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.