This post is written in connection with my colleague Vanessa Bongiorno’s recent post, where she eloquently summarized the New York Department of Health’s (“DOH”) findings of the multi-agency study on the impact of regulated adult-use marijuana in New York.

In the report, DOH found that even though marijuana use does contain risks, there are benefits associated with implementing a regulated adult-use marijuana program, including positive impacts on New York’s criminal justice system and an alternative to opioid use, which has long impacted so many New Yorkers and their families. The DOH report concluded with, among other things, a recommendation that New York establishes a workgroup of subject matter professionals with relevant public health experience to debate the details of a regulated marijuana program and offer solutions consistent with reducing harm and educating the public.

Governor Andrew M. Cuomo accepted the recommendation and recently announced the creation of a workgroup to help draft legislation for regulated adult-use marijuana, which will be overseen by Alphonso David, an advisor to the Governor. The workgroup consists of professors of major New York educational institutions, law enforcement representatives, governmental stakeholders, and mental health experts, to name a few. A full list of workgroup members can be found here.

Speaking on the development, Governor Cuomo stated “[t]he next steps must be taken thoughtfully and deliberately. As we work to implement the report’s recommendation through legislation, we must thoroughly consider all aspects of a regulated marijuana program, including its impact on public health, criminal justice and State revenue, and mitigate any potential risks associated with it.”

It is abundantly clear that New York is serious about adopting a regulated marijuana program. While the details of such program are beginning to be hashed out, New York’s long anticipated debate over regulated adult-use marijuana appears to be coming to a resolution.

 

 

In January 2018, during the Executive budget address, Governor Cuomo directed the Department of Health (DOH) to review the health, criminal justice and economic impacts of regulating recreational marijuana in New York. In doing so, he requested DOH to act in consultation with other NYS agencies and to evaluate the experience, consequences and effects of legalized marijuana in neighboring states and territories.  Seven months later, on July 13, the DOH released their highly anticipated assessment and recommendations.  The report follows DOH’s recent promulgation of emergency regulations that added opioid use as a qualifying condition for medical marijuana and allowing medical marijuana to be used as an alternative treatment for pain relief in lieu of opioids.  Additionally, the Governor recently directed the Department of Financial Services to issue guidance to encourage NYS chartered banks and credit unions to consider establishing banking relationships with medical marijuana-related businesses in New York that are operating in full compliance with all applicable State laws and regulations, including the Compassionate Care Act.

DOH’s report reviews the current landscape of state laws surrounding marijuana usage in the United States: Twenty-nine states and Washington D.C. have adopted medical marijuana programs, and 8 states and Washington D.C. have legalized marijuana for regulated recreational use by adults.  The report concedes the recent activities in surrounding states and Canada have prompted the need for New York to consider the legalization of marijuana thoughtfully and responsibly.  The report examines how the prohibition of marijuana led to a significant number of arrests for possession of marijuana and caused adverse and disproportionate economic, health, and safety impacts for individuals with low incomes and communities of color.  Additionally, the report highlights several studies that have illustrated reductions in opioid prescribing and overdose deaths with the availability of marijuana products.    

While the report acknowledges marijuana use is not without its risks, it concludes that the benefits of an adult regulated marijuana program would have significant health, social justice and economic benefits that outweigh any potential negative impacts for New York.  The report recommends harm reduction strategies and principles be incorporated into the regulated marijuana program to help ensure consumer and industry safety.  For example, a regulated adult-use only marijuana program should prohibit use by youth (those under 21 years of age) and simultaneously implement strategies to reduce youth use of marijuana.  Regulating marijuana would allow for laboratory testing, product labeling, guidance and consumer education at dispensaries.  This would allow consumers to be better informed about the products they are purchasing, understand the dosage options, various ingestion methods, what products and techniques may work best for them, as well as understand potential adverse consequences and potential harms of marijuana use.  An adult regulated marijuana program could also help promote marijuana as an effective alternative pain treatment to opioids.  Additionally, a regulated marijuana program should create guidelines to ensure packaging is child proof and contains appropriate warning labels to avoid accidental consumption.    

The report outlines the impact marijuana legalization would have on the criminal justice system.  In 2010, the marijuana arrest rate in New York was the highest in the country and twice the national average.  Unfortunately, despite equal marijuana use among racial groups, black individuals were nearly four times more likely than whites to be arrested for possession.  Subject matter experts echoed similar sentiments to DOH and stated the most appropriate way to rectify this issue would be to legalize marijuana.  Marijuana-related convictions have a lasting impact on individuals, their families and the communities where these individuals live.  Individuals with a criminal record typically experience lifelong challenges with securing stable employment, housing and economic stability.  The DOH report indicates if marijuana was regulated, there would be a reduction of expenditures related to enforcement, prosecution and punishment for illegal marijuana offenses.  This would allow law enforcement to devote more of their time to community oriented policing and other more pressing focus areas.

The DOH study illustrates that NYS would be one of the largest regulated marijuana markets in the country and that there is great potential for tax revenue for the State.  DOH stated this funding could be used to help provide financial support for other programs, such as public health, community reinvestment, education, transportation, research, law enforcement, workforce development, and employment initiatives.  The report estimates there is projected to be 1,290,000 consumers in NY that would access regulated marijuana within the first year.  Based on certain inputs, assumptions, and average retail prices for marijuana, the estimated revenue for the first year could be between $1.7 billion and $3.5 billion annually – based on the sale of 6.5-10.2 million ounces being sold at $270 – $340 per ounce.  It should be noted, however that the average price of an ounce of marijuana in the United States, according to a recent Forbes article is around $247 an ounce.  Thus, these projections are arguably inflated.   Furthermore, depending on the retail tax rate that is ultimately imposed (the analysis used 7% and 15% for comparison purposes), NYS could receive between $248 million to upwards of $677 million in tax revenue annually.  However, the higher the tax rate imposed, the more likely users will continue to resort to the black market to obtain marijuana.          

The report acknowledges the implementation of a regulated marijuana program would require legislative and regulatory actions to appropriately address the diverse geographic needs throughout New York.  NYS must determine what type of licenses to offer under the regulated marijuana program and whether or not vertical integration would be allowed.  DOH recommends NYS limit the number of licenses available initially, and adopt a licensure model that is similar to Massachusetts, which prioritizes applicants for licensure based on providing equal opportunities for individuals who meet certain criteria (those living in areas of disproportionate impact, employment of residents in such areas, employment of people with drug-related criminal offender record that are otherwise employable, and ownership by persons of color).  Additionally, NYS would need to develop regulations and requirements for each element of the supply chain, cultivation and production practices, laboratory guidance, packaging and tamper proofing of products, and how marijuana will be retailed.  DOH recommends NYS place limits on the amount of THC allowed in marijuana, the types of products that may be offered for sale, and limit the maximum amount an individual may purchase to one ounce.

Regarding the taxation of regulated marijuana products, DOH recommends NYS begin with a low taxation rate, between 7% and 10%, to help encourage users to transition to the legalized market.  The report also emphasized that the workforce needs for this emerging industry must be addressed as the program continues to be developed to ensure safe working conditions.

Lastly, the DOH report recommended NYS convene a workgroup of subject matter experts, with relevant public health expertise, to: (1) contemplate the nuances of a regulated marijuana program; (2) review existing legislation; and (3) make recommendations to the State that are consistent with the overarching goals of harm reduction and public education.

For additional information on this report or other legislative or regulatory matters, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

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Our series highlighting recent activity by the NYS Legislature continues with a recap of bills passed in 2018 that relate to behavioral health. This synopsis follows previous summaries we have done concerning pharmacy (here), hospitals (here), long term care and aging (here).

Except where otherwise noted, these bills await action by the Governor.

Mental Health and Substance Use Disorder Parity Report (A3694-C by Assemblymember Gunther / S1156-C by Senator Ortt):  This legislation would establish the Mental Health and Substance Use Disorder Parity Report Act, which, beginning September 1, 2019,  would require the Department of Financial Services (DFS) to include in the annual Consumer Guide to Health Insurers (here) information concerning insurers’ and health plans’ compliance with NYS and federal requirements for the provision of mental health and substance use disorder treatment.

Insurers and plans would be required to annually provide the DFS and Department of Health (DOH) all of the information necessary to prepare the report, including:

  • Rates of utilization review for mental health and substance use disorder (SUD) claims as compared to medical and surgical claims, including the rates of approval and denial, categorized by benefits provided by the following classifications: inpatient in-network, inpatient out-of-network, outpatient in-network, outpatient out-of-network, emergency care, and prescription drugs;
  • The number of prior or concurrent authorization requests for mental health and SUD services and the number of denials, compared with similar authorization requests for medical and surgical services, categorized by the same classifications noted above;
  • Rates of appeals, adverse determinations, adverse determinations upheld and overturned for mental health and SUD services, as well as such rates for medical and surgical claims;
  • The percentage of claims paid for in-network and out-of-network mental health and SUD services compared with in-network and out-of-network medical and surgical services;
  • The number of behavioral health advocates or staff that are available to assist policyholders with mental health and SUD benefits, pursuant to an agreement with the Attorney General’s office;
  • A comparison of cost sharing requirements, co-payments, co-insurance, and benefit limitations between mental health and SUD services and medical and surgical services;
  • The number and type of providers licensed in NYS that provide mental health and SUD services in-network and the number of providers that are out-of-network;
  • The percentage of providers of services for mental health and SUD who remained participating providers; and
  • Any other information DFS determines necessary to track mental health and SUD parity, including but not limited to an evaluation of: the company’s in-network mental health and SUD provider panels and reimbursement practices for in-network and out-of network services compared with those of medical and surgical services.

Discharge Planning for Individuals with Mental Health Disorder (A10644 by Assemblymember Gunther / S8769 by Senator Ortt):  This legislation would require the Office of Mental Health (OMH), in conjunction with DOH, to develop guidance and educational materials regarding effective discharge planning for individuals with a mental health disorder.  Information will be provided to hospitals across NY and would also be provided to individuals with a documented mental health disorder or those who appear be at risk for a mental health disorder during the discharge planning process.  This legislation was previously highlighted in our post on legislation affecting hospitals (here).

Maternal Depression Treatment (A8953 by Assemblymember Richardson / S7409 by Senator Krueger):  This legislation makes technical amendments to Chapter 463 of 2017 (S4000/A8398), which would have required DOH, in collaboration with the OMH, to compile and maintain a list of providers who treat maternal depression, and ensure adequate investment in treatment resources, including a statewide hotline, peer support, adequate referral networks and telehealth or telemedicine services.  This bill amends that law to instead require DOH, in consultation with OMH, to simply “inform providers of the need to raise awareness and work to address maternal depression,” and to provide information on their websites to assist people in locating mental health professionals, other licensed professionals, peer support, not-for-profit corporations and other community resources that treat or provide support for maternal depression.  The bill was signed by the Governor on June 1, 2018.

Mental Health and Home Care Collaboration (A10938 by Assemblymember Gunther / S8632 by Senator Ortt):  This legislation would allow the existing Geriatric Service Demonstration Program, which provides grants to providers of mental health care to the elderly (here) to foster and support collaboration between mental health providers and home care services, including certified home health agencies and licensed home care service agencies.  It is intended to help promote integrated physical and mental health care services in NYS communities for individuals with co-occurring physical and mental health needs.

Tick-Borne Disease Study (A9019-A by Assemblymember Gunther / S7171-A by Senator Serino):  This legislation would require DOH, in conjunction with OMH, to conduct a tick-borne diseases and blood-borne pathogen impact study to examine their impact on  mental illness rates in endemic areas of the state.  This report would be due by October 1, 2019 and would detail:

  • Considerations on how Lyme, tick-borne illnesses and other blood-borne pathogens or vector-borne diseases may have correlations with mental illness in infected individuals;
  • Populations at risk, including individuals that work outside or that have elevated exposure risks;
  • Diagnostic indicators of mental illness that can be used as guidance for health and mental health providers;
  • Historical considerations of infection rates and mental illness indicators that may have gone undiagnosed or misdiagnosed in endemic areas; and,
  • Recommendations for intervention and coordinated care for individuals who exhibit mental illness symptoms and also have physical health indicators.

Effects of Trauma on Child Development (A10063-B by Assemblymember Joyner / S8000-B by Senator Bailey):  This legislation would require the Commissioner of Education to conduct a study on the effects of trauma on child development and learning.  The study would include, but not be limited to, the following information:

  • The types of trauma experienced by students;
  • The impacts of trauma on child development and learning;
  • Screening and assessments of trauma available in schools;
  • Programs, interventions, and services related to trauma available in schools; and
  • Best practices for school personnel in the area of trauma as it relates to child development and learning.

The State Education Department (SED) would be required to submit its findings and recommendations to the Governor and NYS Legislature within one year.

Suicide Prevention Education (A3210-A by Assemblymember Ortiz / S5860-A by Senator Ritchie):  This legislation would require OMH, in consultation with SED, to develop and publish educational materials regarding suicide prevention measures and signs of depression among students in  NYS universities, community colleges, and city universities.  Such educational materials would include, but not be limited to:

  • Information regarding symptoms of depression;
  • How depression manifests itself in different cultures;
  • Warning signs of suicide;
  • Actions to take once a student is identified at risk of suicide; and
  • A list of educational websites regarding suicide and students attending university or college.

These educational materials would be available to faculty and staff in these educational institutions via the OMH website and by any other means OMH deems appropriate, within 90 days after it is signed into law.

Adolescent Suicide Prevention (A8961 by Assemblymember De La Rosa / S7322 by Senator Alcantara):  This legislation makes technical amendments to Chapter 436 of 2017 (S5500-C/ A7225-B), which would have established a nine-member Adolescent Suicide Prevention Advisory Council to facilitate the coordination of adolescent suicide prevention services.  As outlined in the Governor’s 2017 approval memo, the bill presented implementation challenges.  The current bill would repeal the prior bill and instead require OMH to assure the development of plans, programs, and services in the research and prevention of suicide, to reduce suicidal behavior and deaths through consultation, training, implementation of evidence-based practices, and use of suicide surveillance data.  OMH would develop such plans, programs, and services in cooperation with other agencies and departments in NYS, local governments, community organizations, entities, and individuals.  OMH would also consider the impact of differing demographic groups, gender, race and ethnicity, cultural and language needs.

Substance Use Education (A7470 by Assemblymebmer Davila / S8318 by Senator Comrie):   This legislation would require the Office of Alcoholism and Substance Abuse Services (OASAS), in consultation with SED, to develop educational materials to be provided to school districts and boards of cooperative educational services for use in any drug and alcohol related curriculum regarding the misuse and abuse of alcohol, tobacco, prescription medication and other drugs.  These materials would be age appropriate, and to the extent practicable, include information for parents to identify the warning signs and to address the risks of substance abuse.

Additionally, the bill would require the Superintendent of each school district, in consultation with the related district superintendent of a board of cooperative educational services, to designate a member of the school district’s staff or an employee to provide information to any student, parent, or staff regarding available substance use related services.  Where practicable, this individual should be a school social worker, school guidance counselor, or any other health practitioner or counselor employed by the school.  These designated individuals will be required to undergo any necessary training required by OASAS.  Information received by designated individuals would be kept confidential, however, nothing would relieve them of any legal duty to otherwise report such information.

Substance Abuse Disorder Referrals (A7689-A by Assemblymember Rosenthal / S6544-B by Senator Akshar):  This legislation would prohibit any SUD provider from intentionally soliciting, receiving, accepting or agreeing to receive payment, benefit, or any other consideration to induce the referral of a potential patient for SUD services.  This legislation does not prohibit:

  • Lawful payments by a health maintenance organization or health insurer acting on behalf of their enrollees for such SUD services or benefits to be provided;
  • Lawful payments to or by a provider to a health maintenance organization or health insurer as payment for services provided, a refund for an overpayment, a participating provider fee, or any similar remuneration;
  • Payment for an activity that, at the time of such activity, would have been lawful as specifically exempt, or otherwise not prohibited under any federal statute or regulations, including but not limited to 42 U.S.C. § 1320a-7b, or the regulations promulgated thereafter if conducted by a person, firm, partnership, group, practice, association, fiduciary, employer representative or any other entity providing SUD services;
  • Any employee or representative of a provider conducting marketing activities, where the employee or representative identifies the provider represented for whom the employee works, identifies themselves as a marketer and not a clinician or individual who can provide diagnostic, counseling or assessment services;
  • Commissions, fees or other remuneration lawfully paid to insurance agents as provided under the Insurance Law.

Providers who intentionally violate these provisions would be guilty of a misdemeanor as defined under the Penal Law.

OASAS Provider Directory (A8151 by Assemblymember Rosenthal / S8552 by Senator Golden):  This legislation would require OASAS to maintain a directory of all providers and programs operated, licensed, or certified on their website.  The searchable directory would include the following information:

  • Location(s) of each provider or program;
  • Contact information for each provider or program;
  • Services offered by each provider or program at each location of the provider or program, as well as which medications are available at any medication-assisted treatment provider;
  • Special populations served;
  • Insurance accepted;
  • Availability of beds and services; and
  • Any other information OASAS deems appropriate.

Medical Marihuana as Alternate Treatment for Substance Use Disorder (A11011B Rules, Assemblymember Gottfried / S8987-A by Senator Amedore):  As we previously reported in another blog post, this legislation would help provide alternative treatment options for pain management and substance use disorder by including “pain that degrades health and functional capability where the use of medical marihuana is an alternative to opioid use” and “substance use disorder” to the list of qualifying conditions for patients to access medical marihuana.

Notice of Service Reductions at State-Operated Hospitals (A9563-A by Assemblymember Gunther / S7207 by Senator Ortt):  This legislation amends the notice requirements to local governments, community organizations and other interested parties regarding the potential for significant service reductions at state-operated hospitals.  The bill would require notice of closure or significant service reductions at state operated hospitals and state operated research institutes be a maximum length of twenty-four months prior to commencing such service reduction.  This legislation is intended to allow appropriate planning to take place and ensure a thoughtful transition plan is developed for all affected stakeholders.

Continuing Education for Psychologists (A9072-A by Assemblymember Fahy / S7398-A by Senator Valesky):  This legislation would require psychologists to obtain a minimum of 36 hours of mandatory continuing education, including 9 hours of professional ethics, every 3 years.

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For additional information on any of the foregoing bills, please do not hesitate to contact Farrell Fritz’s Regulatory & Government Relations Practice Group at 518.313.1450 or NYSRGR@FarrellFritz.com.

 

 

With so much happening in the cannabis industry we thought we’d take this time to highlight some of the industry’s most recent happenings.

  • Increasing Support for Decriminalization of Marijuana (Federal): On April 20, 2018, Senate Minority Leader Chuck Schumer of New York said he’ll introduce a bill taking marijuana off the federal list of controlled substances — in effect decriminalizing its use at the federal level. The bill is expected to be similar to the one proposed by Senator Cory Booker (D-NJ) in 2017. In a tweet to his Twitter followers Chuck Schumer stated: “The time has come to decriminalize marijuana. My thinking – as well as the general population’s views – on the issue has evolved, and so I believe there’s no better time than the present to get this done.”

FDA Approves Marijuana-Derived Drug (Federal): On April 19, 2018, advisers for the Food and Drug Administration unanimously supported the first-ever government approval of a medication made from cannabis. The drug, Epidiolex, is made from a purified ingredient in cannabis called cannabidiol, or CBD. It is intended to treat severe seizures in children caused by rare forms of epilepsy called Lennox-Gastaut and Dravet syndromes.

Cole Memorandum Update (Federal): On January 5, 2018, we discussed the rescission of the Cole Memorandum by the federal government. The Cole Memorandum outlined the federal government’s general policy prohibiting federal prosecutors from pursuing cases against people following marijuana laws in states that have legalized the drug. The rescission of the Cole Memorandum created much concern and confusion at the state level. In a change of direction, President Donald Trump stated on April 13, 2018, that he will support legislation protecting the marijuana industry in states that have legalized the drug. Republican Sen. Cory Gardner (D-CO) said that President Trump made the assurance to him during a conversation. “President Trump assured me that he will support a federalism-based legislative solution to fix this states’ rights issue once and for all,” Gardener said in a statement.

Marijuana Key Issue in Governorship Race (New York): In February 2018, we discussed Governor Cuomo’s statement during his annual budget address that New York should undertake a study of the possible impacts of legalizing recreational marijuana. The issue of legalization recreational marijuana at a state level is becoming a key issue for his campaign, especially in light of Cynthia Nixon’s recent comments. Ms. Nixon, who is challenging Governor Cuomo in a Democratic primary for the governorship, supports the decriminalization of marijuana. “I believe it’s time for New York to follow the lead of eight other states and D.C. and legalize the recreational use of marijuana,” says Ms. Nixon in a video she posted to Twitter.

New Medical Marijuana Dispensaries Poised to Open (New York): In Medical Marijuana 102 we reviewed New York medical marijuana dispensaries and the issuance by the NYS Department of Health (“DOH”) of licenses to five new companies in addition to the original five companies chosen by the DOH to manufacture and sell medical cannabis. The five new companies will be opening up a total of six New York City dispensaries, one of which will be in Manhattan, bringing the total number of medical marijuana dispensaries to nine.

Number of Certified Patients and Practitioners Continues to Rise (New York): In Medical Marijuana 103, we noted that 1,184 practitioners had registered with the DOH for the purpose of certifying patients for medical marijuana use and that 28,077 patients had been certified for such use. That number has grown exponentially since then – the DOH reports that as of April 17, 2018, there are now over 1,500 registered practitioners and over 50,000 certified patients.

As we’ve discussed in previous blog posts, marijuana, whether used for medicinal or recreational purposes, is classified as a Schedule 1 drug under the Controlled Substances Act (CSA). The CSA prohibits the manufacturing, distributing, dispensing or possession of certain controlled substances, including marijuana and marijuana-based products and services. In addition, the CSA makes it unlawful to sell, offer for sale or use any facility of interstate commerce to transport illegal substances, including marijuana.

In August 2017, U.S. Senator Cory Booker (D-NJ) and Representative Barbara Lee (D-CA) introduced bills to both chambers of Congress – the Marijuana Justice Act of 2017 – that seek to remove marijuana completely from the list of controlled substances, making it legal at the federal level.

Last year U.S. Senator Ron Wyden (D-CA) was the first senator to co-sponsor the Marijuana Justice Act. On Wednesday, February 14, 2018, New York Senator Kirsten Gillibrand announced that she is also co-sponsoring the Marijuana Justice Act to end the federal prohibition on marijuana.

“Legalizing marijuana is a social justice issue and a moral issue that Congress needs to address, and I’m proud to work with Sen. Booker on this legislation to help fix decades of injustice caused by our nation’s failed drug policies,” Gillibrand said in a statement.

The Marijuana Justice Act aims to implement a number of reforms relating to marijuana. The most significant reform would be the removal of marijuana from the list of controlled substances in the CSA. Such a reform would effectively end the federal criminalization of marijuana.

Other reforms proposed by the Marijuana Justice Act include: (1) providing incentives to states to reduce racial disparities in connection with arrests made for marijuana; (2) expunging federal convictions relating to marijuana possession; (3) allowing individuals serving time in federal prison for marijuana-related offenses to petition the court for resentencing; and (4) developing a community reinvestment fund to invest in communities most impacted by the failed War on Drugs, such as by providing in-job training programs, educational opportunities, public libraries and community centers.

There is growing support for removal of marijuana as a Schedule I drug under the CSA, especially as courts have recently held that only the Drug Enforcement Agency (“DEA”) can make such a change.

Most recently, on February 26, 2018, U.S. District Judge Alvin Hellerstein in Manhattan ruled dismissed a lawsuit seeking to overturn the United States’ prohibition of marijuana on the grounds that the ban was unconstitutional. Judge Hellerstein ruled that the lawsuit must be dismissed because the plaintiffs had failed to use administrative procedures within the DEA to challenge the ban. Judge Hellerstein said his decision “should not be understood as a factual finding that marijuana lacks any medical use in the United States,” but, rather, that the authority to make that decision lies with the DEA, not with the court.

As of now the Marijuana Justice Act has not seen much movement in Congress. Since its introduction it has been read twice and then referred to the Committee on the Judiciary. It will be interesting to see if additional senators act to support the Marijuana Justice Act as the debate over the decriminalization of marijuana continues.

New York is currently taking steps to investigate the possible legalization of recreational marijuana in New York.

In July 2017 we talked about the Marijuana Regulation and Taxation Act (“MRTA”), S.3040B/A.3506B, in Medical Marijuana 101: The State of the Law in NY. At that time, the bill, which seeks to regulate the growth, taxation, and distribution of recreational marijuana in New York, was sitting idly in the Senate Finance Committee. On January 11, 2018, however, the New York State Assembly Standing Committees on Codes, Health, and Alcohol and Drug Abuse held a public hearing to discuss the MRTA. The hearing reviewed the potential for allowing the regulated sale and adult possession of marijuana in New York and how it would affect public health and the criminal justice systems. A transcript and video recording of the hearing can be found here.

The hearing was held just days before Governor Andrew Cuomo’ annual budget address on January 16, 2018. During his budget address Governor Cuomo stated that New York should undertake a study of the possible impacts of legalizing recreational marijuana. The study would be undertaken by the NYS Department of Health, with input from state police and other state agencies, to determine the health and economic impacts of legalizing the drug.

“New Jersey may legalize marijuana. Massachusetts already has. On the other hand, Attorney General Sessions says he’s going to end marijuana in every state. So you have the whole confluence of different information,” Cuomo said during his presentation to the Legislature.  “I think we should fund [the Department of Health] to do a study. Let them work with state police and other agencies. Look at the health impact and economic impact,” he said during his address.

This is a change from Governor Cuomo’s position from last February in which he told reporters that he remained “unconvinced on recreational marijuana.”

This change of heart, however, shouldn’t come as a surprise to most New Yorkers. Momentum for marijuana reform has been building steadily in New York since the passage of the Medical Marijuana Act in 2014. A poll of New York voters released in late 2017 showed that over 62% of New Yorkers support making marijuana use legal in New York for adults over the age of 21. In addition, more than 60% of those polled stated that they prefer using revenue from a legal marijuana market to address New York’s budget deficit over other options such as increasing sales taxes, increasing highway and bridge tolls and cutting public service funds.

The recreational use of marijuana is already legal in a growing number of states, including Washington, Oregon, Nevada, California, Alaska, Colorado, Maine, Massachusetts and the District of Columbia.

In New Jersey, newly elected Democratic governor Phil Murphy stated in his inauguration speech that his vision for a “stronger and fairer New Jersey … includes a process to legalize marijuana.” He aims to legalize marijuana within his first 100 days in office.

In Massachusetts, Gov. Charlie Baker signed a bill legalizing recreational marijuana on July 28, 2017. The law permits adults over the age of 21 and who are not participating in the state’s medical marijuana program to legally grow up to six plants and to possess personal use quantities of marijuana up to one ounce and/or up to 5 grams of concentrate. The regulations also allow for the licensing of commercial marijuana production and retail sales. Regulations with regard to the commercial marijuana market will go into effect on July 1, 2018.

In January 2018 Vermont became the first state in the country to legalize marijuana by legislation rather than through a citizen referendum. The new law, H. 511, takes effect on July 1, 2018. Similar to the regulations passed in Massachusetts, the Vermont law authorize adults over the age of 21 to legally possess up to one ounce of marijuana, and/or to privately cultivate up to six marijuana plants. The regulations also impose new civil penalties for consuming marijuana while driving, and imposes additional penalties for those who operate a motor vehicle impaired with a minor in the vehicle.

What happens in New York remains to be seen, but it is clear that the debate over whether to legalize the recreational use of marijuana is just getting started.

As discussed in our January 5th blog post, the Cole Memorandum was rescinded by Attorney General Jeff Sessions on January 4th of this year.   The Cole Memorandum had served to formally announce the DOJ’s policy that it would not interfere with medicinal marijuana legalized under state law, despite marijuana’s continued illegality for all purposes under federal law. With the rescission of the Cole Memorandum, federal prosecutors are now free to determine to what extent they will enforce federal law against the state-legalized medical marijuana industry.

However, the effect of the change in policy reaches further than to just the cultivators, manufacturers and distributors of medicinal marijuana products. Pursuant to the Controlled Substances Act, not only is it illegal to manufacture, distribute or dispense marijuana for any purpose – but it is also illegal to aid someone in doing so. Therefore, the DOJ is now free to prosecute anyone “aiding” in a medical marijuana business, for example, giving legal advice.

Probably of greater practical concern to attorneys than criminal prosecution is the tremendous amount of uncertainty as to how the change in policy will impact the ethics surrounding the representation of medical marijuana clients. Most, if not all, states have ethical rules that specifically prohibit a lawyer from assisting a client in illegal conduct. These rules do not distinguish between conduct that is illegal under federal law but expressly permitted under state law.

New York Rule of Professional Conduct 1.2 provides that “[a] lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is illegal or fraudulent, except that the lawyer may discuss the legal consequences of any proposed course of conduct with a client.” While it is generally undisputed that an attorney may advise a client about what state law provides – for example, filing requirements – an attorney arguably would be violating the Rules of Professional Conduct by, for example, assisting a client in negotiating a marijuana distribution contract.

Ethics boards in some states, including New York, have used the Cole Memorandum as the decisive factor to conclude that providing legal advice related to legalized medical marijuana businesses does not violate ethics rules. To a lesser extent, some states, including New York, have also relied on the theory that state ethics rules are intended to promote state policy – and by approval of the state medicinal marijuana law, a state has expressed its state policy on the matter, yielding no ethical violation.

It remains to be seen what impact the rescission of the Cole Memorandum will have on the ethics opinions of various states that are based heavily upon the prior policy of federal non-enforcement. For now, we can still find comfort in the Rohrabacher-Blumenauer amendment to the federal budget, which currently continues in effect until February 8 and maintains that federal funds (including those allocated to the DOJ) cannot be used to prevent states from “implementing their own state laws that authorize the use, distribution, possession or cultivation of medical marijuana.”

While marijuana is legal for medical and, in some instances recreational, use under the laws of 29 states plus the District of Columbia, under federal law it remains illegal. Yet, for the last several years, this lingering federal illegality has not seemed to chill entry into the industry – thanks in large part to the Cole Memorandum. On the heels of the January 4 rescission of the Cole Memorandum, as well as two additional memos related to marijuana enforcement policy, all of that might change.

A federal statute, the Controlled Substances Act (the “CSA”) makes it illegal to manufacture, distribute or dispense marijuana for any purpose. Under the CSA, marijuana is a Schedule 1 drug, meaning that under federal law marijuana is believed to have no currently accepted medical use and a high potential for abuse. Moreover, the Schedule 1 classification extends to all elements of the cannabis plant, including extracts and derivatives thereof. No exceptions exist in the CSA for medicinal use or use in states where marijuana has been legalized.

However, in 2013, the U.S. Department of Justice (“DOJ”) issued the Cole Memorandum, which states that its general policy is not to interfere with the medicinal use of marijuana under state law. The Memorandum set forth certain principles underpinning DOJ enforcement of the CSA with respect to marijuana. Although the DOJ said it would continue to prosecute persons or organizations whose conduct interferes with any one or more of these principles, regardless of state law, the memorandum went on to declare that where state law effectively mitigates the concerns of the DOJ, the Department will refrain from prosecution.

Since the change in administration in 2017, there has been an increasing sensitivity to a shift in DOJ policy on enforcing the CSA against “legalized” marijuana businesses. Attorney General Jeff Sessions has publicly discussed his harsh stance on marijuana and the potential for increasing federal enforcement of the federal law regarding marijuana – despite what state law provides. In fact, in May 2017 he sent a letter to certain political leaders advising of his desire to do so.

Sessions has now gone a step further and rescinded the Cole Memorandum, leaving federal prosecutors free to determine to what extent they will enforce the CSA against state-legalized marijuana businesses. A copy of the release can be found here and a copy of the memorandum can be found here.

While likelihood of prosecution will vary from jurisdiction to jurisdiction based upon the position of the particular U.S. Attorney in charge of the district, it is clear that the rescission will have a broader impact than just the potential of prosecution of those involved in the industry. As discussed in our November 27, 2017 post, Cannabis Business? The Impact of Federal Law Might reach Further than You Think, the CSA and federal illegality of marijuana has a far-reaching impact on those setting up or running marijuana businesses that are legal under state law. It is anticipated that the rescission of the Cole Memorandum will, among other things, further impair the ability of those in the marijuana business to obtain leases, financing, and perhaps even legal assistance.

State and federal representatives of several states have already publicized their positions on the January 4 memorandum, with many being unfavorable. It would not be surprising if political leaders mobilized quickly to protect the cannabis industry, which has already injected over $20 billion into the U.S. economy and is expected to increase that number to about $70 billion by 2021. In the short term, those in the industry can continue to find some comfort in the Rohrabacher-Blumenauer amendment to the federal budget, which continues in effect until January 19 and maintains that federal funds cannot be used to prevent states from “implementing their own state laws that authorize the use, distribution, possession or cultivation of medical marijuana.” In the meantime, we will all be waiting with baited breath to see the responses of state and federal leaders.

As we previously discussed in Medical Marijuana 103: Patient and Practitioner Regulations in New York State, practitioners in New York must be registered with the New York State Department of Health (“DOH”) in order to certify patients for medical marijuana use. The DOH maintains a list of registered practitioners on its website, however such list is woefully incomplete. As of the date of this writing there are over 1,360 providers statewide that are registered to certify patients for medical marijuana, but only 32 percent are included on the public list maintained by the DOH.

On Wednesday, November 28, 2017, Governor Andrew Cuomo signed a bill which requires the the DOH to list on its website all practitioners who are certified to recommend medical marijuana to patients.

Sen. Diane Savino (D-Staten Island), the primary sponsor of the bill, stated that one of the biggest complaints from patients in the medical marijuana program was finding a registered doctor.

“People complained that it was difficult to find a doctor near them so they could  be certified as a patient. Because the Department of Health kept the list proprietary, it made it that much harder for patients,” said Senator Savino.

A vote on the bill was held in June 2017, with 62 senators voting in favor of the bill and only 1 senator opposing it. The bill requires that the name, contact information, and other information relating to practitioners registered with the DOH to certify patients for medical marijuana be public information and that the information be maintained on the DOH’s website in searchable form. There is an exception, however – practitioners may still opt-out if they do not wish for their information to be public by informing the DOH in writing. The new requirements will be implemented sixty (60) days after the bill was signed into law by Governor Cuomo.

Sen. Savino was also the main proponent of the bill signed on November 11, 2017 by the Governor which adds post traumatic stress disorder to the list of qualifying conditions treatable with medical marijuana in New York State. The date on which the bill was signed into law is no coincidence, as veterans groups in particular had urged Governor Cuomo to allow those with PTSD to use medical marijuana. According to the Department of Veterans Affairs, about eight million adults suffer from PTSD in any given year, including tens of thousands of Afghanistan and Iraq veterans. Somewhere between 11% and 20% of those vets will suffer from it each year.

Everyone involved, or thinking about becoming involved, in the cannabis business is aware of the conflict between the laws of those states legalizing marijuana and the Controlled Substance Act (the “CSA”).  The CSA is a federal law making it illegal to manufacture, distribute or dispense a controlled substance.  For purposes of the CSA, marijuana is classified as a Schedule 1 controlled substance – making it illegal under federal law to be engaged in the marijuana business regardless of what state law provides.

The obvious consequence of this conflict of laws is the potential for federal prosecution for engaging in the marijuana business.  However, the not-so-obvious practical consequences reach further than you might think.  For example,

  • Taxes. Section 280E of the Internal Revenue Code, originally targeted for illegal drug dealers, prohibits cannabis businesses from deducting typical business expenses, such as advertising and rent.
  • Leases.  Most leases have covenants against “illegal activity,” which enables landlords to evict marijuana business tenants.  Moreover, many landlords are unwilling to rent to marijuana businesses, despite their legality under state law, for fear of losing their property in a federal civil asset forfeiture action.
  • Banking. In 2014 the Department of Treasury issued guidance for financial institutions that want to do business with the marijuana industry.  Up until that time, banks were reluctant to deal with the marijuana business due to the Financial Crimes Enforcement Network (FinCEN), which requires banks to investigate their customers and to refrain from negligently or knowingly doing business with bad actors.  Today, banks are safe if they follow some pretty onerous rules.  Many banks choose not do business with the industry rather than comply with the diligence and monitoring requirements set forth by the Department of Treasury.
  • Commercial loans. Commercial loans are difficult to obtain without providing collateral; however, in a marijuana business, banks are not allowed to seize or possess the primary asset of a marijuana business – the marijuana – under federal law. Often a marijuana business will not have many other assets that are valuable enough to act as security for financing.
  • Trademarks. Because marijuana is illegal under the CSA, and because the United States Patent and Trademark Office will not register a mark if the applicant cannot show lawful use of the mark in commerce, it is nearly impossible to secure federal registration of a marijuana-related mark (although marks for ancillary products might be obtained).
  • Federal Water. Many areas in the western United States are served by the Federal Bureau of Reclamation, which manages water and power to farmers.  The Bureau has advised that it will report to the Department of Justice any marijuana farmers who use federal water to irrigate their crops.
  • Bankruptcy. At least two courts have held that marijuana businesses cannot take advantage of federal bankruptcy laws.  The rationale is that, because marijuana is illegal under federal law, granting relief under another provision of federal law for the same activity would be “administering the fruits and instrumentalities of Federal criminal activity.”
  • Access to Federal Courts. If you enter into a contract with a marijuana business and need to sue in federal court, will you be able to?  This question has yet to be answered; however, if the prohibition against bankruptcy relief serves as guidance, the outcome is likely not favorable to marijuana businesses.

It is clear that federal law creates many obstacles to establishing and effectively managing a marijuana business.  Those in the industry should plan carefully and seek legal advice as to how to best mitigate the risks arising from the conflict between state and federal laws.