With 10 states and the District of Columbia having legalized recreational cannabis (representing nearly a quarter of the U.S. population, including the most populous state), an emerging issue is how to deal with the odor generated by marijuana production facilities. A December 19, 2018 article in The New York Times noted a growing number of neighbors of cannabis farms are complaining about “skunky” odors caused by certain volatile organic compounds generated during growing and processing. The Times cited Sonoma County in California, which it reported received more than 730 complaints about cannabis last year, nearly two-thirds related to odor. Regulators at the state, regional and local levels are attempting to deal with these issues through a combination of permitting, land use and nuisance rules.

In states such as Washington and Colorado, where recreational cannabis has been legal since voter initiatives passed in 2012, regulators have addressed odor as an air quality issue. For example, in the Puget Sound region, the Puget Sound Clean Air Agency — typically recognized in the industry as “PSCA,” or the organization you may have received an unexpected and nondescript invoice from — does not have a specific regulation for marijuana odors. It does, however, have jurisdiction to impose limitations on marijuana production facilities under the state’s general regulations for air pollution sources (WAC 173-400). PSCA regulates odors through the Notice of Construction process, which operates in conjunction with local permitting processes, such as a conditional use permit, and licensing by the Washington State Liquor and Cannabis Control Board.

The PSCA odor regulations set a “best available control technology” (BACT) standard, which is the maximum degree of reduction for each air pollutant subject to regulation under the Washington Clean Air Act (RCW 70.94) that the permitting authority determines is achievable, taking into account energy, environmental, economic and other costs. PSCA’s rules are based on a nuisance standard — causing or allowing an air contaminant in sufficient quantities and of such characteristics and duration as is, or is likely to be, injurious to human health, plant or animal life, or property, or which unreasonably interferes with enjoyment of life and property.

For marijuana producers under PSCA’s jurisdiction (King, Snohomish, Pierce and Kitsap Counties), the agency has determined that BACT means no detectible cannabis odor outside the facility property line. The agency in recent permitting actions has implemented this standard by requiring operators to design all exhaust points (e.g., vents, stacks, windows, doors) associated with an enclosure, building or greenhouse for cannabis production or processing to continuously control odors and volatile organic compounds (VOCs) using carbon adsorption technology, which involves placement of carbon canisters before emission points. At a minimum, these carbon units must be replaced every quarter. An operator also must have a person who has not been exposed to the smell periodically monitor the air at the property line to determine compliance with the “no detectible odor at or beyond the property line” standard.

One significant ramification of this standard is that PSCA does not believe outdoor cannabis production facilities can continuously achieve the “no odor outside the property boundary” standard without the proper use of an enclosure that routes emissions to a carbon adsorption system. PSCA also does not allow odor masking, such as spraying a curtain of scented oil vapor around the perimeter of greenhouses. Although the Times article mentions this system as a way one California grow operation has tried to mitigate odors, PSCA will not accept that as a control technology.

In Colorado, cannabis cultivation facilities are designated as agricultural activity and exempt from state air quality regulations unless they are a major source of pollution. The City and County of Denver, however, has an odor ordinance that requires cultivation facilities control the odor impacts of their operations. An August 2018 draft of the Denver Department of Public Health & Environment’s “Cannabis Environmental Best Management Practices” (BMP) recommends use of carbon filtration to reduce the VOC emissions from a cannabis cultivator. In addition, draft guidance recommends other best management practices, including:

  • Regular inspection and maintenance of HVAC systems;
  • Sealing the grow space within a greenhouse and circulating air for approximately one week and purging exhausts during low ozone formation periods (evenings, windy days, cloudy days);
  • Ensuring temperature and relative humidity are under control and within tolerances so that high temperatures and humidity do not perpetuate odor issues;
  • Having a system in place to record and respond to odor complaints;
  • Purchasing a “scentometer” or Nasal Ranger to quantify odors and record data from self-testing;
  • Timing harvests to minimize ozone impact and minimizing emissions during morning, early afternoon and summer; and
  • Train and allocate responsibilities among staff members to ensure consistent and continuous implementation of BMPs.

Colorado facilities manufacturing marijuana-infused product are subject to health and safety regulations and regulations on extraction processes in the Colorado Code of Regulations. Those facilities must estimate their VOC emissions from solvent uses and follow the state’s Air Pollutant Emission Notice and permitting requirements.

With the increasing production of cannabis for recreational purposes, more conflicts with neighbors are likely. This is a situation where an ounce of prevention by implementing a wide-range of BMPs could go a long way toward reducing the risks of litigation and enforcement.

The new Agricultural Improvement Act of 2018 (Pub. L. 115-334) (the “Act”) was signed into law by President Trump on December 20, 2018. Much press has been devoted to the fact that the Act generally legalizes industrial hemp and will provide federal Crop Insurance for that crop.

While this is potentially good news for farmers and their bankers, questions remain for bankers about how they can effectively identify a legal hemp crop and distinguish it from an illegal marijuana crop. Although industrial hemp typically looks very different from marijuana grown for recreational consumption, both are derived from the same genetic species: cannabis sativa. Under the Act, the legal difference appears to be based on the THC levels in the processed (or “dry weight”) product.

The Act defines “hemp”  to mean: “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” Act, §10113.

The revisions to the Federal Insurance Crop Act use that same definition and provide that “hemp” as so defined can be insured under the federal crop program. Act §§11101 and 11119.

Thus, the legality of marijuana under federal law will be determined by whether the THC it contains, by dry weight, is less than 0.3 percent. If the THC level is 0.3 percent or greater, the crop is still subject to the federal Controlled Substance Act as a Schedule 1 drug (similar to heroin).

As the Act goes into effect and federal regulators weigh in on it, banks will need to consider whether they are willing to lend against the legal crop as they would against any other agricultural product, and will also have to examine how they can ensure that the crop against which they are lending has a legally acceptable THC level.

We are starting to work with botanists and others to see how lenders can lend against hemp crops and audit the crop’s compliance with the Act. Certainly, the approach that will be taken by the Federal Crop Insurance Corporation and the Secretary of Agriculture concerning the Corporation’s providing of crop insurance for hemp will be critical for bankers wanting to enter the field.

The United States has a long history with hemp, legally distinguished from marijuana, but genetically identical as the plant cannabis sativa (L.) — now, hemp is set to reemerge in U.S. agriculture as an important crop following passage of the 2018 Farm Bill expected sometime this week. There had been a lot of speculation, and disappointment, regarding the Bill’s hang up to date — in fact, many had resigned hope of the Bill passing this year at all and already started referring to it as the 2019 Farm Bill. Most people in the agriculture industry are very pleased that the Bill is finally moving forward.

Specific to hemp, people familiar with it as an industrial crop anticipate that the hemp will quickly grow into an important mainstream commodity. Widespread interest in hemp’s chemical derivatives, such as the non-psychoactive substance CBD, is one of the driving factors. Agriculture businesses that have already invested heavily in the industry are thrilled. Although hemp was previously considered an essential crop in the United States dating back to the original 13 colonies and grown by many founding fathers, it has been mostly illegal, except in limited circumstances, since well before the current generation of farmers took over from their own fathers.

Importantly however, it should be noted that although CBD is already big business in the U.S., broader allowances for the production of hemp under the new Farm Bill will not blanket legalize either human or animal consumption of CBD unless any such CBD containing products have specifically obtained approval from the Food and Drug Administration (FDA) under the Food, Drug, and Cosmetics Act (FDCA). Currently only a single substance, Epidiolex, has obtained such approval.

But there’s a lot more to hemp than CBD, such as its more traditional, well-known use as a natural fiber in ropes and textiles. Less well-known, however, may be hemp’s increasing popularity as a composite substrate (fiberglass) or for reinforcing concrete. Increased access and availability of hemp for such purposes will greatly improve research opportunities for other potentially useful applications. Hemp’s inclusion in this year’s Farm Bill signals its widespread shift back to mainstream acceptance over the last decade.

So, ready or not — here comes hemp — or perhaps more accurately, the return of hemp.

We try not to blog about developments outside the scope of our expertise. However, because many of our clients are very involved in Canada (or want to be), we want to share with you this article (authored by a very reputable Canadian law firm) about Ontario’s recently enacted Cannabis License Act and related regulations. Enacted last month, this legislation provides a mechanism for privately-owned business to become licensed retailers in Ontario, though the government-run Ontario Cannabis Retail Corporation remains the exclusive wholesaler and online retailer.  The window for license applications is expected to open December 17.

South Korea is currently garnering a lot of attention in the cannabis industry following its legalization of some cannabis derivatives for medical purposes. The legalization comes as a surprise for many in the international community, particularly because South Korea has aggressively opposed cannabis — most notably by criminalizing the consumption of cannabis by South Koreans traveling abroad to nations where cannabis is legal, such as Canada. Most of Asia, particularly Southeast Asia, has generally lagged behind other regions of the world in cannabis law reform. South Korea’s change of heart is prompting a lot of speculation regarding possible widespread reform across Asia much sooner than previously anticipated.

The revised law adopted November 23, 2018 is limited to CBD concentrates with THC levels too low to cause intoxication. Although somewhat unexpected internationally, it was less surprising for those in South Korea during last year’s media coverage of law enforcement action resulting in the incarceration of an ailing child’s mother for attempting to import CBD derived medication for her 4-year-old son who was suffering from brain cancer — public opinion clearly opposed such punishment. Not long after this event, Shin Chang-Hyun  introduced a legislative amendment to South Korea’s national drug policy — pointing to CBD’s acceptance as an effective treatment related to cancer, autism, dementia and epilepsy in other countries from Europe to North America.

The new rules impose highly restrictive conditions that will apply to the new regime governing the use of medical cannabis. Nevertheless, proponents of legal form for cannabis laws believe the change signals a major shift in attitudes not only by the public generally but more importantly among lawmakers. Additional details regarding implementation of those rules will be available by the end of the year with importation of CBD products anticipated by the middle of 2019.

A public records request by the Salem, OR-based Statesman Journal bore interesting fruit recently in the form of a report by the Oregon Cannabis Commission (OCC) recommending that a single agency regulate cannabis in Oregon. Currently, at least three Oregon regulatory agencies have some degree of oversight affecting the cannabis industry. The Oregon Liquor Control Commission oversees the recreational cannabis market. The Oregon Health Authority regulates the medical marijuana program. The Oregon Department of Agriculture administers the agricultural industry generally and certain food safety programs (as well as the industrial hemp program), which brings it into contact with many producers and processors of cannabis. The OCC, created in 2017 by statutory mandate to make recommendations about the future oversight of cannabis in Oregon, is considering whether Oregon is in need of “a unified and consistent vision on cannabis regulation.”

Some degree of regulatory overlap is likely unavoidable when it comes to cannabis. Cannabis sits in an unusual position in Oregon in that it is either a regulated recreational substance, a quasi-prescription drug, or a statutorily-protected agricultural crop, depending on the context. Indeed, among the states with both medical and adult-use cannabis, Oregon isn’t an outlier. Alaska, California, Colorado, Massachusetts, Nevada and Maine use separate agencies to regulate medical and recreational cannabis, in addition to whichever agencies’ mandates oversee agriculture and food safety (Vermont and Michigan have not yet finalized adult-use regulations).

Washington is the only state with established medical and adult use marijuana programs that has fully consolidated regulation under a single agency, the Washington State Liquor and Cannabis Board (formerly the Washington State Liquor Control Board – Washington has found efficiencies in both regulating marijuana and not reordering stationary). This approach has not been without controversy. Oregon itself has seen similar disputes, some quite recently, as the state’s crowded field of cannabis regulators attempts to rein in the black market trade in Oregon-made marijuana. Striking a balance between patients’ access to medicine, a well-regulated adult use market, and increasing federal scrutiny will likely be an active experiment for years to come.

If the OCC’s draft recommendations are finalized, there’s no certainty as to what form a single Oregon cannabis regulatory agency would take. Extensive statutory changes would be necessary, followed by rule making and transition periods, so it is unlikely that Oregon will see anything more than incremental changes for some years. Even then, cannabis businesses will continue to be overseen by a whole alphabet’s worth of acronyms depending on their activities as employers, taxpayers, farmers, manufacturers, etc. The OCC was supposed to meet on November 27 to discuss and vote on recommendations, but that meeting has been pushed out until at least mid-December. We will post updates as new information becomes available.

It comes as no surprise that several Canadian cannabis company employees and investors will be traveling to the United States this week to attend the largest cannabis industry conference in the world, MJBizCon, in Las Vegas. The conference lists several Canadian companies among its speakers and will cover a variety of topics including investment, branding and an assessment of Canada’s first month of legalization, but for those wishing to cross the border into the U.S. for the conference, there are additional considerations that must be taken into account.

On October 9, 2018, United States Customs and Border Protection (CBP) revised its Policy Statement on Canada’s Legalization of Cannabis and Crossing the Border (the “Revised Statement”). Prior to this date, CBP had taken the position that merely being an employee (or an investor) of a legal cannabis business in Canada could result in inadmissibility under Section 212 of The Immigration and Nationality Act. See INA §212(a)(2)(C).

INA §212(a)(2)(C) permanently bars an individual if a CBP officer has reason to believe that he or she is an illicit trafficker in a controlled substance, or a knowing assister, abettor, conspirator or colluder in illicit trafficking. Prior to the Revised Statement, there were already a number of reported cases of employees and investors of Canadian cannabis businesses receiving lifetime bans under INA §212(a)(2)(C). Although these cases appeared to be limited to ports of entry on the West Coast, they demonstrated that employees and investors of Canadian cannabis companies were being banned as illicit traffickers.

The Revised Statement was welcome news for employees and investors of Canadian cannabis companies as it opened up the possibility of travel to the U.S. once more, but with a very import caveat. The current position taken by CBP is as follows:

A Canadian citizen working in or facilitating the proliferation of the legal cannabis industry in Canada, coming to the U.S. for reasons unrelated to the cannabis industry will generally be admissible to the U.S. However, if a traveler is found to be coming to the U.S. for reason related to the cannabis industry, they may be deemed inadmissible.

The Revised Statement confirms that employees of Canadian cannabis companies should be admissible if their reasons for coming to the United States are “unrelated to the cannabis industry.” This clearly includes traveling purely for vacation (for example, visiting with family) and even business visitor activities that were completely unrelated to the cannabis industry.

However, although the Revised Statement was a step in the right direction, CBP’s current stance means that someone can be barred merely for visiting a U.S. investor in his or her Canadian cannabis company or, you guessed it, attending a cannabis conference in the United States such as MJBizCon.

On October 25, 2018, the Canadian Press reported that they had received an email from Stephanie Malin, CBP Branch Chief for Northern/Coastal Regions, which stated the following:

If the purpose of travel is unrelated to the cannabis industry such as a vacation, shopping trip, visit to relatives, they will generally be admissible to the U.S. However, if they are coming for reasons related to the industry, such as the conference… they may be found inadmissible.

This statement by Ms. Malin in an ominous reminder that for Canadians wishing to come to the U.S. for conferences such as MJBizCon, there is a risk that you may be denied entry.

If you want to hear more about this issues, Lane Powell’s own Dustin O’Quinn and Sativa Rasmussen will present a Continuing Legal Education Society of British Columbia webinar on Tuesday, November 20, titled “The U.S. Border After Cannabis Legalization in Canada.” The presentation will start at noon PST and cover:

  • U.S. immigration law and how it’s impacted by some states’ legalization of cannabis,
  • Cross-border transactions to the U.S.,
  • Overview of U.S. policies that affect Canadians, and
  • Potential forms of relief.

The event is intended for lawyers who represent clients involved in the cannabis industry or clients who conduct business with cannabis-related industries.

For more information or to register for the conference, please visit the event website.

The cannabis industry is celebrating a lot of good news this week — support for legalization continues to grow while opposition dwindles steadily. Voters in three more states passed marijuana measures to increase the legal availability of cannabis both medically and recreationally. Two highly visible cannabis opponents, House Representative Pete Sessions and Attorney General Jeff Sessions, have departed from their respective federal positions.

Reports are estimating that the passage of recreational cannabis in Michigan, along with the medicinal cannabis measures approved in Missouri and Utah could generate upwards of $2 billion in medical and recreational sales. This additional round of state legalization is a clear indicator of our country’s continued march toward the ultimate objective for an end to federal prohibition. The new tally brings the total number to 33 states and the District of Columbia having adopted some form of legal access to cannabis.

This, coupled with the Democrat’s win in the House of Representatives and Pete Sessions failed re-election bid in Texas cannot be overstated. Sessions had been one of Congress’ most powerful and vocal marijuana prohibitionists and he used his position as Chairman of the House Rules Committee to further his agenda. While serving in his role as Chairman, Sessions’ panel consistently blocked cannabis proposals from advancing to the floor for a vote, including several bipartisan proposals over the past few years. In fact, due to Pete Sessions, no cannabis amendments have been voted on by the House of Representatives in two years. This blockage has now been removed and cannabis advocates will gain a new friend in Democrat Colin Allred. The Congressman-elect is a civil rights attorney who campaigned on healthcare and has been vocal in his support for medical cannabis.

The cannabis community was already having a good week following the results of the midterm elections when the industry lost one of its biggest opponents in Washington on Wednesday afternoon when Attorney General Jeff Sessions resigned at the request of President Trump. Sessions, who once famously said “good people don’t smoke marijuana,” has pushed for greater enforcement of the federal ban on marijuana throughout his tenure as Attorney General. Last January, Sessions rescinded the prior federal guidance to U.S. Attorneys, which mandated a mostly hands-off stance for enforcement of federal cannabis law against people complying with state cannabis law.

As Attorney General, Jeff Sessions ultimately had little effect on states’ autonomy for allowing cannabis — his greatest impact was to discourage private investment into the industry and sustain barriers to financial services, such as banking and commercial lending. Jeff Sessions’ exit is credited for the boost in prices of most marijuana stocks and investments shortly after his resignation was announced. Canada-based Tilray closed up 30 percent while Canopy Growth and Aurora Cannabis rose 8.1 percent and 9 percent respectively. Cronos Group added 8.4 percent.

Although we can only speculate at this point regarding the speed and manner in which legalization will occur moving forward, the direction cannabis laws are headed leaves little doubt that cannabis prohibition is coming to an end.

We are proud to support Seattle University’s 6th Annual Northwest Marijuana Law Conference taking place on Friday, November 16. Josh Ashby and Sativa Rasmussen are the program’s Co-Chairs and will lead the conversation, bringing together experts from the law and the industry to provide critical focus and frameworks.

Ben Pirie will present on “Updates on Marijuana Law in Washington, Litigation, Dispute and Financial Issues” at 9:45 a.m.

Justin Hobson will present on “The Impact of Oregon, Canada and California on the Legalization of Marijuana Across the United States” at 11 a.m.

Other topics include:

  • Cannabis and the Constitution
  • The Impact of the 2017 Changes in Tax Law
  • Greening the “Green”: Sustainability in Cannabis Cultivation, Processing and Distribution
  • Growing Investments by Banks and Big Money in the Cannabis Industry
  • Ongoing Issues of Employment Law in the Cannabis Industry
  • Cannabis IP: Federal and State Protection of Trademarks and Other Intellectual Property

Date: November 16, 2018

Time: 8:30 a.m. to 5:15 p.m.

Cost: $225 General Registration | $195 Seattle U Law Alumni | $150 Non-Attorney

Credits:  Approved for 7.0 CLE Credits

(Live webcast and in-person options available.)

For more information and to register, visit the event website.

The Food and Drug Administration (FDA) has issued an announcement seeking public comment on the “abuse potential, actual abuse, medical usefulness, trafficking, and impact of scheduling changes on availability for medical use” of cannabis and several other substances now under international review.

This announcement comes in response to the upcoming meeting of the World Health Organization’s Expert Committee on Drug Dependence (ECDD) in Geneva, Switzerland in November. The ECDD will be evaluating whether to recommend that certain international restrictions be placed on the plant.

Under current U.S. federal law as well as global drug policy agreements, cannabis is classified in the most restrictive category of Schedule I. Consequently, nations who are signatories of such drug control treaties are expected to treat cannabis as an illegal substance, not that this has stopped countries such as Canada and Uruguay from legalizing cannabis nationwide.

Earlier this year, ECDD determined that cannabidiol (CBD), a component of cannabis shown to have medical benefits without intoxicating properties like other cannabinoids such as THC, should not be scheduled under international drug control conventions.

“CBD has been found to be generally well tolerated with a good safety profile,” the UN body found in its critical review. “There is no evidence that CBD as a substance is liable to similar abuse and similar ill-effects as substances…such as cannabis or THC, respectively.” The Committee went on to recommend that preparations considered to be pure CBD should not be scheduled.

This determination confirms a statement by the FDA that CBD should be completely removed from federal control. Specifically, the agency found that CBD has a “negligible potential for abuse” and has a “currently accepted medical use in treatment.”

Despite this, because of the international drug treaty obligations, the FDA conceded that the substance should be placed under the least-restrictive category of Schedule V.

Having said that, in its analysis to DEA the FDA noted that “if treaty obligations do not require control of CBD, or if the international controls on CBD change in the future, this recommendation will need to be promptly revisited.”

The FDA’s statement that was released in May preceded the ECDD determination that CBD should not be globally scheduled, and was part of the federal government’s approval and rescheduling last month of CBD-based drug Epidiolex, which is used for severe epilepsy disorders.

The ECDD has also agreed to undergo an in-depth critical review of the marijuana plant and its resins and extracts, including CBD and THC. That new review is what triggered the FDA’s request for public comment.

For now, the FDA will be accepting comments on cannabis as well as the other substances currently under review until October 31, 2018. Interested parties can submit written comments here.