Cannabis Law Prof Blog

Editor: Franklin G. Snyder
Texas A&M University
School of Law

Friday, September 14, 2018

Crackdowns of black market operations in legalized territory are amping up

AaaOperating a dispensary without a license? Beware! Los Angeles and several other California cities are increasing efforts to stop cannabis operations that continue to operate without a license.

Officials initially issued warnings to the many perpetrators, but after many months of noncompliance, LA is now filing criminal charges against various retailers, growers, and delivery services. 

The Los Angeles Daily News reports that earlier this month, prosecutors there have charged 515 people for helping to run 105 illegal marijuana operations: 

“Our message is clear: If you are operating an illegal cannabis business you will be held accountable,” Los Angeles City Attorney Mike Feuer said.

It’s widely believed that Los Angeles has the world’s biggest marijuana market, and businesses have thrived for years under the state’s loose medical marijuana laws. But since the start of the year, new California laws have required all cannabis businesses to have both a state and city license to operate — licenses that can add costs to operations in the form of fees, testing requirements and hefty taxes.

The new laws also let cities regulate the marijuana industry, and many cities so far have opted against allowing such operations. Los Angeles, however, began licensing retail outlets in late January and most other types of marijuana businesses on Aug. 1. As of Friday, the city said 163 businesses have been given temporary licenses to operate.

But that represents just a fraction of the overall marijuana market, and for the past eight months, the City Attorney’s office coordinated with the Los Angeles Police Department to identify and investigate businesses that were operating without licenses. Most are retail shops, the City Attorney’s office said, but action also was also taken against marijuana growers, extraction labs and delivery services.

California and other legalized states, like Washington, and Colorado, continue to struggle with black market operations well after legalization has taken effect. In an effort to level the playing field, Los Angeles and other cannabis officials say they will take all measures necessary to crackdown on illegal operations. The 120 criminal cases recently filed in LA are intended as a loud and clear signal to all cannabis operators that they must follow the licensing regulations, or face the consequences. 

--Manda Mosley Maier


September 14, 2018 in Business, Commercial Law, Drug Policy, Law Enforcement, Local Regulation, News, State Regulation | Permalink | Comments (0)

Thursday, August 23, 2018

Cannabis Law Institute program set for September in DC

Cannabis Law Institute
The National Cannabis Bar Association's "Cannabis Law Institute" is just two weeks off. 
The two-day event features more than 70 speakers from the legal, business ,and political worlds, and looks to have some terrific programming.  Check out the conference web site for schedules, registration, and other information.

I'll be seeing you there!

--Frank Snyder

August 23, 2018 in Banking, Business, Commercial Law, Decriminalization, Drug Policy, Federal Regulation, Legal Education, Legal Ethics, Medical Marijuana, Politics, Recreational Marijuana, State Regulation | Permalink | Comments (0)

Saturday, January 9, 2016

No Trademark for “THC Tea” . . . Because It Does Not Contain THC

AIt’s well known that applicants have stuck out repeatedly with the U.S. Patent & Trademark Office in trying to register trademarks for cannabis products.  The PTO reasons that because marijuana is illegal under federal law, that same federal law shouldn't be use to protect band names in an illegal product.  (Think of it like getting an actual trademark on "Murder, Inc.")

But marijuana culture is cool and edgy, so what about applicants who sell legal products but want to capitalize on the coolness of marijuana?

Well, they lost a round last fall in front of the Trademark Trial & Appeals Board, in a case involving something called "THCTea." The product itself had no THC in it, and therefore didn’t run afoul of the rules prohibiting trademarks for illegal substance. But because (again) it had no THC in it, the product ran afoul of the rules banning deceptive trademarks. The net result seems to be that you can’t get a trademark for a cannabis product, and you also can’t get a trademark for a non-cannabis product that pretends to be one.

Trademarks in this area are confusing, but Chicago lawyer Scott Slavick of Brinks Gilson & Lione has a very nice piece in Inside Counsel (free registration required) on the nuances of the THCTea case and the problems of deception in this area.  Recommended.

January 9, 2016 in Advertising, Business, Commercial Law | Permalink | Comments (0)

Saturday, November 29, 2014

The "Pandora's Box" of Marijuana and Insurance

We've mentioned before the problems quasi-legal marijuana has for insurers and their insureds.  Fox Business has a nice rundown of the issues involved.  There's not much new, but it's a good overview.  Here's a sample:

Conflicting laws a 'huge Pandora's box'

    Where does this awkward federal-state split over marijuana enforcement leave consumers and insurers?

    "I think the problem is a huge Pandora's box, and nobody wants to touch it," says Brenda Wells, director of the risk management and insurance program at East Carolina University in Greenville, North Carolina.

    Wells researched the legal precedents of pot-related insurance claims in her 2014 paper, "Marijuana Legalization: Implications for Property/Casualty Insurance." She found that, perhaps surprisingly, standard home and personal auto policies contained no exclusions of coverage for marijuana-related losses -- at least not yet.

    That means your home insurance conceivably could be made to pay for the loss of your medical pot or the theft of your recreational stash in states that have legalized marijuana. The same could hold true for pot that goes up in smoke in a home fire, although proving it was there pre-inferno could be a challenge.

Homeowners coverage for pot plants?

    Wells says even backyard growers may be covered, though maybe not generously, under current policy boilerplate.

    "You have a limit in your standard homeowners policy of $500 for trees, shrubs or bushes, so the insurer possibly could limit it under that," she says.

    Similarly, a homeowner's liability coverage could come into play for damages caused by a guest who drives home stoned, or legal actions arising from exposing a child to the drug.

    "If they're using the standard forms in places like Colorado and Washington and they haven't reworded them, right now they would have to cover marijuana for loss or theft," says Wells. "If the insurance industry is smart, they're going to put an exclusion in the standard policy. ... If they don't, they could be on the hook for some big claims."

One caveat to this that the article doesn't note.  Yes, you might get these positive results in state courts, who would treat marijuana as legal for state-law purposes.  But many insurers have the ability to move cases to federal court (because they are not resident in all the states they do business) and federal courts have been holding that covering marijuana losses is not permissible under federal law.

November 29, 2014 in Business, Commercial Law | Permalink | Comments (0)

Wednesday, November 19, 2014

Upcoming Session on "Financial Planning for Your Marijuana Business"

Starting any new business is risky.  Starting a new business that the federal government still considers a felony, and in which most of the legal rules that govern other businesses don't apply or are seriously unsettled, only raises the risk.

Bold entrepreneurs are finding it worth doing, but they obviously need to do what they can to limit their risk.  Potential Washington business owners have got a special program coming up this Saturday that sounds like it will be worthwhile:

    Members of the professional cannabis world in Washington have an opportunity this weekend to attend a special event organized by the Marijuana Business Association (MJBA) and hosted at the Bellevue, Washington Red Lion.  Entitled “Dollars & Sense of Risk & Financial Planning for Your Cannabis Business,” the event is slated to run from 9am to 5 pm this Saturday, November 22nd and features educational presentations from established financial professionals.

    The event will be limited to 100 participants, but there are still some spaces available. The smaller size of the event allows for audience members to ask direct questions of the presenters. There will be professionals from Cornerstone Financial Group, Salal Credit Union, CIPS, Cannabis Commodities Exchange, and Cannabis Merchants present, among others. The experts will be speaking on a wide range of topics, from insurance and taxes to business planning and development.

    Unlike some educational or networking events in the cannabis industry, this “Dollars & Sense” event stands out because despite limiting attendance to 100 participants, there is no ticket fee to I-502 licensees or applicants or those who have memberships to the Marijuana Business Association. For those interested in the cannabis industry who haven’t actually taken the plunge yet, tickets are only $10 (plus processing fees).

    You can purchase or reserve tickets via the Eventbrite page for financial planning event.

The event is free to MJBA members and I-502 applicants; price for the general public is $10.

November 19, 2014 in Banking, Business, Commercial Law, Contracts, Medical Marijuana, Recreational Marijuana, State Regulation | Permalink | Comments (0)

Monday, November 10, 2014

Can Cannabis-Related Debt be Discharged in Bankruptcy?

COURTS, AS WE'VE NOTED RECENTLY, have tended to say "no."  But a student comment by Vivien Cheng of Emory Law School, Medical Marijuana Dispensaries in Chapter 11 Bankruptcy, surveys the whole field and makes the opposing case.  Here's the abstract:

Since California passed the Compassionate Use Act of 1996, the interaction between state and federal medical marijuana laws have been a subject of frequent legal debate. But few have considered whether state-compliant medical marijuana dispensaries may seek assistance from the bankruptcy system. Two dispensaries recently tested their ability to reorganize under chapter 11 of the Bankruptcy Code, but the cases were quickly dismissed. The U.S. Trustees argued that the debtors’ business activities constituted “cause” to dismiss, lack of good faith in filing, and a “means forbidden by law,”and left the debtor with little reasonable chance of success.

This Comment argues that the requirements in §§ 1112(b), 1129(a)(3), and 1129(a)(11) to propose and confirm a chapter 11 plan do not foreclose bankruptcy protection for a medical marijuana business. Since medical marijuana dispensaries are legitimate businesses under state statute, there should be no lack of good faith or cause to dismiss the case under § 1112(b). Therefore, chapter 11plans should also be confirmable since § 1129(a)(3) does not bar confirmation of plans based on the legality of the plan’s specific terms, but rather on the legality of the manner of the plan’s proposal. Such a plan should not be per se infeasible under § 1129(a)(11), although the risk of federal intervention may be a factor weighing against a finding of feasibility.

Even if a court decides to assess the substance of a dispensary’s plan, they may use their discretion to give greater weight to state rather than federal law. Successful state legalization despite federal prohibition suggests the federal government’s tacit acceptance of state-compliant dispensaries. Courts should allow dispensaries to pursue bankruptcy to satisfy more creditors and preserve a regulated medical marijuana market that protects patients and produces positive externalities for society. Debtors should be allowed to fund their repayment plans with state-compliant medical marijuana sales and leave constitutional challenges of state legalization policies to their proper forums. One group of marijuana business attorneys noted that if “bankruptcy courts develop a policy of denial of bankruptcy relief to medical cannabis entities, the legitimacy of the industry itself will continue to be stymied.”

H/T Rebecca Pressman

November 10, 2014 in Business, Commercial Law | Permalink | Comments (0)

Wednesday, October 15, 2014

Scheuer on Marijuana and Business Entity Law

ScheuerTHE DUAL LEGAL STATUS OF MARIJUANA in many states causes no end of conundrums for lawyers, particularly those who do business transactional work.  Such simple things as drafting contracts, setting up LLCs, handling real estate purchases -- the ordinary things business lawyers do every day -- can lead to potentially disastrous liability for lawyers if the business is involved in marijuana.

In a new paper, "The 'Legal' Marijuana Industry's Challenge for Business Entity Law," forthcoming in the William & Mary Business Law Review, Widener-Delaware's Luke Scheuer takes a look at some of the problems and offers his thoughts on a solution.  Here's the abstract:

In recent years many states have legalized the use and sale of marijuana for medical or even recreational purposes. This has led to the booming growth of a “legal” marijuana industry. Businesses openly growing and selling marijuana products to the consuming public are faced with some unusual legal hurdles. Significantly, although the sale of marijuana may be legal at the state level, it is still illegal under federal law. This article explores the conflict between state and federal marijuana laws from a business entity law perspective. For example, managers owe a fiduciary duty of good faith to their businesses and equity holders. One of the ways in which managers can violate this duty is by causing their business to intentionally violate the law. This is a problem for the marijuana industry because its managers constantly and intentionally violate federal law and therefore violate their fiduciary duties by growing and selling marijuana. This article concludes that the industry’s ability to attract professional stakeholders is harmed by marijuana business stakeholders’ inability to take advantage of key business law protections, such as limited liability. This article proposes a state law exception that allows for marijuana businesses to operate normally under state business entity law, with normal business entity law protections, despite their continuing violation of federal law.

October 15, 2014 in Business, Commercial Law | Permalink | Comments (0)