More Changes to Maine’s Marijuana Program Are on the Table on February 10

Earlier this week, the Veterans and Legal Affairs Committee in Maine’s legislature considered a series of bills related to Maine’s marijuana program. I discussed one of those in this blog post.

Now, there are three more bills up for a public hearing on February 10:

• An Act to Impose Further Restrictions on Where Marijuana May Be Smoked
• An Act to Improve Compliance with Department of Administrative and Financial Services, Office of Marijuana Policy Registration and Licensure Requirements
• An Act to Amend the Marijuana Legalization Act and Make Other Implementing Changes 

The latter two are both children of the Office of Marijuana Policy. Those who were present at the hearing earlier this week will recall that OMP asked the committee to hold off on any significant changes to Maine’s adult use program. Perhaps consistent with this position, nothing proposed in either OMP bill is really big or structural. But…

Of note, the committee will be considering a new category of licensee: a "marijuana establishment support entity," which seems to be a way for OMP to regulate "sample collectors" who will be working with testing facilities and, perhaps, others who touch the product but don’t fit neatly into a current category of licensee.

OMP is also proposing an exemption to Maine’s Freedom of Access Act for certain discrete categories of information, including trade secrets related to marijuana cultivation, etc., and standard operating procedures for marijuana establishments.

Big picture: we can expect the State to continue tweaking our marijuana programs for years to come. I won’t be surprised by some key changes this session, with more and bigger changes to come down the road.

Maine’s Legislature Confronts the Unintended Consequences of Required Marijuana Testing, Before Those Consequences Even Happen

The Maine Legislature’s Joint Standing Committee on Veterans and Legal Affairs will consider a host of marijuana-related bills next Monday, January 27. Check all five of them out here. The one I want to focus on is LD 1545, An Act Regarding the Testing of Adult Use Marijuana and Marijuana Products because this bill tries to address what has been a serious problem in most states launching adult use programs: a shortage of testing labs and resulting bottlenecks in those products.

For starters, LD 1545 seeks to amend language in Title 28-B, governing adult use marijuana in Maine, which currently requires ALL adult use marijuana or marijuana products to be tested by a licensed lab before sale. So what’s the problem with this? There’s serious and well-founded concerns that Maine simply won’t have enough testing labs at least for the launch of the program. This will lead to bottlenecks and significant delays in selling products to consumers. LD 1545 addresses this by permitting any product that has been held by a testing lab for five days without being tested to be sold anyway, with a disclaimer that the product hasn’t been tested.

This seems like a straightforward solution to an anticipated problem, but it seems worth looking briefly at the experience of other states with testing bottlenecks and lab shortages.

California’s lab shortages and bottlenecks circa 2018 were the stuff legends are made of. Now, if anything, California seems to have overcompensated in response and has 27 licensed labs (which isn’t that many, considering the state’s population), none of which report being at full capacity. These labs are facing business problems of their own, with many customers not paying timely or not paying at all. Some suggest that this is a symptom of the broader problem that California’s illicit marijuana market remains dominant and may even be getting stronger.

Closer to home, a shortage of testing labs has been a problem for Massachusetts. As is expected for Maine, Massachusetts started off with only two licensed testing labs. Labs were reporting demand for up to 4,000 tests per day, though, within a year of the adult use program’s launch, the state’s Cannabis Control Commission was reporting that, even with two labs, wait times were down to just a couple of days.

It’s hard to know exactly how Maine’s testing laws will affect the adult use market until that market has really taken off. Certainly, any serious impediments to selling product quickly will encourage return to the black market. I’m sure this will be part of the discussion in the VLA committee on Monday. See you there!

Portland Considers Giving Some Preference to Minority Applicants for Marijuana Retail Licenses

The City of Portland is considering giving preference to minority applicants when distributing retail marijuana licenses. This came up at the City Council’s last committee meeting on the draft ordinance, and city staff cautioned that this could be difficult to administer. After this conversation, I thought it would be worth looking briefly at how this has played out in other jurisdictions. 

There is no question that America’s "war on drugs" and the crackdown on marijuana disproportionately impacted black Americans and other minorities. This sad history is the impetus for the proposal in Portland, and proposals/laws in other jurisdictions. Here are four examples of how this has played out:

• In Maryland, there was no preference for minorities originally, but then nearly all of the licenses were awarded to white people and the state decided to try again. It increased the total number of licenses, and said it would give minority-owned businesses (and some other demographics) slight preference. That plan doesn’t seem to be playing out as envisioned; it is dragging on and on and on, amid multiple lawsuits alleging bias in the licensing process. 
• The Ohio legislature created a racial quota requiring 15% of all licenses to grow, process, and sell marijuana to be awarded to minority-owned and -operated companies. But state judges have said that law is unconstitutional. 
• In Massachusetts, the Cannabis Control Commission is limiting certain types of licenses to “economic empowerment and social equity applicants” along with "microbusinesses."  These include social consumption and delivery licenses. Exclusivity is planned for a period of years. These categories of licenses haven’t been awarded yet, so we will see how that process plays out. 
• The marijuana legalization law in Illinois (for adult use) includes a variety of provisions meant to expand opportunities for people of color and those “disproportionately impacted” by the war on drugs. But some are questioning whether this law will meet its goals since the adult use market launches this month, and for at least the first half of 2020 the only participants will be existing medical marijuana dispensaries which are almost entirely white-owned. It is not yet clear how many of the 75 licenses awarded later this year will actually go to demographics disproportionately impacted by the war on drugs. 

Maine does not have any such law at the state level, so we will wait and see how the Portland City Council deals with this issue moving forward.

Maine’s Hemp Policies Remain Turbulent as the Legislature Reconvenes

The legislature is reconvening on hemp issues this coming Thursday, January 9. The Committee on Agriculture, Conservation and Forestry is considering a simple resolve "Directing the Department of Agriculture, Conservation and Forestry to Submit to the United States Secretary of Agriculture a Plan for Continued Implementation of the Maine Industrial Hemp Program." This resolve is self-explanatory; it will direct the Department to submit a plan to the USDA for hemp production which would finally bring Maine’s program in line with federal law. 

What this resolve doesn’t do is address a more pressing issue with Maine’s hemp policies at the moment: the continued crackdown on CBD products manufactured out-of-state. We’ve heard multiple reports of state inspectors telling retailers to sell whatever is on their shelves, but not to buy any more CBD products from outside Maine. The policy formally took effect on January 1 (though the original guidance issued by the State said December 1), and it remains to be seen how aggressive the crackdown will be, especially since a large portion of current CBD ingestible products on the shelves in Maine are from elsewhere.

Can We Use Commercial Cannabis to Address Historical Inequities?

Here in Portland, a number of City Councilors have been adamant that Portland’s adult use program should benefit minority communities. There is a current proposal to give historically disadvantaged groups some level of preference when applying for licenses. This mirrors a common sentiment nationwide that the adult use industry should benefit those communities historically disproportionately affected by marijuana-related prosecutions. 

Chicago has one interesting idea for how this could happen. Chicago’s Mayor Lightfoot has proposed a “social equity program” that would essentially create a co-op for growing adult use marijuana and allow minorities to invest through small cash investments or sweat equity. The Mayor has proposed using $15 million in municipal funds for this project. It would be interesting to see this play out, if it gets off the ground.

Bills to Watch in 2020 NH Legislative Session

While the text of bills slowly make their way out of the Office of Legislative Services for the 2020 legislative session in New Hampshire, there are at least a couple cannabis-related bills of interest to keep tabs on. 

The first bill is HB 1386, sponsored by Rep. Wendy Thomas (D – Hillsborough), which would prohibit employers from retaliating against an employee solely because the employee is a qualified patient of the New Hampshire therapeutic cannabis program and has a positive drug test for cannabis. The potential reach of this bill is unclear as it provides that “[e]mployment where no cannabis is allowed shall be excluded from this section.” This suggests that at least some undefined class of employers (Hospitals? Police departments? Schools?) can retaliate against employees who test positive for cannabis. The bill also clarifies that an employer is not required “to allow being impaired by cannabis products while at work.” Given Governor Sununu's veto of several cannabis-related bills last session, I do not anticipate this bill becoming law this session (at least in its current form).

The second bill to watch is HB 1150, sponsored by Rep. Renny Cushing (D – Rockingham), which would permit qualifying patients visiting from out-of-state to access New Hampshire’s therapeutic cannabis dispensaries. Anybody who has visited New Hampshire knows that the state prides itself on obtaining revenue from visiting out-of-staters whether by tolls, state-run liquor stores on the highway, or room and meals taxes. Nevertheless, the elimination of the current ban on such transactions may run into some practical obstacles, such as how to determine whether an out-of-state consumer is a “qualifying patient.” This determination will likely become even more difficult as our neighboring states move away from a medical cannabis market and toward a legalized recreational cannabis market.

Feds Take Steps to Increase Hemp Producers’ Access to Capital

The Department of Treasury released new guidance yesterday that makes it much easier for banks to serve hemp producers. This comes on the heels of the USDA interim rules governing hemp nationwide. 

Basically, the new guidance says that banks no longer need to file ‘suspicious activity reports’ with Treasury for hemp producers since the crop is now largely legal under federal law. Suspicious Activity Reports (or SARs) are a fairly burdensome regulatory requirement for banks that require a great deal of diligence. This new guidance not only reduces the regulatory burden; it also reduces legal exposure banks may face by working with clients in the hemp industry. This should mean a greater willingness on the part of federally chartered banks to work with hemp producers, which, in turn, will result in greater access to capital.

This is also important because of likely trickle down effects. Insurers, for example, will likely become more eager to work with the hemp industry as access to capital increases.

Of course, banks will still need to ensure that their clients are complying with state and federal laws governing hemp, and will need to conduct necessary diligence to avoid banking illegal marijuana operations with products containing THC in excess of 0.3%. In addition, banks will need to remain cautious about clients who work with CBD in food products given the FDA’s hostility to that practice.

All in all, I see this as another positive step in the long game toward broader legalization.

Class Action Lawsuit Brought Against CBD Company for Deceptive Advertising

Just a week after the U.S. Food and Drug Administration (FDA) stated that it could not give CBD a “generally recognized as safe” designation, a proposed class action has been filed against a CBD company in California. The complaint alleges that Infinite Product Co.’s CBD products are misleadingly labeled and illegal to sell because they use CBD as an additive to food and topical cream products in violation of federal law. The “generally recognized as safe” designation allows a substance to be used as a food additive without going through the FDA’s approval process. Currently, there is no federal regulation that allows the use of CBD as a food additive. This proposed class action could be the first of many against CBD companies offering consumer products and food containing CBD as an additive, and may provide further impetus to the FDA to provide more guidance related to CBD products.

Tomorrow’s City Council Meeting on Portland’s Ordinance

Ok, so it's actually a meeting of the HHS and economic development subcommittees but, either way, it’s a necessary and important step to finalizing Portland’s ordinance and launching adult use in Maine’s largest city. The subcommittees will be taking public comment, so in terms of how many hours of comments we should expect to sit through, we’ll see if the craze around the cannabis industry or the distractions of Thanksgiving win out. I’m planning on a long night. 

A couple of particular items to look out for: 

• First, the current draft ordinance doesn’t permit the transfer of licenses. This would mean that an adult use store that transfers 10% or more of its equity to someone else would lose its license. Since bank loans aren’t really a thing in the cannabis industry, private investors are key and private investors want equity. Private investors also want to be able to sell their equity. So the ban on transferability doesn’t work in the industry. I expect we’ll hear some conversations about that.
  
• Second, THE CAP. It will be interesting to see if the cap stays at 20 retail stores total, or which direction it moves, or whether it is entirely eliminated. I’m sure the councilors are getting an earful on the daily about this.
  
• Third, the criteria to get a license look like a work in progress. They’re oddly structured in the current draft and really favor businesses that have owned or leased their retail location for a long, long time. They also strongly favor applicants who have operated a different type of licensed business in Portland for a long period of time. The lottery criteria tell us a lot about the city’s policy priorities, and I expect that the councilors will want some changes to these as well. 

See you tomorrow.

State Adopts New Restrictive Policy on CBD Sales That Is, at Least in Effect, Quite Similar to the Old Policy

The Maine Department of Agriculture has begun its next phase restricting sales of CBD in the state. Readers will recall that, over the summer, the State took the position that CBD sold in Maine had to be derived from hemp grown in Maine. The reality, of course, is that only a small portion of CBD sold in Maine has its origins in Maine and that policy expired in September.

Now, the State is handing out notifications to retailers and others in the CBD business that ingestible CBD products sold at retail in Maine must be produced in Maine. Here is a copy of that notification received by one retailer in the state:

This sounds different in substance than the State’s policy over the summer. Now, CBD sold in Maine doesn’t have to be derived in Maine. But the reality is that this policy will have largely the same effects since a huge portion of the CBD that is imported into Maine has already been incorporated into food products and is shelf-ready.

Trying to understand the State’s motivations for this latest policy shift, it appears to be related to the federal ban on CBD sold in edible products. The nuance of the State’s position isn’t entirely clear, but as we hear more we will post it here.

Do the Proposed USDA Hemp Rules Threaten Our CBD Industry?

We’re hearing concerns from some farmers and CBD manufacturers that the proposed USDA hemp rules, released earlier this week, could make it much more difficult to provide high-quality CBD products in the U.S. The concern, as I can best articulate it since I’m not a farmer, is that full-spectrum CBD is largely available in plants that have a longer growth cycle, but these plants may also have THC levels above 0.3 percent by virtue of being in the ground for longer. Under current regulations, some farmers and producers have found ways to reduce the THC content following harvest, which allows them to sell full-spectrum CBD products with compliant THC levels. The new USDA regulations, though, require that the crop be tested for THC content 15 days prior to harvest. Any crops with an excess of THC will need to be discarded. This eliminates the possibility of growing for longer and eliminating excess THC after the fact.

I can’t speak personally to whether this perceived threat is real or overblown, but its one interesting example of the many consequences (intended or otherwise) the new federal regime will have on the industry.

One other, related, strain: Though hemp must have THC levels below 0.3 percent, these new rules create a couple of safe harbors. First, they recognize that testing labs have margins of error, and so if your crop tests at 0.34 percent THC, but the lab results have a 0.05 percent margin of error, then the crop is legal and you’re good to go. Second, if your crop is above 0.3 percent but below 0.5 percent THC, you can’t sell it, but you also won’t be prosecuted. These rules basically recognize the inherent uncertainty involved with growing hemp.

USDA Hemp Rules Nearly Finalized

We haven’t seen a draft of the rules yet, but the latest news is that the White House has signed off on the proposed rules and they’ll be released any week now. Once the rules are released, a public comment period will begin. The USDA is still claiming that final rules will take effect before the end of 2019. 

The Maine Department of Agriculture, Conservation and Forestry (which houses our hemp program) is likely to respond by drafting and proposing new rules of its own. These rules will likely parallel the federal rules including any THC potency testing guidelines, quality control standards, and broader cannabinoid testing requirements. 

Maine will also seek USDA approval of a state regulatory plan governing hemp. Once this approval is obtained, Maine hemp will finally be legal.

California Regulators Issue Cannabis Banking Guidance That’s Actually Useful

On October 2, 2019, the California Department of Business Oversight issued some really helpful guidance aimed at California banks and credit unions that are currently or are planning to bank marijuana-related businesses (MRBs). The guidance document consists of an extensive questionnaire that is used by California state bank examiners when they audit a bank or credit union’s MRB compliance program. The guidance document is intended to help California financial institutions comply with Bank Secrecy Act and FinCEN guidance on cannabis banking. Although some of the guidance in the questionnaire is California-law specific, much of it is broadly applicable to any financial institution in any state that has legalized medical or recreational cannabis. We are encouraging all of our financial institution clients who have or are working on MRB compliance programs to take a look!

House Passes the SAFE Banking Act

On September 25, 2019, the Democrat-controlled U.S. House of Representatives passed the SAFE Banking Act by a vote of 321 in favor and 103 opposed. As we’ve previously posted, the Act would prohibit federal bank regulators from penalizing financial institutions that provide services to state-legal cannabis businesses and will result in greater access to financial services for the cannabis industry. Given the 91 Republicans who voted in favor, it appears that cannabis banking reform may be poised to become a bipartisan issue, although only time will tell.

The Act will now move on to the Republican-controlled Senate, where commentators agree that passage is far less certain. Historically, Senate Majority Leader Mitch McConnell has publicly opposed cannabis even while supporting the legalization of hemp. In any event, even if ultimately adopted, the protections granted to financial institutions under the SAFE Banking Act will only apply to state-law compliant cannabis customers, so it will continue to be vitally important for financial institutions to adopt robust marijuana-related business compliance policies and procedures and engage in continuous monitoring of cannabis customer compliance with relevant state laws.

Maine Legislature to Address Vaping Devices and THC

As readers may have seen, a list of the bills that the Maine Legislature may be discussing this winter has been released. I’m going to focus on the bills related to vaping for this post, since there are a lot of them. These bills are obviously a response to a string of vaping-related illnesses and deaths around the country in recent months, including several in Maine. It’s been reported that many of the victims were using vape pens, etc., loaded with THC rather than nicotine and, although it is not clear that contaminated THC rather than thickeners or other additives are causing these illnesses, the Maine Legislature has responded to these reports. These are some relevant bills offered by our legislators:

LR: 2763
Sponsor: Representative Cooper of Yarmouth
Title: An Act To Prohibit the Sale of Vaping Devices and Similar Electronic Smoking Devices 

LR: 2765
Sponsor: Senator Millett of Cumberland
Title: An Act To Enact Restrictions on Electronic Smoking Devices 

LR: 2837
Sponsor: Representative Hutchins of Penobscot
Title: An Act To Prohibit the Addition of Tetrahydrocannabinol and of Cannabidiol to Liquids Used in Vaping Devices 

LR: 2969
Sponsor: Senator Dow of Lincoln
Title: An Act To Ban Persons under 21 Years of Age from Purchasing, Possessing or Using Vaping Products 

LR: 2682
Sponsor: Representative Cooper of Yarmouth
Title: Resolve, Directing the Department of Health and Human Services To Study the Average Potency of Medical Marijuana and Illegal Marijuana, the Adverse Health Effects of Marijuana Use and the Adverse Physical Effect of Using Vaping Devices To Inhale Marijuana

Lots of Different Rules Governing Maine’s Marijuana Programs Are Going to Become Official Soon – But When?

We are waiting on final and effective versions of several different sets of rules governing Maine’s marijuana programs. I’ll start with the Rules for the Certification of Marijuana Testing Facilities, since the public hearing for these rules was just yesterday. The hearing was sparsely attended and public comments were not particularly noteworthy. Readers probably know that the Emergency Rules for the Certification of Marijuana Testing Facilities already took effect in September. This is allowed during rulemaking under Maine’s administrative procedures act in certain situations, and so rulemaking continues anyway. Final written comments are due October 10. At that point, we can expect about a month until final testing rules are released since the Office of Marijuana Policy (OMP) will need to work with the Office of the Attorney General to sort through and incorporate any comments.

We are, of course, also still waiting with baited breath for the final adult use rules to be released. These will incorporate, at a minimum, the changes required by the legislature last June. The legislature required some fairly broad changes to the residency requirements in these draft rules, and we are waiting to see how OMP reacts and what the final rules look like accordingly. These adult use rules, the OMP has stated, will be released within the next 60 days.

Don’t forget that the rules governing Maine’s medical marijuana program are outdated. The current rules were enacted before the legislature significantly revised the program in 2018. So expect OMP to also tackle a rewrite of these rules sometime, perhaps this winter.

The Non-Crackdown on Out-of-State CBD Comes to an End

About a month ago, I noted that the State wasn’t really walking the walk. At the time, the State had only recently began informing CBD vendors that any food products containing CBD derived from hemp grown outside of Maine could not be sold in Maine. This ended up being much ado about nothing. As the law changed yesterday and LD 1749 takes effect, it doesn’t appear that the State ever took any real steps to enforce what it interpreted as a prohibition on out-of-state CBD. Practically speaking, none of this matters anymore, since the prohibition on out-of-state CBD is now officially over. However, I’m re-posting here a Bangor Daily News op-ed from the  several weeks ago which begs the state for a more consistent policy with regards to CBD.

For your consideration: Maine Needs Consistent Policy on Hemp and CBD

Mainers May Be Hot to Invest in Marijuana, but Out-of-State Money Is Still a Necessity

The website patch.com has posted a report that Maine is the no.1 state for marijuana investments. This doesn’t mean that Maine has the most investor dollars in marijuana, but just that Maine investors are more interested on average in marijuana stocks than investors in other states. I took interest in this report because it brings us back to our concerns over Maine’s restrictions on out-of-state investment in marijuana businesses. Sure, a high percentage of Maine residents are interested in the pot sector, but there just aren’t that many Maine investors compared to other states, and even fewer high-dollar investors. 

Starting a sophisticated marijuana business takes a lot of capital and banks are lending to this sector, so investment is needed. By necessity, the bulk of this investment needs to come from out of state to really jumpstart Maine’s adult use sector. Overly restrictive laws that prohibit this investment will only stifle the industry.

State Audit Gives New Hampshire Therapeutic Cannabis Program a Failing Grade

The results of a June legislative performance audit show that, in 2018, the State of New Hampshire failed to issue identification cards within the statutory deadline of five days after approval on 98.4% of the applications for the Therapeutic Cannabis Program. On average, in 2018, identification cards were received within 14 days after approval of the application. The 2018 numbers are an improvement over 2017, when the State failed to provide any identification cards within five days of application approval. The average turnaround time in 2017 was more than 24 days after application approval.

The failure, since inception, to provide adequate staffing and funding for the Therapeutic Cannabis Program has led advocates to push for a home-grown option. The House and Senate passed HB 364 this spring, providing a home-grown option, but Governor Sununu vetoed the bill on August 2, 2019. The House will have an opportunity to override the veto on September 18, but the prospects for success are small.

NCUA Advises Credit Unions They Can Provide Financial Services to Hemp Businesses

Last week, the National Credit Union Administration (“NCUA”) released interim guidance advising federally insured credit unions that they may provide certain financial services to legally operating hemp businesses. The interim guidance was released in response to the passage of the 2018 Farm Bill in December 2018 that removed certain hemp-derived products, including cannabidiol, from the list of Schedule 1 drugs in the Controlled Substances Act. 

The NCUA advises credit unions that they need to “understand the complexities and risks involved” if they choose to serve hemp-related businesses, and reminds credit unions that they “must have a Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program” that addresses the risks related to hemp-related businesses. While the guidance encourages credit unions to “consider whether they are able to safely and properly serve lawfully operating hemp-related businesses within their fields of membership,” it also reminds credit unions of the “long and successful history” many credit unions have had in “providing services to the agricultural sector.”

The NCUA will issue additional guidance after the U.S. Department of Agriculture publishes its final regulations and guidelines.