Cannabis Business Legal News

With the recent legalization of recreational (or “adult-use”) cannabis in Ohio and sales becoming legal effective August 6, 2024, the burgeoning industry is met with a mix of excitement and regulatory challenges. As new cannabis businesses emerge, it is crucial to effectively navigate the complex landscape of advertising and marketing within the state.

The U.S. Drug Enforcement Administration’s (DEA) recent recommendation to reschedule marijuana (cannabis) from Schedule I of the Controlled Substances Act (CSA) to Schedule III of the CSA has received praise and criticism on both sides of the aisle and among those in between. The strong likelihood that the DEA’s recommendation will become reality prompts us to consider what is down the pike as a result of this rescheduling, especially for state-legal cannabis businesses. Of particular interest will be the impact of rescheduling on: (1) the federal tax code and the ability to deduct ordinary and necessary business-related expenses, (2) access to traditional banking services, (3) and the opening of interstate commerce. Each ramification is discussed in turn below.

The U.S. Drug Enforcement Administration has announced its intention to reschedule cannabis from a Schedule I to a Schedule III drug, marking a significant shift in federal drug policy. This move, prompted by the Biden Administration's review and supported by various governmental agencies, could reshape how cannabis is treated in the eyes of the law, potentially easing business operations, expanding access to traditional banking services, and fostering medical research.

In October of 2022, the Biden Administration started an official cannabis policy review process, which began with granting pardons to all people convicted of simple cannabis possession under federal law. At the time, this was considered to be the most extensive White House action taken to date on federal drug policy in quite some time. Over the last year, the process shifted to the review of cannabis policy by certain critical governmental agencies, including the Food & Drug Administration (FDA). The FDA conducted its review, and then provided comment to the National Institute on Drug Abuse (NIDA) and Department of Health and Human Services (HHS).

Earlier this summer, the Food & Drug Administration (FDA) issued draft guidance for those researching the use of psychedelics to treat certain serious medical conditions including major depressive disorder, PTSD, and substance use disorders. This is the very first time the FDA has provided guidance to the ever growing list of entities conducting research on these controlled substances for the purpose of setting up clinical trials. 

Earlier this month, the U.S. Senate Banking Committee met to discuss the SAFE Banking Act, a critical piece of proposed legislation that would make it easier for the cannabis industry to secure and utilize much needed banking services. Overall, the fact that the Act has warranted extensive discussion by legislators is promising, but passage of the Act as currently styled still seems relatively far off. The meeting, which was entitled “Examining Cannabis Banking Challenges of Small Businesses and Workers,” heard testimony from bipartisan lawmakers, including the Senators who reintroduced the bill (Jeff Merkley and Steve Daines).

Many of us following the ever expanding cannabis industry in the United States have seen more and more CBD-infused food and drink products hitting the market and becoming readily available for consumers.

Last week, La Shawn K. Ford, a Democratic member of the Illinois House of Representatives, introduced the Compassionate Use and Research of Entheogens Act, or CURE Act, as the very first bill during the opening session of Illinois 103^rd General Assembly. Entheogen is a term used to describe a psychoactive, hallucinogenic substance or preparation (such as psilocybin, the active component in so called “magic mushrooms”) especially when derived from plants or fungi and used in religious, spiritual, or ritualistic contexts.

Last month, the Illinois Department of Finance and Professional Regulation (IDFPR), announced that it would begin accepting applications for 55 new adult-use cannabis retail licenses after January 30, 2023. The IDFPR, the governmental entity tasked with regulating the recreational cannabis dispensaries in Illinois, has issued guidelines for what is being called the Social Equity Criterial Lottery. In order to be issued a conditional license pursuant to this application and lottery process, an applicant must be able to establish that it is 51% or more owned or controlled by one or more individuals who each meet the combination of at least one of the criteria under two distinct categories (A and B) set forth by the IDFPR.

Last Thursday, November 10, 2022, a court-appointed receiver threw the City of Chester, Pennsylvania into bankruptcy. At its most basic, a chapter 9 bankruptcy case is a rarely used provision of the Bankruptcy Code which is designed to protect a financially-distressed municipality from its creditors while it develops a plan to repay them. While chapter 9 filings are currently relatively rare, the combustible mix of the current state of the economy and this case filing could be a portent for a wave of similar filings in the next few years. But what truly separates this chapter 9 filing from those of the past (and gives rise to this alert) is the intersection of chapter 9 and the increasing legalization and taxation of cannabis by states and municipalities across the country. The State of Pennsylvania has not yet legalized so-called adult use cannabis, which is generating truly unprecedented amounts of tax revenue for many states, but it has enjoyed a fully functioning, legal, medicinal cannabis program for several years now, and enjoys the concomitant tax revenue therefrom. The City of Chester, Pennsylvania is therefore deriving tax revenue from the state’s medicinal cannabis program – a program centered around federally illegal conduct and the cash it creates.