant. The changes become effective July 1, 2022.
Pennsylvania Lawmakers Evaluate State Tax Relief for Medical Marijuana Businesses. On June 7, 2022, the Pennsylvania legislature approved an amendment to Senate Bill 347 to amend the state tax code to allow medical marijuana businesses to deduct from taxable income ordinary and necessary expenses that were paid or incurred during the taxable year for state taxes. Although this does not address federal Internal Revenue Service Code 280E restrictions, it is a step toward providing some tax relief for state businesses. Additional information on Pennsylvania’s medical marijuana taxes is available on the Pennsylvania Department of Revenue website.
“In the Weeds” is McGuireWoods’ biweekly ounce of highlights in the budding cannabis, hemp and CBD industries. For more information, see our newsletter archive, our Edible Bites podcast series (available on Apple and Spotify), or visit our Cannabis, Hemp & CBD practice.