Iowa to Review New Medical Condition Petitions

The Iowa Office of Medical Cannabidiol will meet on November 1, 2019 to consider expanding its medical cannabis program by approving four new conditions. The conditions include PTSD, Intellectual Ability with Aggression and / or Self-Injury, Opioid Dependency and Alzheimer’s disease.

The state’s current qualifying conditions for medical cannabis include serious illnesses including cancer, seizures, and untreatable pain. Iowa has two (2) processing facilities and five (5) medical dispensaries. The new medical conditions may expand the program, which has just over 3,800 patients and 639 caregivers.

Links to the petitions can be found below.

  1. PTSD

  2. Intellectual Ability (ID) with Aggression and/or Self-Injury

  3. Opioid Dependency, Tolerance, & Use Disorder

  4. Alzheimer’s Disease

Will Your Business Pass the Cannabis Banking Test?

California’s Department of Business Oversight issued guidance to the banking industry on how to safely provide services to cannabis clients. The regulator is taking this proactive step as more state-chartered banks take on cannabis accounts. The guidance is in the form of a questionnaire that will help banks comply with federal anti-money laundering requirements. It is also a road map that banks will use to determine whether to onboard a client or reporting suspicious activity.

The guidance instructs banks on how to (1) perform due diligence on new cannabis clients, (2) test accounts in order to identify possible money laundering activity, and (3) file suspicious activity reports with the federal banking regulators. Cannabis businesses should be familiar with these requirements as it will impact their present and future banking services.

Banks must file a suspicious activity report with the federal regulators for each cannabis business. There are three types of reports. A bank will file a limited report to notify the federal regulators of a cannabis client that has no suspicious activity and is complying with state regulations.

A bank must file a “marijuana priority” report to notify federal regulators that it has identified red flags or suspicious activity during the due diligence process or through account monitoring. A red flag can be any information that shows that the business or person is violating the Cole Memo or state regulations such as engaging in black market activity. Persons or businesses with this account designation are considered high risk. It is difficult, if not impossible, for businesses or persons with this account designation to find banking relationships.

A bank that is concerned that it is helping a client launder money must terminate the relationship and file a “marijuana termination” report with the federal regulator. Federal regulators pass this information on to law enforcement agencies for further investigation.

So how does a bank determine what bucket a prospective cannabis client should be placed in?

The bank collects documents, asks questions and monitors account activity. Cannabis businesses should take extreme care, from the first conversation with a bank, to project a lawful business that complies with all rules and regulations.

Under the guidance, banks may consider the following as red flags:

  • Enforcement actions brought against the cannabis business by state or federal regulators.

  • Negative information is publicly available about the business or related parties.

  • Revenues are substantial given state limitations, local competition and demographics.

  • Deposited cash is greater than revenues.

  • Inability to demonstrate that cash is derived from lawful state cannabis activity.

  • Cash deposits and withdrawals are made within a short period of time as compared to local competitors or expected business activity.

  • Withdrawal of cash shortly after it is deposited.

  • Cash deposit by unrelated third parties.

  • Financials do not foot with actual business activity.

Businesses that trigger some of the red flags are considered very high risk. These accounts are subject to a heightened level of scrutiny or even termination. Once terminated, a “Scarlet A” will attach to the business, its owners, and possible employees. This designation will prevent the business from finding another banking relationship.

Cannabis businesses should familiarize themselves with this questionnaire and ensure that their banking processes will not trigger a red flag. California’s guidance is good news for the industry. We would expect that the state regulator reviewed the guidance with the federal regulators, which will make it easier for California banks to service the industry. However, we expect that the cost of services will remain high until the banking industry obtains more experience with the industry and cannabis is legalized at the federal level.

Texas is Accepting Applications for Medical Dispensaries

Yee-haw! Texas is onboard! Texas is accepting applications for cannabis dispensing businesses through November 1, 2019. Demand for low-THC cannabis products is expected to increase due to a 2019 law that added qualifying medical conditions under the compassionate use program and increased the number of doctors who can provide patients with prescriptions.

 First, a little history. In late 2015, the Texas Public Safety Commission (PSC) implemented the Compassionate Use Program Administrative program. The PSC adopted administrative rules for the program in March 2017. Of the initial 43 applications for dispensing organization licenses submitted, three were conditionally approved in May 2017. Qualified physicians were given the opportunity to register under the Compassionate Use Registry of Texas (CURT). As a result of CURT, prescriptions for low-THC cannabis products could be filled (as the product became available).

 So, what does it take to obtain a license to dispense in the Lone Star State? Well…this is a merit-based application process, as we have seen become widely popular across the US. It is in-depth and will require attention to detail to prevail. Here is the breakdown: 

20% Property aspects, Operating Procedures, Worker Safety, Staffing, Testing Lab. 

20% Tracking of Product, Floor Plans, Diversion Plan, Emergency Plan, Inventory Control, Recordkeeping Procedure, Vehicle Tracking Plan, Vehicle Security. 

10% Proof of Financial Ability (Including Pro Forma and Budgets).

20% Proof of Technical and Technological Ability.

20% Proof of Infrastructure (Maps, Floor Plans, HIPAA Procedure, Vehicles, Communication Systems).

10% Cover Letter (Experience)

 The fun continues with these important aspects.

1. Proper business formation and good standing status;

2. Registration applications for all directors, managers, and employees;

3. Proof of general liability insurance coverage;

4. Application payment $7,356.

Lastly, TX requires a full Compassionate Use Program Application. The fun never stops.

Applications are due November 1, 2019. Contact us with questions or if you are interested in submitting an application.

Cannabis Industry Faces First Test By Federal Regulators

The vaping epidemic created a crisis for the cannabis industry. Federal regulators can point to this epidemic as a reason to ban THC, CBD, and vaping products as a public health risk. At a minimum, the regulatory pendulum will swing and produce a significant number of new laws and regulations.

So what is the industry’s playbook for moving out of crisis mode and getting back to business?

1. Acknowledge the Problem

The cannabis industry must acknowledge that it is facing a crisis. Industry leaders should join the efforts to quickly identify the cause of the illnesses, and help structure appropriate standards to protect the public. Under current circumstances, federal and state regulators are mixing together cannabis, CBD and vaping into one bucket of risk. The regulator’s solution may treat one or all with the same regulatory response.

The cannabis industry should help regulators define the issue, and differentiate between legal market products versus black market activity. The cannabis industry should avoid the pitfalls of becoming entangled in unsettled questions surrounding hemp-based CBD products and vaping technologies. Regulators should keep the three product lines separate and develop isolated regulations that address the unique risks posed by each industry.

2. Help Structure a National Response

State’s rights allow the cannabis industry to grow and innovate independent of the federal government. The downfall of this regulatory structure is that each state and local municipality develops its own regulatory response. The multitude of new laws and regulations that will be enacted in response to the vaping crisis will increase the overall operating costs for the industry. The industry should use this opportunity to do the right thing. Help develop national standards that address public health before the federal government does it for you. A national standard is easier to incorporate into an enterprise compliance program and ultimately more cost-effective.

3. Proactively Address Related Issues

Competition between the cannabis and hemp industries continues to grow as both fights for limited real estate, regulatory restrictions, and consumers. The regulated cannabis industry should proactively review product offerings such as CBD infused products, gummies, among others, to address potential public safety issues. The cannabis industry can start a consumer education program to offer suggestions on safe product use and how to limit consumption by minors.

This crisis will force CBD into a regulated environment. The CBD hemp industry should address the fundamental issues around testing, product disclosure, and labeling requirements. The CBD industry might benefit the most from a self-regulatory organization that will oversee compliance with a framework that addresses the risk posed by the industry. By proactively creating an SRO with teeth, the states may be able to push back on efforts by the FDA to completely ban CBD products.

The cannabis industry will make it through this period. However, the industry should learn its lessons and be prepared for the next one.

Washington State's Vaping Response Targets THC Products

Washington’s Governor Jay Inslee signed an executive order that requires the state’s cannabis regulator to immediately ban THC vaping products that are identified by the US CDC and FDA as the cause of the lung disease epidemic. The Governor also directed the State Board of Health to use its emergency rulemaking authority to ban flavored vaping products, including THC products, at its meeting on September 9, 2019.

Washington’s response to the vaping epidemic is broader and requires the state’s regulator to act quicker than those issued recently by California, New York, and Michigan. The order directs the cannabis industry to immediately post signs warning consumers about the risks of vaping and to disclose all compounds used in the processing and production of vape products.

The state’s cannabis regulator, the Washington State Liquor and Cannabis Board, notified licensees of these requirements, which include:

  • The posting of the vape products warning sign in each store;

  • The disclosure of all compounds contained in THC products including additives, CBD and other cannabinoids;

  • The disclosure to the LCB of all solvents, ingredients, and additives used in the processing and production of vape products;

  • Cooperating with investigators; and

  • Voluntarily educating consumers about issues related to vape products.

The cannabis industry will also be impacted by the bills that will be sponsored by Governor Inslee during the 2020 legislative session. The bills provide the state with additional oversight of the vaping industry and provide money to fund enforcement efforts in the black market.

We expect most states will propose vaping legislation in 2020. The legislation will require additional product disclosures, warning signs, flavor bans, and testing requirements. The cannabis industry may consider bolstering industry best practices to incorporate manufacturing and marketing standards. This proactive response could help shape what the legislation will look like in 2020.

California Counties Expand Use of Satellite Images to Identify Illegal Grow Sites

The Mendocino County Board of Supervisors may direct staff at tonight’s meeting to determine whether satellite technology can help the county identify illegal grow sites. County staff states that the technology will cut enforcement costs and increase tax revenues.

Mendocino County is closing the first phase of its cannabis cultivation licensing process on October 4, 2019. During this phase, the county is allocating permits to those persons or entities that offer proof that cannabis was cultivated on the proposed site prior to January 1, 2016.

The Mendocino Cannabis Association is against the county’s plan to use satellite technology. The MCA suggests that the county should instead extend the permitting deadline and upgrade its cannabis licensing technology. The association also believes that shutting down illegal grow sites will negatively impact the county as violators will sell or abandon their properties.

Mendocino County is among a number of California counties that are using satellite technology to enforce cannabis code compliance including El Dorado County, which recently issued an RFP for the services. Humboldt County was the first to use satellite imagery as a means of identifying the estimated 15,000 illegal grow sites that existed in the county at the time of legalization.

Humboldt currently uses the technology to monitor the county’s 4,000 square miles of rugged terrain for environmental issues and unpermitted cannabis cultivation. During the pilot year, county staff identified 600 illegal cultivation sites remotely and issued violation notices. Since then, the county has brought in $2 million dollars in fines.

California counties are embracing innovative solutions to combat large areas of coverage that are often include rugged terrain. It still remains to be seen how this technology will be deployed after hemp cultivation becomes more prevalent. Humboldt County may again offer a solution that distinguishes hemp from cannabis crops. Humbold should consider addressing this issue when it finalizes its hemp cultivation rules in the near future.

Illinois to Release Cannabis Store Apps in 6 Days - Are You Ready?

What can we expect in Illinois?

October 2019, Illinois will become the 11th state to begin the licensing process for recreational adult-use marijuana. So, what can we expect from Wave 1 of the licensing process? 

First, applications will be available October 1, 2019 and due no later than January 1, 2020. Those selected will be notified on May 1, 2020.

Each of the 55 existing medical dispensaries, will be given an opportunity to add recreational sales to their existing store. They may each also apply for a secondary adult-use-only site. In addition to these, 75 other retail licenses will be available in the first wave. Aside from retail, 40 Infuser, 40 Craft Grower, 30 Cultivating Center (at this time, only current medical cultivators may apply), and unlimited Transporter licenses.

What is required to qualify for a license? First, for those who wish to be at the top of the consideration list, you had better nail the Social Equity component. You can accomplish this by giving 51% ownership and control to a qualifying candidate or hire 10 full-time employees with 51% qualifying accordingly.  Additionally, plan to draft an exceptional Business Plan, Security Plan, Inventory Control Plan, Community Engagement Plan, Diversity plan, etc.  

Points are awarded in 10 categories, and rage from 5 to 65 points. The high point categories consist of Security and Recordkeeping, Business Plan, Financials, Operating and Floor Plan, Social Equity Applicant, and Experience. 

For those seeking a non-dispensing license, your application period will begin January 7, 2020 and conclude March 15, 2020, with the announcement of candidates taking place July 1, 2020. 

Cultivators will need plenty of experience, a full cultivation plan, recycling plan, commitment to a technology standard for resource efficiency, a resource plan, etc. Infusers will need much of the same information.

The state taxes have quite a range. There is a 7% cultivation tax (with some caveats) and a 10-20% retail tax. On top of these, there is a 6.25% state tax.

 Wave 2 of the licensing process will begin December 21, 2021 and 110 licenses for new dispensaries will be awarded. 

Utah Gearing Up for Medical Cannabis Pharmacy Applications

The Utah Cannabis Association will be hosting a meeting with the Department of Health on October 1, 2019 to discuss the licensing requirements for medical cannabis pharmacy as the regulator will release an RFP for applicants the week of October 7, 2019. The state will permit up to 14 licensed medical pharmacies to operate with eight (8) pharmacies opening by March 1, 2020, and the remaining six (6) pharmacies opening by July 1, 2020.

Utah’s Center for Medical Cannabis published a fact sheet for medical cannabis pharmacy applicants, which outlines the state’s scoring criteria. The department will be evaluating applicants based on experience, the operating plan, local connections, ability to keep costs low and the overall strategic plan. Applicants that are willing to provide home delivery and use the state-authorized payment processors will be given extra points.

Utah’s legislature changed the structure of the medical cannabis program drastically last week through the enactment of S.B. 1002. The bill will become law if it is signed by Governor Herbert. The amendments removed the state central fill medical cannabis pharmacy, which would have required medical cannabis pharmacies to deliver medical cannabis products to a state health department for pick-up by patients. The legislation also increased the number of authorized pharmacies from 7 to 14; approved home delivery by medical cannabis pharmacies; and authorized delivery licenses by July 1, 2020.

Under the existing medical cannabis program, each medical cannabis pharmacy must employ a state-licensed pharmacist and a state-licensed physician who are registered Pharmacy Medical Providers. Pharmacies must provide patients with a phone number to reach the Pharmacy Medical Provider with questions about dosing recommendations and other drug-related issues.

The state has been gearing up for the opening of medical cannabis pharmacies by issuing RFPs for cultivators and processors. Utah received 81 applications for medical cannabis cultivators. Utah awarded only eight (8) out of ten (10) available licenses in order to avoid the overproduction of cannabis in the state. Utah’s regulators stated that half of the following awardees currently have businesses in the state while the other half have ties to local communities.

  • Dragonfly Greenhouse

  • Harvest of Utah

  • Oakbridge Greenhouses

  • Standard Wellness Utah

  • True North of Utah

  • Tryke Companies Utah

  • Wholesome Ag.

  • Zion Cultivars

In order to meet the March deadline, Utah will need to quickly decide the awardees for medical cannabis pharmacy licenses. Applicants that have available real estate may have the upper hand in the evaluation process for Phase 1. The deadlines for creating Utah’s medical cannabis ecosystem are tight. However, Utah appears to be handling the challenge in an organized and disciplined manner.

Maine Quietly Prepares for Opening of Adult-Use Cannabis Market

Maine has entered the last stages of establishing an adult-use cannabis market and is putting the finishing touches on its online application platform. The Department of Administrative and Financial Services will adopt the final adult-use rules in the next sixty (60) days after incorporating revisions made to the adult-use marijuana law by legislation, LD 719, which was enacted this year. The adult-use regulations will be effective 30 days after they are adopted. This means that Maine could start accepting applications for adult-use facilities as soon as December.

Maine legalized recreational marijuana in 2016, but it is illegal to sell cannabis in the state until the state opens retail stores. Maine’s Legislature amended the adult-use cannabis law this year by requiring Maine’s cannabis regulator to establish licensing rules as well as certification requirements for testing labs. The legislation also legalizes the sale of food or beverages that are infused with THC. The DAFS issued provisional adult-use rules in June, and it will accept public comments on proposed rules establishing certification requirements for independent testing labs on October 10, 2019.

Maine has also selected the track-and-trace provider, BioTrackTHC, and released proposed track-and-trace rules for the medical cannabis market. Maine currently has eight (8) licensed medical cannabis dispensaries for its roughly 1.4 million residents and 45,940 certified patients. The state also has a caregiver regime, which permits registered persons to cultivate cannabis for patients.

Maine’s regulators will begin accepting applications for adult-use cannabis businesses in the state including cultivation, manufacturing, testing and marijuana store licenses. The Adult Use Marijuana law allows an unlimited number of each license type but sets the ownership cap to 3 cultivation facilities and 4 marijuana stores until January 2022.

Maine’s adult-use regulations are structured to award licenses to local residents. Applicants must be either a natural person who is a local resident; or a business entity whose officers, directors, general partners and a majority of shareholders are natural persons and Maine residents.

The regulations also require cannabis businesses to disclose any “party of control”, which refers to a person or group of persons who exert more than a minimum influence over the businesses operations. Cannabis businesses must transfer their license when the party of control changes. By defining a party of control, Maine can stop entities from using a side door contract to entering the market without transferring the license.

Maine requires cannabis businesses to disclose contracts for IP, branding or loans that may include provisions that exert control over a business in exchange for money. The lack of objective standards around determining when a person becomes a “party of control” increases the risk that Maine’s regulator may determine that these contracts constitute a transfer to a party of control or may prohibit contractual provisions that dictate the quality of products and services. Entities entering into such agreements should seek guidance from the regulator so it avoids triggering such an event.

The ownership restrictions in the adult-use regulations may prevent local businesses from obtaining the capital needed to responsibly own and operate a cannabis facility. The lack of license caps and low population density may also create an uber-competitive market that further exacerbates the intrastate capital crunch. For those interested in the Maine market, start drafting your business plan and collect your application materials as your chance to enter the market will happen imminently.

California Governor Issues Executive Order Targeting Cannabis and Tobacco Vaping Products

Governor Gavin Newsom issued an executive order that directs the California Department of Public Health to develop recommendations to address the availability and marketing of vaping devices. The executive order notes that the clinical lung syndrome emerged in August 2019 that may be related to illegally produced cannabis cartridges.

The executive order directs the CDPH to reduce the availability of vaping products by persons under 21 and to enhance the disclosure of health risks. We would expect the recommendations would include further disclosures of lung related issues on cannabis vaping products. The executive order also calls for increased enforcement against the illegal sale of cannabis vaping products.

The Governor’s executive order comes one day before it was reported that a California man died due to the vaping related lung disease. The CDC announced that it opened an Emergency Operations Center to handle the inter-agency response and coordination. The CDC is working with the Food and Drug Administration to test the chemicals in the e-cigarettes used by the patients.

Cannabis companies should be proactive and prepared to act quickly in reviewing products and preparing new packaging labels. The Oregon Liquor Control Commission distributed a letter to licensees last week asking cannabis companies to be proactive and remove products that contain Vitamin E oil, “tocopheryl acetate” or “alpha‐tocopherol from shelves. The OLCC is asking processors to contact them if their recipes contain these chemicals and to set the products aside. Retailers are also being asked to review vape cartridges and to provide consumers with the CDC’s consumer advisory bulletin.

The cannabis industry is used to a high rate of change. Given the latest news, the industry must take this issue seriously and work to keep the public safe. The greatest risk the cannabis industry faces is that the government will determine that cannabis products pose a public safety threat.