VLA Committee Recommends Changes to Adult Use Rules

Tuesday, June 18, 2019

The adult use rules necessary to launch Maine’s new market are still winding their way through the legislature, but they’ve been voted out of committee with a number of changes, and should be sent along (in one form or another) to the Governor in the next couple days. The majority report from the Veterans and Legal Affairs Committee contains the changes to the rules and some related changes to statute. This was handed out during amendment review in the committee yesterday.

While you can peruse the majority report for all the details, a couple of things stand out:
  1. The committee is amending statute to state that adult use edibles are not “considered to be adulterated” under Maine’s food code. This places adult use edibles in the same ranks as medical marijuana edibles and, though in different statute, foods containing CBD. 
  2. You’ll see that in Section 8 of the majority report, the legislature does not actually “redline” the rules created by the Office of Marijuana Policy. Rather, the OMP will receive these specific directives from the legislature, and it will be up to the OMP to put the rules in a final form consistent with these directives. This leaves a few things up in the air about the rules until we see the OMP’s final version. 
  3. The legislature is directing the OMP to eliminate the terms “other interested parties,” “party of control” and “true party of interest” from the adult use rules. The rules will “substitute for those deleted terms the statutory terminology in Title 28-B, subchapter 2 regarding the characterization of ownership interests.” This directive should serve to bring the rules in line with the statute in terms of residency requirements for officers and directors, as well as for owners of marijuana establishments. We have in the past written on the residency requirements generally (here, here, and here). 
Stay tuned as we expect this to move quickly through the legislature and on to the Governor.

But, We May Have More Dispensaries and More (Legal) Cannabis Growing in New Hampshire

Monday, June 10, 2019

Last time: No Recreational Cannabis This Year and No New “Alternative Treatment Center” Licenses

However . . .

Even though the Senate killed the effort to add additional licenses, it has passed legislation (HB 335) that provides DHHS with authority to allow current license holders operating ATCs to open a second dispensary location within their geographic licensed areas. The opening of a second location is subject to Department approval and may not be used for cultivation. The bill now goes to Governor Sununu.

The Legislature has also passed two bills (HB 364 and HB 459), which will make it easier to grow cannabis in New Hampshire. HB 364 permits qualifying patients and designated caregivers to cultivate cannabis for therapeutic use. The bill also permits qualifying patients and designated caregivers to donate excess cannabis to other qualifying patients. The bill sailed through the House, but passed the Senate on a party-line vote and may be vetoed by the governor. HB 459 seeks to promote the cultivation of hemp in the State by defining it and establishing a committee to study the federal guidelines on growing hemp. It sailed through the House and Senate and awaits action by the governor.

Additionally, the Legislature passed two bills (HB 350 and SB 88) which would make it easier for patients to obtain the required certification from a licensed health care provider to qualify for therapeutic cannabis. HB 350 adds physician assistants to the list of licensed health care providers who are authorized to certify that criteria has been met for the use of therapeutic cannabis. SB 88 eliminates the requirement that a licensed health care provider certifying that a patient meets the criteria for the use of therapeutic cannabis have a pre-existing three-month relationship with the patient. These bills face uncertain prospects in the governor’s office.

No Recreational Cannabis in New Hampshire This Year, and No New “Alternative Treatment Center” Licenses

Friday, June 7, 2019

There will be no legalization of recreational cannabis in New Hampshire this year. That is the story of the legislative session as the House and Senate wind down their sessions this month. Nevertheless, there are still a number of cannabis-bills headed to the Governor’s desk.

The chances were unlikely that recreational cannabis would be legalized in New Hampshire this year, particularly after Governor Sununu vowed to veto such legislation. Nevertheless, the House passed HB 481, which legalized recreational cannabis in April. The Senate, however, recognizing the lack of votes to overcome the governor’s promised veto, voted to keep it in Committee over the summer.

The House Health Committee also decided to retain two bills (HB 366 and HB 461), which would have added qualifying medical conditions for therapeutic cannabis. It will take up the retained bills in the fall. 

Meanwhile, the Senate killed HB 174, which would have added a potential fifth alternative treatment center (ATC) license. There are currently four licenses (or certificates) to operate ATCs in New Hampshire. These four certificates correspond to four geographic areas set by the Department of Health and Human Services (DHHS). Each licensee may only operate within its prescribed geographic area. HB 174 would have allowed DHHS to begin taking applications for a fifth license for an ATC to be located in Hillsborough or Merrimack County. Currently, there is only a single ATC in Hillsborough County and no ATC in Merrimack and Rockingham Counties (the second and third largest counties by population). The defeat of this bill is a blow to potential future entrants to the New Hampshire market. 

Another potential blow (or opportunity) to potential future entrants to the New Hampshire market is SB 145, which changes the law with respect to the corporate form of ATCs. Under current law, an ATC must operate as a not-for-profit entity. SB 145 would amend the law to allow ATCs to be a “domestic business corporation organized under RSA 293-A” or a “domestic limited liability company organized under RSA 304-C.” The likely initial result of this change will be a sale or reorganization of the current ATCs. But it could open up the market to future acquisitions by for-profit entities.

The Maine Office of Marijuana Policy Re-formats/Changes (?) Residency Requirements in Response to Rulemaking Comments

Thursday, June 6, 2019

The OMP released provisional adult use marijuana rules late yesterday. These rules are majorly substantive, so they are now headed to the legislature. It seems likely that the Veterans and Legal Affairs Committee will hold its public hearing on these rules as early as Monday next week.

While there’s a lot to unpack in this newest iteration of the OMP rules, I’ll focus briefly on the residency requirements today. The provisional rules eliminated two notable subsections from Section 2.3.1(B) that were present in earlier iterations. These are the two subsections which OMP eliminated:

(b)(i) No person or entity shall attempt to subvert this paragraph by way of multi-layered corporate structures or other methods for creating a corporate veil, nor through other equity conveyance tools, including without limitation, purchase options and purchase warrants. The Department may deny an application at its discretion for violation of this provision.

(b)(ii) No person or entity shall create a party of control to a marijuana establishment License consisting of less than a majority of residents.

Before you read too much into the deletion of these paragraphs, the OMP justified removing these paragraphs in its response to specific comments:

“The Department has removed the language of sub-parts (B)(i) and (ii) with the understanding that the powers contained therein were inherent in the powers granted by the Legislature to the Department in statute. These provisions were determined to be duplicative by the Office of Marijuana Policy. Action taken by OMP to remove these provisions should not be construed as a limit on the power of the Department to pierce any corporate veil intended to obfuscate the residency requirements intended by the Legislature in Title 28-B. The Department has clarified in rule that the applicant shall bear the burden of proving majority ownership by residents.”

Lastly, the OMP also added additional language to the residency requirements in Section 2.3.1(B)(b), so now that subsection reads (with the new portion underlined):

“A majority of the shares, membership interests, partnership interests or other equity ownership interests as applicable to the business entity must be held or owned by natural persons who are residents or business entities whose owners are all natural persons who are residents of the State of Maine. The applicant shall demonstrate to the Department that a majority of the shares, membership interests, partnership interests and other equity ownership interests are held by residents of the State of Maine.

Next, the legislature will have the opportunity to make changes to these provisional rules, and will certainly be considering how these residency provisions jive with the Department’s claim to “inherent powers” derived from Title 28-B.

The Latest USDA Guidance on Hemp Law

Monday, June 3, 2019

The United States Department of Agriculture (USDA) Office of General Counsel issued some guidance last week on its view of the current legal status of hemp. The takeaways are:
  1. Hemp is no longer a Schedule I Controlled Substance under federal law.
  2. At the moment, states cannot prohibit the interstate transport of hemp (or hemp products) lawfully produced under the 2014 Farm Bill. Why the 2014 Farm Bill, when the 2018 Farm Bill just became law, you might ask? Well, point 3 gets to this.
  3. The 2018 Farm Bill loosened the requirements for hemp to be grown legally, but this more relaxed regime only takes effect after the USDA publishes the necessary regulations. Once these regulations are published, then states and tribes may not prohibit the interstate transport of hemp produced under a state or tribal plan or under a license issued by the USDA.
  4. While states and tribes cannot prohibit the commerce of hemp legally grown elsewhere, they can enact and enforce laws which prohibit the growth of hemp within their territory.
  5. The Food and Drug Administration (FDA) retains authority to regulate hemp under applicable FDA laws. In other words, the FDA can and will continue to crack down on those who make unapproved therapeutic claims related to CBD, and may continue to regulate the addition of CBD to food products.
Overall, this guidance is probably good news for those who are growing or sourcing their product legally, and want to reach a national market. It could also be interpreted as another baby step in the direction of nationwide legalization of one species of cannabis.

If You Believe the Proposed Rules, Regulators Want to Know EVERYTHING About You
Or: A Few Words on Disclosure Requirements

Friday, May 31, 2019

For those who are still scouring the proposed adult use rules, take a look at  the sheer volume of information required to be disclosed to the Department of Administrative and Financial Services (DAFS) by anyone seeking a license, and the Department’s claim to unlimited power to keep digging and digging and digging until “satisfied.”

Section 2.4 seems to be designed to require the disclosure of every contract and relationship and, the Department may argue, could even require you to disclose not only your contractors, but your contractors’ contractors. Remember the broad definition of “party of control” (discussed here), and add to that similarly broad definitions of “true party of interest” and “other interested parties.” An applicant must not only disclose all three categories of “parties” (which could be read to encompass everyone remotely involved with or interested in the business), but must provide “all requested information concerning financial and management associations and interests of other persons, parties of control, other interested parties or true parties of interest in the marijuana establishment” (Rule 2.4.2(B)(2)). 

These regulations take us at least two layers deep, but if the Department wants to keep digging even further, it can. Rule 2.5.1 allows the Department to “require additional information to verify that business structures, loans, franchise agreements, and other legal arrangements or anything else regarding true parties of interest, parties of control or other interested parties are not being used to circumvent ownership requirements.”

If these exacting disclosure requirements, combined with broad powers of investigation, remain in the final rules, this will cause headaches on both sides of the process. Applicants will need to be comfortable providing all sorts of sensitive information to regulators, but will also need to be sure their investors, contractors, etc., are comfortable also providing this information to regulators. This is probably something that businesses will want to address, if possible, at the time they enter into their business arrangements to make sure these issues don’t arise in the thick of the application process.

I expect that regulators, too, will find these regulations a bit too much when put into practice. They will need to sift through vast troves of contractual arrangements and other partnerships, many of which will require a particular expertise to decipher. Applicants who want to air on the side of compliance will be almost required to dump their entire filing cabinet on the Office of Marijuana Policy (OMP) just by virtue of the vague nature of the regulations. We’ll see if this language stays in the final rules, and we’ll see if it is relaxed over time through the practice of the Department.

The TSA Warms up to CBD in Words, but What About Deeds?

Wednesday, May 29, 2019

So the TSA claims to have changed its policy over the weekend to permit travelers to carry hemp-derived CBD products with them in flight. The TSA website has been updated to state that “products/medications that contain hemp-derived CBD or are approved by the FDA are legal as long as it is produced within the regulations defined by the law under the Agricultural Improvement Act of 2018.” 

At first read, this seems like oils, gummies, topicals, edibles – they’re all a go! Prepare for take off! But then we get down to enforcement and implementation, and I’m left scratching my head. The Agricultural Improvement Act of 2018 (or the 2018 Farm Bill, as it’s better known) does legalize hemp and hemp products, but only when grown under certain requirements, with state and/or federal approval. How on earth is a TSA agent going to know whether your CBD is derived from hemp that was legally grown in Kentucky or illegally grown in Texas? (Texas may be a bad example since hemp/CBD is about to be legalized there too, but you get the point.)

I for one doubt that TSA agents will be specially trained in the legality of CBD and hemp. The more likely scenario is that this change in TSA regulation is intended to accommodate FDA-approved Epidiliox, the first federally approved drug containing CBD. If any other form, it’s hard to know how TSA agents will treat CBD for the foreseeable future.