law Archives - Green Market Report

Dave HodesMay 4, 2022
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There are a number of law firms building a list of clients in the psychedelics industry, in part because there are more issues percolating within the legal system about a federally illegal substance, and more companies exploring developments in this space.

Zuber Law Firm, Los Angeles; Husch Blackwell, St. Louis; Calyx Law, San Francisco; Clark Howell, Los Angeles; plus a handful of other firms outside of the U.S. are all diving deeper to sort out the legal entanglements of the psychedelics industry.

Lawyers with psychedelics practices are working on such issues as intellectual property rights—product patents—which is to be expected in a new industry of startups elbowing their way into relevance as they begin the expensive and long road from discovery into FDA approved drugs. But there are more issues about psychedelics cropping up fast and furiously that are drawing attention from these law firms.

One new landmark case in psychedelics involves the right to try (RTT) law, which officially became the law of the land in May 2018, after 41 states developed their own version. It creates a uniform system for terminal patients seeking access to investigational treatments. 

RTT opens a new pathway for terminally ill patients who have exhausted their government-approved options and can’t get into a clinical trial to access treatments. But RTT only applies to treatments that have completed an FDA-approved Phase 1 clinical trial and remain under study in an active clinical trial. For example, if there are a Phase 2 or 3 clinical trials for medical cannabis as a treatment of an underlying terminal condition, it may qualify. 

Psychedelics is another matter.

There are murky gray areas within RTT applied to psychedelics that are being challenged in court in one particular case.

Gary Smith, a cannabis-focused attorney at the Guidant Law Firm in Phoenix, and general counsel to the nation’s oldest multi-racial peyote church is also the author of Psychedelica Lex, one of the first books to examine the law of psychedelic substances to help law firms and other organizations navigate novel legal and policy issues in this emerging sector. Smith is also a member of the legalization and regulation committee of the Psychedelics Bar Association (PBA).

RTT and the case of Advanced Integrative Medical Science Institute (AIMS) v. the Drug Enforcement Administration (DEA) recently got on his radar.

In one of his recent podcasts, his guest was attorney Kathryn Tucker, one of the founding members of the PBA and special counsel at Emerge Law Group, where she co-chairs the firm’s Psychedelic Practice Group. She is also the lead attorney on the AIMS v. DEA case.

Tucker discussed the RTT case involving the review of a letter that she and Dr. Sunil Aggarwal, who is the co-director of the AIMS, sent to the Drug Enforcement Administration (DEA) to get advice and guidance on how Aggarwal could administer psilocybin to two terminally ill patients without incurring liability under the Controlled Substances Act (CSA). AIMS is an outpatient clinic and research institute in Seattle, Washington.

Arguments began on September 2, 2021, before a three-judge ninth circuit court of appeals panel on the lawsuit against the DEA that was filed in March. A decision by the DEA to dismiss the lawsuit was rendered on January 31, 2022. 

The case marks the first time that a federal appellate court was asked to weigh in on the meaning of the provision governing the interrelation of DEA’s and FDA’s spheres of authority, according to one of the attorneys representing Aggarwal, Shane Pennington with Vicente Sederberg law firm.

Tucker wanted the DEA to consider “additional registration” pursuant to the RTT Act to obtain psilocybin for therapeutic use for terminally ill cancer patients.

The DEA responded with a letter identifying the available exemptions in the CSA which showed that the RTT Act did not create any additional exemptions. They then provided straightforward guidance about the interaction of the RTT Act and the CSA. Tucker wanted a judicial review of what the DEA said in their letter.

In their summary to dismiss, the judges said that they didn’t have the jurisdiction to review the DEA’s letter. “We then filed a request that the DEA give us a final decision, called a request for waiver, which is one tool in the DEA toolbox,” Tucker said during her blog interview. “It could have issued an exemption.”

They also filed a petition to reschedule psilocybin off CSA’s Schedule 1 to Schedule 2. “This moment is an auspicious and important moment for every activist who wants to see dying patients have the benefit of psilocybin therapy,” Tucker said, calling for a grassroots letter-writing campaign to lawmakers to take a more active role in the DEA’s obstruction to the RTT law, and why a duly enacted state and federal law is not being respected by the DEA. “This is a moment where citizen activism can and should come to the fore,” she said.

She said there has been a tremendous groundswell of organizational support to allow RTT laws to operate as intended. “We really need to reignite that broad support now,” she said.

There’s clearly more to come on this issue. 

Five different advocates and think tank groups filed briefs in support of AIMS in the case on May 21, 2021, including a brief by law professors and bioethicists stating that the DEA erred in refusing the request to access psilocybin for relief of debilitating depression and/or anxiety, and the court should reverse the summary decision to dismiss.

“The criticisms some have lodged against RTT laws simply do not apply in the present situation, where a well-known, safe and effective drug will be given solely as palliative care to patients facing the end of their lives,” the brief stated. 

The brief then cited three studies to back up the efficacy of psilocybin, adding that “these and other studies show that, in research spanning nearly 60 years, psilocybin has been shown to be safe, well-tolerated, and effective in reducing depression and anxiety, particularly in patients facing end of life.”

Then on January 18, 2022, seven members of Congress sent a joint letter to the DEA, citing the AIM v. DEA court case. “We strongly believe that our constituents suffering such illnesses should have access to this investigational drug should they decide to pursue such a course of treatment,” they wrote, adding that quick action was needed.

As clinical psychedelics trials move into Phase 3, and are subsequently OKed by the FDA within 2-4 years, will the DEA just let its obstruction to the RTT go on until then? That doesn’t help now in this case and any other similar cases, Tucker said. “Some of these patients who need help now will not be alive by then,” she said. “So now we see RTT laws thwarted to the detriment of dying patients.”

Stay tuned..


Julie AitchesonApril 18, 2022
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Legal cannabis loopholes are sparking both innovation and creative evasion in today’s cannabis industry, and a host of law professionals are taking pains to elucidate them for clients in cannabis who risk both profit and loss by operating within them. After doing our due diligence with some of the cannabis industry’s top law professionals, Green Market Report has composed a list of the top five legal loopholes keeping things interesting in cannabis right now.

CBD

According to Morgan Davis, founder and CEO of Davis Legal, CBD products for food and beverage consumption present one of the most commonly exploited legal loopholes. CBD is still not FDA-approved, but consumables are commonly available everywhere from gas stations to Whole Foods and online retailers. “There are some states that have enacted regulations allowing for hemp and CBD products for human consumption,” Davis says, “but a majority have not. Nevertheless, a consumer can buy hemp and CBD food and beverage products for consumption in almost every state in the U.S.”

David Feldman, CEO of cannabis strategic advisory firm Skip Intro Advisors, puts Delta-8 at the top of his loophole list, and he’s not alone. Legal Associate Demetria Hamilton, in a blog post for law firm Bryan Cave Leighton Paisner (BCLPDigest.com) states that while Delta-8 THC is derived from CBD extracted from hemp plants and has been found to provide a “high” distinct from Delta-9, it still falls under the Farm Bill’s definition of “hemp”. “In other words,” she writes, “while Delta-8 is another name for Tetrahydrocannabinols, its presence in any quantity provides a risky grey area for brave cannabis producers to work-and profit- within.”

Sex & Wellness

Both Feldman and Davis are of the opinion that the medical marijuana market is another realm where cannabis businesses find workarounds to get their products into consumers’ hands. Davis cites “period care”, such as CBD or THC tampons, which are not FDA-approved and, as “medical devices”, are prohibited from including THC or CBD yet are still available online and throughout the country. Sex and wellness is another avenue for loopholes.  As “medical devices”, sex toys are regulated by the FDA, thereby prohibiting cannabis as an additive. Cannabis is also not approved by the FDA to enhance the sexual experience or treat sexual dysfunction, yet products (e.g. THC strains specifically targeted to enhance sexual experience, infused lubes, cannabis condoms, etc.) that address exactly those needs are gaining in popularity. “The loophole,” says Davis, “is that most of the companies either sell their product as a topical or “novelty item” to avoid the medical device issue. Add in some creative marketing to avoid being prescriptive and, so far, these products have avoided much scrutiny or enforcement.”

Both Davis and Feldman agree that “gift culture” has long been used as a means of circumventing legal restrictions by including cannabis gifts with a different purchase, such as a sticker, patch or poster advertising the company. A “donation economy” offers a similar workaround, and one that has been utilized in California’s medical market for twenty years. Customers make a donation in an amount equivalent to the cost of a cannabis product, then receive the product as a “free gift” as a token of appreciation for the donation.

Hospitality

“Cannabis hospitality” is a sector of the market where legal loopholes are helping cannabis consumers enjoy products outside of their homes. Restaurants or lounges may offer consumption options like joints or edibles without possessing the requisite retail license, while hotels, event spaces and even campgrounds can take advantage of private property laws to allow them to host cannabis consumption on their property. This does not extend to national parks and property owned by the Bureau of Land Management, which adhere to federal regulations and where cannabis and certain CBD products are illegal at all times. State parks may be more flexible depending on the state’s marijuana regulations. For example, information officer for California State Parks Adeline Yee confirms that “persons 21 and older may possess up to 28.5 grams of marijuana” at California state parks. Smoking or ingesting cannabis in California state parks is still illegal, however, and may only occur on private property.

Morgan Davis observes that some of today’s hottest trends in cannabis are operating in many of these legal grey areas, driven by those who choose to believe that if something is not very specifically prohibited by law, it is legal. “It’s still an exciting interval to watch,” Davis says. “The first one through the wall might get the bloodiest, but they’ll clear the path for all of the monumental ways this plant can transform lives.”

 


Debra BorchardtMarch 25, 2020
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In these trying times, it’s always good to have an excellent lawyer on your side. A strong contract goes a long way towards protecting your interests and if you find yourself in a dispute, you certainly want someone who understands your business and can work with cannabis companies.

Green Market Report compiled this list with assistance from the Cannabis Law Report. We separated the list into two categories: cannabis only legal firms and large cannabis divisions within larger firms. We put them in alphabetical order and there is no ranking.

Also, no free legal advice was given to get on this list nor did anyone pay to be included.

Cannabis Only

Clark Howell (California) – “Women-owned and steered, we know what it’s like to chart your own course.” Led by attorney’s  Ariel Clark and Nicole Howell, this firm handles corporate, regulatory, supply chain, commercial real estate, hemp & hemp products, and emerging medicines. They work with start-ups, brands & operators, investors, and ancillary service providers. The group also publishes the Green Frontier Bulletin.

Green Light Law Group (Oregon) – Green Light Law Group is a Portland-based firm focused on providing legal solutions to the cannabis industry. We service our clients’ needs in Oregon, Washington, California, New York, Maryland, Washington, D.C., Florida and Texas.  The company’s attorneys have extensive experience and in-depth operational knowledge of the marijuana and hemp industries. Green Light is positioned to provide legal services and counseling for new entrepreneurs, financiers, and established companies.

Hoban Law (Colorado) – Hoban Law Group is the first U.S. based law firm to expand its cannabis industry services across the globe with attorneys in the European Union, Latin America, and beyond. With these resources, HLG builds out client portfolios within the global cannabis economy. As a global Cannabusiness Leader since 2009, HLG has been providing professional services to the cannabis industry, which is comprised of the international hemp and regulated marijuana marketplace. The company’s attorneys are experts in marijuana law, hemp law, and corporate cannabis law.

McAllister Garfield (Colorado) – McAllister Garfield, P.C. is a full-service law firm that pioneers legal strategies and services for the marijuana industry. Beginning with the very first marijuana businesses that emerged in 2009, the firm has represented hundreds of medical and recreational dispensaries, grows, infused-product manufacturers, and testing laboratories. The company currently represents some of the leading marijuana companies in Colorado and nationwide and represents a large number of ancillary and related businesses; including, lenders, investors, landlords, social media companies, trim companies, consultants, vendors, inventors, and packaging companies.

Vicente Sederberg LLP (Colorado) – Vicente Sederberg is not just a law firm that decided to jump into the cannabis space. It is solely a cannabis law firm and has been at the leading edge of cannabis law and policy since the inception of the regulated cannabis industry. VS was founded in 2010 and was just a handful of employees working out of a tiny office suite in Denver. Today, the firm has more than 100 full-time employees, including more than 40 attorneys, working out of offices in Boston, Denver, Jacksonville, Los Angeles, and New York. The company also maintains strategic relationships with a number of leading firms around the U.S. and across the globe that specialize in areas of the law that are critical to cannabis clients. VS offers a full suite of services for all types of plant-touching marijuana and hemp businesses (cultivators, retailers, extractors, product manufacturers, distributors, and testing labs), ancillary businesses, investors, trade associations, and governmental bodies.

Key Cannabis Focus

Fox Rothschild has grown to a 950-lawyer national law firm with 27 offices. Fox Rothschild’s Cannabis Litigation team has vast experience advising and representing highly regulated businesses within the constantly evolving matrix of federal, state and local compliance laws. It represents both public and privately-held cannabis companies and industry investors in bet-the-company litigation, governmental proceedings, and appeals. The firm’s crosscutting capabilities also support cannabis industry clients in investor and shareholder disputes, securities litigation, corporate mismanagement claims, patent, trademark and copyright litigation, zoning challenges and licensing disputes.

Greenspoon Marder – Among the first national law firms to establish a dedicated Cannabis Practice Group,  Greenspoon Marder is at the forefront of this exciting and rapidly growing industry. The firm’s team helps cultivators, retailers, product manufacturers, distributors, and testing facilities, as well as ancillary industry businesses and investors. With over 30 attorneys focused on cannabis, medical marijuana and hemp sectors, the company’s Cannabis Practice advises clients from early formation through an exit. We take a creative and proactive approach to the practice of law, enabling our clients to take advantage of the emerging legal developments and industry trends.

Harris Bricken – Since 2010, this firm has been helping businesses navigate rapidly evolving cannabis regulation and policy. The cannabis lawyers in California, Oregon and Washington help cannabis businesses with their corporate legal matters involving company formation and structuring, transactional agreements, IP, corporate governance, taxation, licensing, and the acquisition and leasing of real property. For those beyond their jurisdictions, they offer comprehensive advice and analyses of current industry developments on their blog, Canna Law Blog. The firm has nearly a decade of multi-state experience in the nation’s fastest-growing medical and recreational cannabis markets.

Rose Law Group – The cannabis industry team at Rose Law Group pc has been providing comprehensive legal advice, direction and assistance to individuals and companies in the cannabis industry in regards to Title 9, Chapter 17, of the Arizona Department of Health Services Medical Marijuana Program and A.R.S. § 36-2801. The firm has industry-specific knowledge and experience in every aspect of the legal, administrative, regulatory and business issues facing those in the medical and adult-use cannabis industries.

Up & Coming

Duane Morris – Duane Morris attorneys represent businesses and individuals at every level of the cannabis supply chain. Our clients include state-licensed adult-use marijuana, medical marijuana, and hemp cultivators, processors, distributors and dispensaries, whether vertically integrated or operating as standalone businesses, as well as investors in those businesses. The firm also represents the full range of business vendors that supply their products and services to the cannabis industry, such as raw materials, technology, advertising, social media, consumption products, and security companies.

Hiller PC – Hiller is best known for its federal cannabis lawsuit team – co-counsel Michael Hiller, Lauren Rudick, Joseph Bondy, and David Holland who filed a complaint in September 2017 to the United States District Court for the Southern District of New York with regards to twelve-year-old Alexis Bortell. The lawyers – who are all members of the New York Cannabis Bar Association – are working on the case pro bono in hopes of winning a watershed decision descheduling marijuana under federal law. The case was dismissed but then reinstated in May 2019.


Caroline CahillApril 26, 2019
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A Massachusetts cannabis investment scheme has resulted in charges for an investment adviser who allegedly swindled more than $8 million from investors.

On April 17, 2019, Massachusetts Sec. of State William F. Galvin announced charges against Frederick V. McDonald, Jr., CEO of US Advisory Group Inc. McDonald is accused of misleading more than 100 investors in a Massachusetts cannabis investment scheme, with one 78-year-old investor losing more than $3 million.

McDonald’s house of cards was built with three main ventures—US Advisory Group, Commonwealth Pain Management Connections LLC, and Kettle Black of MA LLC. Through these vehicles, McDonald used clients’ funds in a failed attempt to gain medical cannabis dispensary licenses in Massachusetts and violated state securities laws in the process.

According to the filing, McDonald acting as an investment advisor made recommendations to a high net worth client directing him to invest in marijuana projects without disclosing McDonald’s controlling interest in the investment vehicle or the fees he would receive in connection with the projects.

He originally met the investor at the World Presidents’ Organization Retreat in 2007 and got him to sign an advisory agreement. He got him to invest $1 million into Prime Wellness of MA. Instead of going after the medical marijuana license, McDonald took $200,000 and invested it in Dixie Highway Partners, a different entity owned by McDonald.

He never got a license for Prime Wellness and started a new investment vehicle called KBMA in which he raised $8 million. Ultimately, the venture never obtained a license and had a falling out with the property owner for the proposed dispensary. The whole deal fell through and the investors lost all their money. The original investor ended up losing $3 million and the other investors lost the $8 million for KBMA.

As documented by the state’s 35-page administrative complaint, “McDonald’s free-wheeling practices included cutting corners at every opportunity and lying to his own business partners and investors to cover his own mistakes.”

The complaint details McDonald’s failure to uphold his fiduciary duty, and how “[he] further failed to educate himself regarding the unique and complex licensing process in Massachusetts, which resulted in the distribution of offering documents that failed to adequately disclose to investors the risks or difficulties the investment could face.”

The Massachusetts Securities Division wants to bar McDonald from practicing as an investment adviser and require him to pay a fine to the state and restitution to investors, among other requested enforcement actions.

While McDonald has been accused of misusing investment funds, making material omissions, and other unethical conduct and practices, a representative from US Advisory Group has denied the state’s allegations.

“We have always acted with the highest level of ethics and in the best interests of our clients,” stated the USAG representative, as reported by the Boston Herald. “News reports do not accurately reflect US Advisory Group’s core, history and legacy of providing exceptional financial planning and advice.”


Debra BorchardtFebruary 9, 2018
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Congress shut down the government for a moment, but then our representatives in D.C. agreed on a 2-year framework for a budget and the government was back in business. Wrapped into this budget agreement was a vote to renew the Rohrabacher-Blumenauer amendment. This legislation protects states with legal medical marijuana from prosecution by the Department of Justice (DOJ) by denying them from spending money on enforcement.

The two years isn’t a done deal because for the next six weeks details in the budget will be hammered out with March 23 as another date to look towards voting on the budget. Yet, it keeps getting included and each time that happens, it becomes more and more secure

The federal budget decides how much money each department gets to spend and the Department of Justice gets lumped in with all the other departments. This particular amendment prevents the DOJ from spending any of the money it gets towards enforcing federal marijuana laws against businesses and individuals in states that have legalized medical marijuana.

Each time the budget has been up for a vote, the cannabis industry would begin biting its nails. Would they include it again? Would this be the year they kick it to the curb and open the money train back up to Attorney General Jeff Sessions? There was even a fear that if the government shut down and the amendment was technically no longer in effect, the DOJ could quickly begin raiding companies in Colorado, Washington, Oregon and more.

There are multiple pieces of legislation that have been written to address issues with the cannabis industry. From outright legalization to more cherry-picked items like banking or veterans access to medical marijuana. Yet, before a piece of legislation can be passed, it must be voted on and in order for it to be voted on the Rules Committee must allow the bill to go to the floor for a vote. The makeup of the committee is skewed towards the majority party – in the case, the Republicans.

The Republicans consistently vote along party lines and refuse to allow any of the legislation get to the floor for a vote. So, the only recourse the legislators have is this amendment.


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The marijuana industry is still processing United States Attorney General Jeff Sessions’ recent decision to repeal the Cole Memo, which had directed federal prosecutors to refrain from prosecuting marijuana-related businesses that operated in accordance with a facilitative state law. The effect of Sessions’ policy change is presently unclear because, as of this date, the December 2014 Rohrabacher-Blumenauer amendment precludes the Department of Justice (DOJ) from spending any of its budget for the prosecution of entities that are lawfully participating in a state marijuana program. But, the Rohrabacher-Blumenauer amendment is part of continued, partisan, budgetary conflict, currently scheduled to resume in early February.

Under the recent policy change, United States Attorneys have been given additional discretion to prosecute marijuana businesses, even when they are operated in accordance with state law But no one knows what resources the DOJ will be permitted to direct to those prosecutions. Direct prosecution of state-legal cannabis businesses may be a cost-intensive endeavor. On January 4, 2018, Pennsylvania Governor Tom Wolf indicated that the Commonwealth will oppose efforts to prosecute businesses operating in accordance with the Pennsylvania Medical Marijuana Act. Pennsylvania is one of 29 states (and the District of Columbia) that have legalized medical or recreational cannabis, meaning there is as many as 30 state attorneys general who have an interest to opposing lawsuits that may directly impact legalized marijuana. Add to that the lawyers who may be hired to defend the estimated $10 billion legal marijuana industry, and prosecution becomes a potentially costly proposition.

But, what about less-expensive, indirect enforcement? There are several indirect or “sideways” avenues that the DOJ might explore to undermine medical and recreational marijuana:

  • Firearms. Under the Gun Control Act of 1968, persons who regularly use marijuana cannot legally own firearms. Pennsylvania has pledged not to release the names of patients holding medical marijuana ID Cards to federal authorities. But gun owners must disclose their marijuana use when reregistering their firearms or face charges for making misstatements to federal authorities. Historically, prosecution of firearm offenses has rarely occurred in the absence of another crime, but that could change.
  • Physician licensing. The federal Drug Enforcement Administration (DEA) issues prescribing licenses to physicians. Without a DEA license, a physician cannot prescribe prescription medicines. A physician who prescribes medical cannabis could potentially face difficulty renewing her federal license.Pennsylvania has sought to insulate doctors by having physicians certify that a patient suffers from one of 17 recognized conditions and allowing the dispensaries to counsel clients and suggest products. However, Pennsylvania’s law also allows certifying physicians to “recommend” cannabis products and amounts. Federal authorities may argue that “recommendations” by certifying physicians equates to “prescribing” cannabis. Although Pennsylvania does not permit a certifying physician to work for a dispensary, each dispensary must employ one physician to oversee counseling and dispensing. A physician employed by a licensed dispensary may face more difficulty in maintaining federal licensure based on their role in the actual delivery of medical marijuana directly to patients. A dispensing physician may retain a state-issued license to practice medicine, but be precluded under federal law from prescribing medications.
  • Real property forfeiture. Federal law allows the government to confiscate real estate that is used to advance drug sales and distribution. The Justice Department may seek to pressure landlords of state-legal cannabis businesses to terminate leases or face federal forfeiture actions.

We do not yet know how or if the federal government will seek to curtail state-legal marijuana businesses. There is no guarantee how government enforcement will proceed.


StaffSeptember 27, 2017
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The acting chief of the U.S. Drug Enforcement Administration (DEA) Chuck Rosenberg is stepping down according to reports from The Associated Press. Rosenberg is said to have notified employees on Tuesday in an email that he was leaving and thanked them for their hard work.

Rosenberg has been in the position temporarily since 2015 and garnered attention when he distanced himself from President Trump after comments that the police shouldn’t be nice to suspects when putting them in squad cars. At that time he told employees that he did not condone police misconduct. The AP also said that New Jersey State Police Col. Rick Fuentes is a front-runner for the role.

Just last week, he named the President an honorary state trooper bestowing badge number 45 on him. “The New Jersey State Police ‘Roll Call’ roster will forever reflect badge number 45 being honorably issued to President Donald J. Trump,” Fuentes wrote in an order that authorized the ceremonial designation. Fuentes is known for taking a stance against racial profiling. He also holds masters and doctoral degrees in criminal justice from the City University of New York.

Rosenberg is known for being a close associate of fired FBI Director James Comey. According to the New York Times, Rosenberg was asked whether he wanted to be a permanent administrator for the DEA and he said he did not. It was also said that he believed the President had little respect for the law.

This follows a report earlier this week from the FBI that stated that 653,249 arrests were made for marijuana in 2016. “Arresting and citing over half a million people a year for a substance that is objectively safer than alcohol is a travesty,” said Morgan Fox, director of communications for the Marijuana Policy Project. “Despite a steady shift in public opinion away from marijuana prohibition and the growing number of states that are regulating marijuana like alcohol, marijuana consumers continue to be treated like criminals throughout the country. This is a shameful waste of resources and can create lifelong consequences for the people arrested.”

Tom Angell of Marijuana Majority crunched the numbers and found that marijuana drug arrests were rising – up 5.6% from 2015. He said that it is an average of one drug arrest for every 20 seconds. While industry insiders have operated with an attitude of business as usual, it may be that some prefer the devil you know.


Paula CollinsSeptember 19, 2017
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You’ve experimented with watering, lights, nutrients, soil, and harvesting techniques. Your small, dedicated team has come together like a family, nurturing the development of your product like it is the king baby. You’re finally starting to realize a profit. Suddenly, a key employee hits you with notice of resignation. She has decided to go work for a cannabis producer that is closer to where she lives, and who, coincidentally, is willing to pay her $2 an hour more than you can afford and promise her four nights off a week.

As you begin to snap back from the shock of your close-knit team getting torn apart, you realize: that key employee is about to walk out with a goldmine of experience and training that you gave her. She has intimate knowledge of dozens of processes that are unique to your product line. Suppose she takes all of those thousands of dollars of training you invested in her, and she applies that to the competitor’s benefit?

That’s when you remember: you are covered in most states by local trade secrets statutes, and for the aspects of your business that are non-cannabis related, you have federal protection as of May 2016 with the Defense of Trade Secrets Act (DTSA). Through DTSA and the state-level statutes, a trade secret is anything that you consider to be a secret, and from which you derive profit. In other words – if you say an idea, a design, a process, a marketing plan, a billing process – almost anything — is a secret, and you make money from it, it is protected under trade secrets law!

Trade secrets are exposed at any time in the life cycle of your business, but critical hotspots occur when you tour your facilities with eager potential investors, when you discuss possible mergers and acquisitions with lateral partners, or when a key employee moves to work for a competitor. Cannabis business owners, especially those who are developing and producing products, can take three action steps to protect their trade secrets, but they must be done pre-emptively – long before you see trouble brewing.

 

  • Make clear to all who gain exposure to your business what you consider confidential. You don’t want to proudly display your timers, lights, and watering systems, lest someone spot them and try to duplicate them in their own production lab. Don’t assume that all who smile and shake your hand will play as good sports.
  • Err on the side of caution when you talk to investors. Early in discussions – even before they visit your retail or production operation, have them sign non-disclosure agreements (NDA). It won’t stop them from blabbing to their posse, but it will protect you if the matter gets turned over to the lawyers!
  • Once you have decided that something is considered by you to be a secret and you derive income from it, make sure you take regular efforts to keep it under wraps. If it is an oil extraction process, make sure that the area is kept locked, with limited access, and clear records of the comings and goings of all who gain access.
  • Make sure you have an employee manual that is written down. Outline the physical areas of your operation, and the concepts, ideas, and methods, that you consider to be unique to your operation. Have employees sign that they have read it and consent to it.
  • Some states, such as Colorado, permit non-compete agreements. Non-competes generally do not hold up in court in other states, such as New York.

 

Don’t let the unique features of your business waft into thin air when your key employees leave, or when your potential business suitor takes what he can use from your business and leaves the rest. Identify features of your cannabis operation that are unique, take steps to keep them secret, and make sure that people know what you value as a trade secret.

 

 


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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