Seller Beware: State Agencies Starting to “Embargo” Ohio CBD Products

The confusion surrounding the treatment of CBD products in Ohio is causing disruption to businesses.

Under federal law, hemp and its derivatives (like hemp-derived CBD) are no longer included in the definition of marijuana under the Controlled Substances Act. As such, these products can be marketed without violating federal law.  In Ohio, though, the Board of Pharmacy  declared in 2018 that “[a]ll marijuana products, including CBD oil, can only be dispensed in a licensed Medical marijuana Control Program dispensary.”

For months, the Board took the position that its clarification was “informational” in nature. However, it stated that it would reassess if it continued “to be illegally sold.” Now, it appears that some jurisdictions in Ohio have already decided to take a more aggressive approach to CBD enforcement.

For example, a Mansfield man is facing felony drug charges for reportedly possessing a bottle of CBD oil. His attorney has filed a motion to dismiss the case, and a hearing is scheduled for February 13. In addition, the Cincinnati Enquirer is reporting that the Ohio Department of Agriculture is working with law enforcement agencies throughout the state to “embargo” CBD products at local retailers.

Ohio has not yet changed its own laws to legalize hemp at the state level – though Ohio law will likely change later this year.  Until that happens, businesses should proceed carefully and make sure they understand the evolving legal landscape.

If you have questions about hemp or CBD products, please do not hesitate to contact one of Frantz Ward’s Cannabis Attorneys.

Ohio Banks Take a Closer Look at Cannabis

The Ohio medical marijuana industry is ready to go live, with most of the pieces in place to complete the regulatory structure passed by the Ohio General Assembly in September of 2016. However, like the medical marijuana industry in general, the Ohio market will have a difficult time accessing banking services. This is because while marijuana may be legal under state law, it is still illegal under federal law, and thus banks are reluctant to offer banking services to the industry for fear of violating federal banking laws and rules to which the banks are subject.

However, there are signs in Ohio that banks may be beginning to give the medical marijuana industry a fresh look. Recently, Wright-Patt Credit Union in Dayton, through its board of directors, gave approval for the credit union to begin offering limited services to the medical marijuana industry. At this point, the nature of the services and what they might include have not been specified. Additionally, the Ohio Department of Commerce, through its Division of Financial Institutions, recently issued guidance for banks contemplating getting into the industry.

The decision by Wright-Patt, while isolated in Ohio, reflects a national trend in the industry. By the end of March 2018, 411 banks and credit unions in the U.S. were “actively” operating accounts for marijuana businesses, according to a report prepared by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). That’s up more than 20% from when President Trump took office.

The business reasons for the timing of the announcement are not entirely clear. Banks and credit unions in other states, mostly state chartered, have quietly served the industry to varying degrees for years. Some banks do increased due diligence on their marijuana clients to ensure compliance with a FinCEN memo of February 2014, while other banks may turn a blind eye. What is becoming clear is that as more states pass laws legalizing marijuana and the federal climate for rescheduling marijuana under the Controlled Substances Act and re-examining cannabis related issues continues to improve, many financial institutions want to be ready to jump into a large and growing marketplace that is woefully underserved.

Attorneys Pat Haggerty and Tom Haren were quoted in Crain’s article on Federal legalization of the hemp industry

“Federal legalization could pave way for Ohio hemp market, but uncertainties remain”
Crain’s Cleveland Business 
December 16, 2018

Excerpt from the article:

There are probably 25,000 acres across the U.S. dedicated to hemp farming today, said Pat Haggerty and Tom Haren, who are both with Frantz Wards cannabis law and policy group.

The 2018 Farm Bill means hemp will “explode into huge amounts of interest,” Haggerty said.

“Those 25,000 acres will go into hundreds of thousands, if not millions,” he said.

But like Kepford, Haggerty points out that excitement about cashing in on hemp — which has a laundry list of uses ranging from CBD extracts to cosmetics, construction materials, paper and clothing — is balanced against a cloud of uncertainty.

Haggerty and Haren are working with state lawmakers to draft statutes for a state-regulated hemp industry. That’s something even more legally complicated in the Buckeye State, where medical marijuana is tightly controlled via a rigorous licensing process for growers, processors, testers and retailers. The state has been applying federal rules to hemp, classifying it as marijuana.

That makes hemp effectively illegal to grow and sell under current state laws, which don’t automatically change along with federal legalization. Even hemp-derived CBD is only allowed to be sold legally in Ohio through licensed dispensaries that are opening in the coming weeks (the state hasn’t really devoted resources to enforcing that, creating additional confusion in the public about which retailers are allowed to sell CBD products).

“It’s not clear yet how that conflict between a federal hemp program, where the Department of Agriculture can step in and license folks themselves, works in a state with no hemp program,” Haren noted.

“All this cries out for Ohio to have its own legislation,” Haggerty added.

“But there is real momentum in the general assembly to enact legislation that will legalize and regulate hemp at the state level,” Haren said. “And I’m really hopeful that sometime next year we will have a committed hemp program in Ohio.”

Many hope those laws could be in place in time for a spring planting season.

“We want consistency between state and federal laws because confusion is bad for business,” Haren said.

While hemp legalization feels like a step in that direction, marijuana legalization is still likely a few years away

“I do think this is a huge step forward,” Haggerty said, “but I wouldn’t see the federal government taking another big step in, say, the next two years.”

Significant Federal Cannabis Reform Is Likely in 2019

Frantz Ward attorneys Tom Haren and Pat Haggerty attended the Marijuana Business Conference this past November. Tom was a presenter at the Marijuana Business Crash Course, and Pat attended the Hemp Forum. The biggest takeaway from the conference is that 2019 could be a banner year for cannabis in Ohio and nationwide.

Hemp reform is moving forward.

It has now been confirmed that the 2018 Farm Bill will include the federal Hemp Farming Act, which would remove industrial hemp (cannabis containing less than 0.3 percent THC) from the Controlled Substances Act.

Hemp-derived CBD has been all the rage as of late, with this segment of the industry on track to hit $591 million in 2018. Some analysts predict this could be a drop in the bucket: The Brightfield Group predicts that the CBD industry alone could hit $22 billion by that time.

Legalization of hemp at the federal level is the first step toward a nationwide market for hemp and its derivatives — after passage of the 2018 Farm Bill, it will be incumbent upon the states to develop their own hemp programs.

Broader cannabis reform is possible in 2019.

With the coming change in control of the House of Representatives, many are confident that 2019 will bring significant cannabis reforms. For one thing, the expected Democratic Chair of the House Rules Committee will no longer block cannabis-related amendments from being debated on the House floor.

While that is newsworthy in and of itself, there is also confidence that Congress may finally pass the STATES Act during this session.

The STATES Act would exempt state-compliant cannabis operators from the purview of the federal Controlled Substances Act. In addition to removing the fear of federal prosecution, this change would allow banks to service state-compliant cannabis businesses, and also permit state-compliant cannabis companies to take standard tax deductions on their federal tax returns.

President Trump has indicated that he supports this change, which has bipartisan support in both chambers of Congress.

If you have questions about the 2018 Farm Bill, the Hemp Farming Act, or the STATES Act, please do not hesitate to contact one of Frantz Ward’s Cannabis Attorneys.

Frantz Ward Client Obtains Favorable Ruling in Medical Marijuana Litigation

Frantz Ward’s client, Greenleaf Gardens, LLC was granted summary judgment in an Order from the Common Pleas Court in Franklin County, finding that the method used to issue Level I medical marijuana cultivator licenses is unconstitutional on its face.

The Department of Commerce initially issued twelve Level I cultivator licenses. Greenleaf Gardens was the twelfth highest-scoring applicant, but did not receive a license because the Department was required, by statute, to issue not less than fifteen percent of licenses to entities owned and controlled by members of economically disadvantaged groups. The Court found this set-aside to be unconstitutional.

After receiving a copy of the Order, Greenleaf’s CEO, David Neundorfer, has provided this statement:

“We are obviously pleased with the Court’s ruling in this case, and we value the relationships that our team has built with the Ohio Department of Commerce and Board of Pharmacy. While we look forward to ultimately receiving a license to cultivate medical marijuana, we are actively engaged in bringing our five dispensary licenses and processing license to operational status.

We remain committed to working with the Department and the Board to ensure that Ohio’s patients have access to the safest and most effective medical marijuana as soon as possible.”

For questions, please call Frantz Ward attorney Tom Haren at (216) 515-1664.

To view a copy of the ruling please click here. 

Cannabis Cultivator Prevails in Landmark Civil RICO Trial

Last week, a closely-watched trial involving a Colorado cannabis sued by a neighbor ended with a jury finding in the cultivator’s favor. In Reilly v. 6480 Pickney, LLC, the Reillys complained that their property’s value had decreased due to odor emitted from the cultivator’s property (an unfortunate, if not new, problem in legal cannabis markets) and increased crime in the area. Rather than file a state based standard nuisance claim, however, the Reillys filed claims under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).

RICO was originally enacted in the 1970s to give law enforcement another tool to fight organized crime. Civil RICO lawsuits provide remedies where plaintiffs allege they have been harmed by “racketeering activity,” which, arguably, includes cultivating marijuana (because it remains illegal to do so under federal law).

Last year, a ruling from the Tenth Circuit Court of Appeals allowed the Reillys to take their civil RICO case to trial, though the court noted that they still had to prove that the cultivator’s activity caused their property value to be diminished. In a landmark victory for the cannabis cultivator, though, the jury found that the Reillys did not make those required nuisance related showings. The jury’s verdict comes after a federal district court in Oregon refused to allow a civil RICO claim to proceed.

RICO suits are attractive to plaintiffs because, if they succeed, the plaintiffs can obtain treble damages and attorney fees. Perhaps that is why there appears to be a dedicated effort to use RICO in cannabis-related litigation. Given the increased risks associated RICO litigation, coupled with the fact that more of these cases are likely to be filed in the future, cannabis companies should be prepared to vigorously defend against these claims.

Cole Memo and Other Marijuana-Related Enforcement Guidance Rescinded by the Department of Justice Creating Greater Uncertainty for State-Legal Marijuana Businesses

On January 4, 2018 the Department of Justice rescinded Obama-era guidance to United States Attorneys, including the 2013 memorandum issued by then-Deputy Attorney General James Cole, calling previous guidance “unnecessary” in light of general principles governing federal prosecutorial discretion. Up until this point, the 2013 Cole Memo was widely viewed as the biggest reason state-legal marijuana programs to flourished over the past 5 years, as it directed United States Attorneys to consider distinct federal enforcement priorities when deciding whether to utilize finite government resources to prosecute state-legal marijuana businesses or whether to rely on state and local law enforcement to address those concerns. Click here to read the full client alert.

Growing Season is Near

Today, the Ohio Department of Commerce announced the 12 Level I medical marijuana cultivator provisional license recipients (with one recipient having a possibility of choosing from two different locations) and the 12th recipient of the Level II cultivator provisional license.

In awarding the medical marijuana cultivator licenses, the Department appears to have placed a large amount of emphasis on experience, awarding many of the licenses to companies who have licenses in other states. The emphasis on experience was one of the reasons why the Department declined to include a residency requirement during the application process, which riled many Ohio medical marijuana advocates.

Level I cultivators may have up to 25,000 square feet of cultivation area in a growing facility, with the ability to increase that area up to 75,000 square feet with approval from the Department of Commerce.  Level II cultivators may have an initial cultivation area of up to 3,000 square feet, with an option to increase to up to 9,000 square feet with prior approval. The winners will have nine months from the date they were notified of selection for a provisional license to obtain a certificate of operation by passing all applicable inspections.

The winning applications may be seen here:

To learn more about Ohio’s medical marijuana industry, you can reach out to one of the firm’s Marijuana Law & Policy attorneys.

Jeff Sessions Again Fails to Clarify Comments on Marijuana

What was scheduled as a hearing by the House Judiciary Committee regarding Attorney General Jeff Sessions’ testimony about possible Russian Government contacts with the Trump Campaign, also included another hot-button issue: Jeff Sessions’ views regarding marijuana.

Representative Steve Cohen, a Democrat from Tennessee, stated some of the purported benefits of marijuana, and his hope that the Department of Justice would consider states as the “laboratories of democracy.” (Justice Louis Brandeis). Attorney General Sessions stated that they would look at purported benefits and would conduct a “rigorous analysis of marijuana usage,” but he added that he was not as “optimistic” as Representative Cohen. Further, when Attorney General Sessions was asked to clarify his comment that people who use marijuana are “not good people,” he tried to explain that the context in which he made this comment was his experience as a U.S. Attorney where “it was seen” that “good people did not use marijuana.”

In the end, Jeff Sessions did not explain his prior comments on marijuana. Nonetheless, his statement that he is not optimistic that any investigation or research would show any purported benefit of marijuana may be a harbinger of things to come.

Ohio Releases Dispensary Applications as the Federal Government Continues To Send Conflicting Signals on Legal Marijuana

The Ohio Board of Pharmacy releases model dispensary applications

Today the Ohio Board of Pharmacy released, through the Ohio Medical Marijuana Control Program Website, the application materials for Ohio dispensaries. The Board will accept applications electronically beginning on November 3 at 8:00am and ending on November 17 at 2:00pm.

Similar to what the Department of Commerce did for medical marijuana cultivator applicants, the Board will hold two Q&A periods where it will accept questions from the public. These Q&A periods will be from September 19 – October 5 and October 16 – October 20. The Board will host an informational webinar on October 3.

Ohio will license 60 dispensaries, allocated among several geographic districts. There is a $5,000 fee per dispensary application.

Application materials for medical marijuana processors have not been released yet by the Department of Commerce, though it is anticipated that processor applications will be accepted after cultivator provisional licenses are awarded in November.

Conflicting messages from the federal government results in continued uncertainty in the legal marijuana industry.

Tom Angell reports that Deputy Attorney General Rod Rosenstein discussed the 2013 Cole Memo during an appearance at the Heritage Foundation recently. According to Angell, Rosenstein said, “[w]e are reviewing that policy. We haven’t changed it, but we are reviewing it. We’re looking at the states that have legalized or decriminalized marijuana, trying to evaluate what the impact is[.]” He continued, “[a]nd I think there is some pretty significant evidence that marijuana turns out to be more harmful than a lot of people anticipated, and it’s more difficult to regulate than I think was contemplated ideally by some of those states[.]”

Rosenstein also reiterated that while the Cole Memo may be interpreted to mean that the risk of prosecution is unlikely, it does not mean that an individual’s conduct is legal under federal law, even if that individual is acting in compliance with a conflicting state law.

While Rosenstein is right that the Cole Memo merely guides federal law enforcement in making decisions whether or not to charge marijuana businesses, Rosenstein apparently did not discuss the Rohrabacher-Farr amendment that has been renewed in every appropriation bill since 2014 – and was recently renewed until this December.

Under Rohrabacher-Farr, the Department of Justice is prohibited from using funds to interfere in the implementation of state medical marijuana programs. The Ninth Circuit has held that this means the Department cannot prosecute individuals acting in strict compliance with state law. United States v. McIntosh, 833 F.3d 1163 (9th Cir. 2016). And at least one Michigan federal court has allowed a hearing to determine whether a federal defendant can take advantage of Rohrabacher-Farr’s protections. United States v. Samp, E.D. Mich. No. 16-cr-20263 (March 29, 2017). Attorney General Jeff Sessions objected to the renewal of Rohrabacher-Farr earlier this year.

The conflicting signals by various federal officeholders could be the new normal for marijuana policy. Over the last year, for example, we have seen the following:

For more information on the application process for Ohio medical marijuana dispensaries and processors, please contact Frantz Ward attorney Tom Haren or another member of the firm’s Marijuana Law & Policy group.