Editor's Note xiii
Preface xv
Acknowledgments xvii
Chapter 1
Basic Issues: The Tension between Federal and State Law and Policy 1
- Introduction 1
- Definitions 2
- Overview of Law and Regulation 2
- Federal Law and Enforcing Agencies 2
- U.S. Congress and DOJ 3
- U.S. Food and Drug Administration (FDA) 3
- Federal Trade Commission (FTC) 3
- U.S. Department of Agriculture (USDA) 3
- U.S. Department of Treasury (Treasury) 4
- Cannabis and Hemp: Enforcement 5
- DOJ 5
- FDA and FTC 6
- Treasury 7
- Proposed and Pending Federal Legislation 7
- Decriminalization 7
- Banking 8
- Looking Forward 8
- States 9
- Afterword 9
Chapter 2
Transactional Considerations 11
- Introduction 11
- Private Company Transactions 13
- Federal Legal Considerations 13
- State Regulatory Considerations 14
- Transfers of Applicable Licenses 15
- Restrictions on Ownership of Cannabis Businesses 15
- Reporting Requirements for Owners of Cannabis Businesses 16
Contract Considerations 17
- Structure 17
- Representations, Warranties, and Indemnification 18
- Covenants and Conditions 19
- Dispute Resolution 20
- Minority Investments and Joint Ventures 21
Public Company Transactions 21
- Disclosure Requirements 21
- Exchange Rules 22
Chapter 3
Banking and Finance Issues 25
- Introduction 25
- Federal Controlled Substances Act 26
- Dual-Banking System 27
- Bank Secrecy Act and Anti¿Money Laundering Laws 28
- Asset Forfeiture 29
- Fines and Imprisonment 29
- Bank Regulator Oversight 30
- BSA Requirements 30
- Establish Written Internal Policies, Procedures,
and Controls 31
- Conduct Independent Testing 32
- Designate a BSA/AML Compliance Officer 32
- Provide Ongoing Training to Relevant Employees 33
- Customer Due Diligence 33
Suspicious Activity Report Filing 35
- Hemp Business and SARs 36
Currency Transaction Reporting 37
- Federal Legislation 38
- State Marijuana Banking Innovations 39
- Identifying a Bank for MRBs 42
- Payments for Marijuana 42
Chapter 4
Employment 45
- Federal Law Grants Employers Greater Rights to Regulate
Cannabis in the Workplace 46
- Cannabis and the Hiring Process 47
- Background Checks and Consideration of Cannabis-Related Arrests and Convictions in Hiring Decisions 47
- Pre-Employment Drug Testing 49
- Consideration of an Applicant's Participation in a Medical Cannabis Program or an Applicant's Off-Duty
Use of Cannabis 52
- Cannabis Use during Employment 53
- On-Duty Use or Possession of Cannabis Products 53
- Off-Duty Use of Cannabis Products 53
- Post-Hiring Drug Testing for Cannabis Use 55
- Accommodating Cannabis Use 59
- Accommodating Cannabis Use under the
Americans with Disabilities Act 59
- Accommodating Medical Cannabis Use under
State Law 61
- Accommodating Recreational Cannabis Use
under State Law 64
- Carve-Outs from State Cannabis Laws 64
- Safety-Sensitive Positions 64
- Exception for Compliance with Federal Law, Contracts, Funding, or Licensing Requirements 65
- Job Positions Regulated by Federal Agencies 67
- Related Topics Associated with Cannabis Use and Employment 68
- Workers' Compensation Benefits 68
- Unemployment Benefits 69
Chapter 5
Cannabis and Real Property 71
- Acquisition of Real Property for Cannabis-Related Uses 71
- Real Estate Broker Issues 71
- Financing Issues 72
- Investors 72
- Banks and Other Financial Institutions 73
- Hemp and Hemp Derivatives 74
- Title Insurance Issues and Real Estate Due Diligence 75
- Property Insurance 76
- Commercial Leasing for Cannabis-Related Uses 76
- Leasing Due Diligence and Loan Document Review 77
- Enforcement Issues 78
- Drafting Considerations 78
- License Contingency or Condition
Subsequent Clause 78
- Permitted Use 79
- Applicable Laws/Compliance with Laws 80
- Rent and Form of Payment 81
- Security and On-Site Cash 81
- Landlord's Access 81
- Tenant Improvements 82
- Common Areas/Odors/Etc. 82
- Utilities and Operating Expenses 83
- Environmental Concerns 83
- Insurance and Indemnification 83
- Surrender and Other End-of-Term Provisions 84
Forfeiture 84
- Use Restrictions 85
- Conclusion 86
Chapter 6
Tax Law Issues 87
- Federal Income Tax Issues 87
- General Principles 87
- Internal Revenue Code Section 280E¿Operating
Expenses Not Deductible 89
- ¿Trafficking¿ 89
- ¿Controlled Substances¿ 90
- Application to Non-Cannabis Lines of Business 90
- Application to Internal Revenue Code
Section 199A 92
- Constitutional Issues¿Eighth Amendment 92
- Constitutional Issues¿Fifth Amendment 93
- Constitutional Issues¿Sixteenth Amendment 93
Reductions to Gross Income¿Internal Revenue Code
Section 471 (Cost of Goods Sold) 93
Reductions to Gross Income¿Internal Revenue Code
Section 164 (Taxes) 95
- Internal Revenue Code Section 501(c)¿Exempt
Organizations 96
- State Tax Issues 96
- Income Taxes 96
- California 97
- Colorado 97
- Illinois 98
- Oregon 98
- Other General Business Activity Taxes 98
- General Retail Sales Taxes 99
- ¿Sales¿ 99
- Exemptions 99
- Business Inputs Exemptions or Incentives 100
- Cannabis Excise Taxes 101
- Weight-Based Excise Taxes 101
- Price-Based Excise Taxes 102
- Stamp Taxes 103
- Non-Marijuana Forms of Cannabis (Hemp and CBD) 103
Chapter 7
Marketing 105
- Marketing Cannabis Products in the United States 105
- Cannabis, Marijuana, and Hemp 105
- Cannabis Derivatives 106
- Legality of Advertising Cannabis Products 106
- Regulatory Framework for Hemp and Hemp Derivative
Advertising 107
- Federal Advertising Laws 107
2.1.1 FTC 107
2.1.2 Lanham Act 108
2.1.3 Federal Food, Drug, Dietary Supplements,
and Cosmetics Regulation 108
- State Laws 108
- Mini-FTC Acts and Consumer Protection Laws 108
- State Hemp and Hemp Derivative Laws 109
- National Advertising Division 109
- Advertising Basics 110
- Identifying an Advertising Claim 110
- Puffery 111
- Disclosures 111
- Substantiating Advertisement Claims 113
- Generally 113
- Scientific Claims 113
- Health Claims 115
- Generally 115
- Examples of Prohibited Health Claims 115
- Advertising Issues Regulated by the FDA 116
- Drug Advertising 117
- Dietary Supplement Advertising 118
- Food Product Advertising 118
- Cosmetic Advertising 119
- Unapproved New Animal Products 120
- Special Advertising Issues 120
- Endorsements and Testimonials 120
- Comparative Advertising 121
- Price Advertising 122
- Contest and Sweepstakes Promotions 122
- Marijuana and Marijuana Derivative Advertising 123
- Federal Law 123
- State Laws 124
- Conclusion 125
Chapter 8
Trademarks 127
- Federal Overview of Cannabis Trademarks 127
- The Federal Lanham Act and the Lawful Use
in Commerce Requirement 127
- Compliance with the Controlled Substances Act 128
- The 2018 Farm Bill and Examination Guide 1-19 130
Alternative Trademark Protection for the Cannabis Industry
and Its Limitations 132
- State Trademark Registrations 132
- Federal Registration for Ancillary Goods or Services 134
Trademark Infringement and Dilution 137
- Likelihood of Confusion 137
- Dilution by Tarnishment 139
Takeaways 141
Chapter 9
Patent Law in the Cannabis Industry 143
- Introduction 143
- How Can the Industry Protect Its IP? 145
- Utility Patents 145
- Design Patents 148
- Plant Patents 149
- Plant Variety Certifications 150
- Why Is Patentability Important? 151
- Marketability for Future Consolidation 151
- Enforceability in the Courts 151
- Potential for Patent Challenges via Inter Partes Review 153
- Conclusion 154
Chapter 10
Cannabis Litigation: Trends and Considerations 155
- Cannabis and Civil Litigation 155
- Types of Cases 156
- Consumer Protection 156
- Products Liability and Negligence 158
- California Proposition 65 158
- Contract Law 159
- Class Actions 160
- Common Defenses 163
- Pleading with Specificity 163
- Reasonable Consumer 164
- Preemption 164
- Primary Jurisdiction 165
Conclusion 166
Chapter 11
Insurance Considerations for the Cannabis Industry 167
- Overview of Basic Insurance Products 167
- Comprehensive General Liability 168
- Property Loss and Business Interruption Insurance 168
- Commercial Crime or Fidelity Insurance 169
- Cyber Insurance 170
- Network Security 170
- Privacy 171
- Business Interruption 172
- Directors and Officers (D&O) Liability 172
- Overview of Key Risks and the Corresponding Insurance Product 173
- Product Liability 173
- Fires, Bugs, and Other Sources of Property Loss 175
- Theft 175
- Improper Release of Customer Information 176
- Loss of Share Value 177
- Judicial Guidance 178
- Conclusion 181
Chapter 12
Bankruptcy 183
- Introduction to Bankruptcy, Receiverships, and Assignments
for the Benefit of Creditors 183
- Treatment of Cannabis in Bankruptcy Cases 186
- Treatment of Cannabis in Receiverships and ABCs 191
- Receiverships 191
- ABCs 194
Chapter 13
Regulation of Cannabis-Containing Products in the U.S. Food
and Beverage Supply 199
- Federal Food Safety Oversight 199
- Food-Related Provisions of the Food, Drug, and Cosmetics Act 201
- Adulteration and Food Ingredients 201
- Dietary Supplements 204
- Misbranding of Foods and Dietary Supplements 205
- Application of Statutes and Regulations to Cannabis and Cannabis-Derived Compounds in the Food Supply and
Current Status 206
- Cannabidiol (CBD) 208
- Cannabigerol (CBG) 212
- Animal Foods 212
FDA Regulatory Actions 213
Chapter 14
Regulatory Overview of the Canadian Cannabis Industry 215
- Federalism and Legislative History 215
- Federally Regulated Activity 218
- Licenses Issued under the Cannabis Regulations 220
- Cultivation Licenses 221
- Processing Licenses 222
- Analytical Testing License 223
- Medical Sale License 223
- Research License 224
- Licenses Issued under the Industrial Hemp Regulations 225
- National Cannabis Tracking and Licensing System 226
- Promotional Activity 226
- Blanket Prohibition and Specific Prohibitions
on Content 227
- Exceptions to Blanket Prohibition, and
Requirements and Prohibitions on Venue 228
- Prohibition on Inducements 229
Import and Export 230
- Provincially Regulated Activity 231
- Cannabis Products 233
- Good Production Practices 234
- Classes of Cannabis 236
- Dried Cannabis and Fresh Cannabis 236
- Cannabis Plants and Seeds 236
- Edible Cannabis 237
- Cannabis Extracts and Cannabis Oil 237
- Cannabis Topicals 239
- Packaging and Labeling 239
- Packaging 241
- Labeling 241
- Corporate Finance 243
- Distribution of Securities in Canada 243
- Prospectus and Other Disclosure Requirements Applicable to Cannabis Companies 244
- Canadian Stock Exchange Requirements 246
- TSX and TSX-V 246
- Canadian Securities Exchange (CSE) 247
- NEO Exchange 248
- Compliance with Proceeds of Crime Legislation 248
Regulatory Approvals Relevant to Mergers and Acquisitions
in the Cannabis Industry 248
- Health Canada Notices and Approvals 249
- Foreign Investment Review 249
- Canadian Competition Law Considerations 250
About the Editors 253
Chapter Authors 255
Index 257
