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All Eyes on New Jersey, New York, Connecticut: Week in Review

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This past week in cannabis kept our attention fixed on New Jersey, even if a snowstorm wedged its way into the mix and pushed a Feb. 19 legislative deadline into Feb. 22. Gov. Phil Murphy has a chance to sign the state’s adult-use legalization bill into law, granting the mandate of voters, but it remains to be seen how this will go down next week.

Of course, that’s not the only thing happening in New Jersey.

  • After the New Jersey medical cannabis dispensary licensing process was halted in late 2019 amid a legal dispute, an appeals court ruling Feb. 18 has once again restored the green light to regulators and prospective businesses. Some 150 applications are back on the table, with the state able to issue up to 24 new licenses. Read more 
  • SLANG Worldwide is bringing its suite of cannabis brands to Missouri and Virginia, two newly legalized medical cannabis markets that offer a lot of promise to the business. In the same stroke, SLANG is expanding its presence in Michigan’s retail sector. Read more 
  • Despite Curaleaf’s share prices dropping after a warning letter from the FDA, a judge found the company has been transparent about risks associated with the industry. Read more 
  • HEXO Corp. announced its acquisition of Zenabis Global Inc. earlier this week, a major headline that sees the Canadian licensed producer planting a flag in Europe’s cannabis market. Read more 
  • New York Gov. Andrew Cuomo announced 30-day amendments to the Governor’s proposal to establish a comprehensive adult-use cannabis program in New York. Read more 

And elsewhere on the web, here are the stories we’ve been reading this week:

  • Yahoo! Finance: “Jamaican export legislation, expected to be finalized in mid-2021, is back on track, and the global industry’s need for a solution to quell supply shortages remains.” Read more 
  • Pasadena Star News: Nearly a dozen lawsuits from different cannabis companies had been filed against the city of Pasadena since 2019, and now most of them are gone. Read more 
  • San Francisco Chronicle: “Medical marijuana workers now have priority access to the coronavirus vaccine, under revised California guidelines.” Read more 
  • Leafly: As of January 2021, the U.S. cannabis industry is supporting 321,000 full-time jobs. Read more 
  • High Times: The London Stock Exchange will now allow cannabis businesses to trade publicly. Read more 

 

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SLANG Worldwide Inks Partnership with Merida Capital to Move Into Missouri, Virginia

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SLANG Worldwide is bringing its suite of cannabis brands to Missouri and Virginia, two newly legalized medical cannabis markets that offer a lot of promise to the business. In the same stroke, SLANG is expanding its presence in Michigan’s retail sector.

This all came about through SLANG’s new strategic partnership with Merida Capital Holdings, a private equity firm that touts a deep portfolio—both plant-touching and ancillary. For SLANG, the move allows the business to place its proprietary brands (O.pen, Bakked, District, Pressies, Lunchbox Alchemy and Firefly) in front of new patient and customer bases.

As CEO Chris Driessen said, “Integrating our brands in emerging markets through strategic partnership is core to our growth strategy.” Here, we caught up with Driessen to learn more about the partnership and about the inherent attraction of newly legal markets in the U.S.

Eric Sandy: In terms of Missouri and Virginia, how do you view the opportunities in these two emerging markets

Chris Driessen: As emerging markets, these are markets where you work with a strategic partner—in this case, Merida and their affiliates—to bring products to market. It’s similar to what we’ve done in Florida with Trulieve or Michigan with Gage. This fits that model perfectly. What’s really interesting about both of these states, from my point of view—one, Missouri’s regulations, the way they’re rolling out the program, it’s a pretty wide open market. It’s a state with a good population. Certainly on their southern border with Oklahoma, there’s massive access for patients there. So, as far as the model itself, the way they’ve drawn up the program bodes very well for a business like ours. And then you turn to Virginia, which is a little different—more limited, a little more restricted, but with all the recent regulation with what the governor is trying to do there, it could come on really quick. Obviously, we want to skate to where the puck is going, not to where it’s at. So, two separate markets, but we’re excited about both for two different reasons. 

ES: As you step into a new market like these two states, what are some of the keys to bringing your brand to a marketplace with patients or even consumers who may not yet be familiar with your brand?

CD: First and foremost, you always want to align yourself someone that has a similar vision and a similar culture, that has the infrastructure, the leadership, the capital to be able to execute on the plan. And certainly we have that with Merida. Whenever we enter a new market—we’re big data guys, so we always want to know all of the analytical data that we can have around the population, the consumption habits, the preferences and products. That’s a little tricky in some of these newer markets, because the data just doesn’t exist. Fortunately for SLANG, these two markets made No. 15 and 16 for us. That’s 14 states, Canada and Puerto Rico. So, we’ve got a really large sample size of what people like, whether that’s edibles, concentrates, vape, flower, pills, we really kind of run the gamut with our product portfolio.

“For the past 11 years, we’ve been preaching brands and CPG, really, since we’ve been in the game. Now, all of a sudden, that’s become very in vogue—and rightfully so.”

– Chris Driessen, CEO, SLANG Worldwide

 

We’re able to take a much larger sample size data than most folks and we’re able to say, “These are likely going to be the things that consumers in those two emerging markets are going to want most.” And then of course you have to pair that with the infrastructure in both states, with the partners you’re working with, what does [the state] allow for—you know, different equipment has different lead times. There are different regulations sometimes—maybe it’s a potency restriction, or maybe they don’t allow flower, all of those kinds of things. You put all of that data into what we call a complexity matrix, and it spits out lead times and it prioritizes those by what is going to be the best bang for our buck. Now, certainly in time, we want to bring all of our products in all six of our brands—almost 100 different products—to market, but of course you can’t do everything at once.

We plugged all the data into the complexity matrix and worked with our product team. We work in-market, of course, with the partners there. And we both devise a game plan: Here’s what we’re going to do first, second, third. We continue to put those things into the market and then devise a go-to-market strategy of how we’re going to move them through the market with our different sales and marketing tactics. It’s a long, involved process. If you’ve been following us, we’ll announce a market and then you’ve got sometimes months and months before the product’s actually available. It really is customized to the specific market and the specific partner, but we let the data be our guide.

ES: I wanted to ask about brand affinity. How has that evolved in the cannabis space? Is a market like Colorado all that different from Missouri in this matter?

CD: You know, strangely enough, you don’t see huge variations there. There’s certainly some nuances, and we’ve cut our teeth in Colorado. We’ve been doing it in Colorado since 2010. We learned a few things along the way over that 11-year journey, but largely most of the new markets that open up generally follow the same series of events. The consumers go on the same journey when a medical market opens. Generally, it’s, “Hey, what’s the strongest thing for the cheapest amount of money?”

Certainly, we have value products that are part of our O.pen line and our District line that fit that bill. But then you start to see the consumer mature and understand things like terpenes or things like live resin—a more educated consumer emerges. The more they’ve been around the plant, their tastes change over time. The beauty of what we do with SLANG is, we’ve got six brands, almost 100 products, and not only do those cover all the best categories, we also are able to segment our product offering within a category. What that means is we’ve got value products, we’ve got premium products and everything in between. For me, brand affinity is really driven by a couple of things.

One, did I enjoy the product? Is it high-quality or is it at a fair price? And did I have a good experience, a good “branded moment,” as we call them, when I consumed the product? And if you do, then generally those consumers are going to want to repeat that experience. The holy grail for us in infused products is repeatable experience. You get that from proven processes, from very tight SOPs, from working very closely with the folks who are making these products in their states to ensure that the quality is there to ensure that that branded moment is going to be similar, whether you’re in Portland, Maine, or Portland, Ore., and, by the way, we have products in both.

ES: When you were looking for a strategic partnership, what were some of the qualities that you needed to be on the table to work with Merida?

CD: Much like we have our complexity matrix for our products, we also have a priority matrix—or, “Where are the places you want to be? Where’s the next big place that cannabis is going to show up in a big way?” We were already in 14 points before we were talking to Merida. So, our list is maybe a little thinner than some, just because we are so widely distributed, but anytime we look for a new strategic partnership, we’re looking at a few things.

One: What’s the infrastructure and the ability to execute on this plan that we’re going to devise? Two: What’s the fit? And when I say “fit,” this is all the things around culture, vision. As you know, it’s always easier to work with people you like. It’s always easier to work with people that you have something in common with. When you find those two things, that’s generally a really good sign that we’re going to be able to do some really good things. We certainly have that with Merida. There’s no doubt about that.

As you know, there’s a ton of capital that’s available right now. We weren’t really looking for capital. So that, wasn’t a pretty interesting thing to us, just because it’s pretty readily available in a lot of places. The key point of this deal was, “Hey, going into these couple other markets, getting this retail placement with [Merida’s] dispensaries in 3Fifteen, which is one of the largest retail footprints in Michigan, those were the really attractive pieces.” As we got to know each other a little better, they’re like, “Hey, wow, we want in on this too.” That’s how you saw this deal come full circle. It included Merida Capital’s strategic markets and retail placement. It was more than just money. When you have that fit and the ability on top of that, it just made all the sense in the world.

ES: As 2021 gets under way, what sort of trends are you watching in the market?

CD: We’re getting a lot of inbound inquiry from MSOs. And I don’t think a lot of people look at Merida as an MSO, but they certainly are. Look at how many fingers they have in how many pies in how many states. It’s really interesting that now that our story and what we do—and our ability to work with these MSOs and really drive performance for them—now, people are really finding value. We’ve known that all along. For the past 11 years, we’ve been preaching brands and CPG, really, since we’ve been in the game. Now, all of a sudden, that’s become very in vogue—and rightfully so. Consumers want choice, consumers want preference, and they want brands.

New Jersey Will See More Medical Cannabis Dispensary Licenses After Appeals Court Ruling

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After a year and a half of litigation, a New York federal judge has tossed a proposed securities class action suit against Curaleaf that alleged the company’s inaccurate labeling of its cannabidiol (CBD) products caused its share prices to drop.

Investors in the company filed the lawsuit in August 2019 after Curaleaf received a warning letter from the U.S. Food and Drug Administration (FDA) for selling CBD products with unsubstantiated health claims about the products treating cancer and Parkinson’s disease, among other health conditions. (Curaleaf responded by removing the health claims from its website and social media accounts.)

The day after the FDA administered its letter, Curaleaf’s stock price fell $0.54, or over 7 percent, and continued to fall in the following days.

The plaintiffs have argued that Curaleaf did not properly disclose the risks associated with selling CBD products.

However, in a Feb. 16 ruling, U.S. District Judge Brian Cogan said Curaleaf has been fully transparent about the legality of its business.

“Starting on its first day in existence, the Company publicly and repeatedly acknowledged the very information that plaintiffs contend it concealed: its cannabis-based products are not approved by the FDA and thus the FDA may regard their promotion as violating established law,” Cogan wrote in his opinion.

According to the opinion, the company’s listing statement (administered when the company made its IPO) disclosed that:

  • the company’s cannabis-based products “are not approved by the [FDA] as ‘drugs.’” 

  • the FDA may regard their marketing “as the promotion of an unapproved drug in violation of the [FDCA].” 

  • the “FDA has issued letters to a number of companies selling products that contain CBD . . . warning them that the marketing of their products violates the FDCA.” 

  • an “FDA enforcement action against the [company] could result in a number of negative consequences, including fines, disgorgement of profits, recalls or seizures of products, or a partial or total suspension of the [company’s] production or distribution of its products.”

  • “[a]ny such event could have a material adverse effect on the [company’s] business, prospects, financial condition, and operating results.” 

“What more need the Company disclose about this risk? The Listing Statement says it all,” Cogan wrote in his opinion.

The plaintiffs also argued that Curaleaf did not disclose this information in all press releases, “perhaps recognizing the weakness of their claim that the Listing Statement did not adequately disclose this information,” Cogan wrote. However, the judge found that not every public statement needs a full list of disclosures.

An additional argument from the plaintiffs was that Curaleaf claimed its products were safe, effective and had the health benefits advertised. But the plaintiffs alleged the FDA’s letter proved these claims were false.

Cogan, however, found the FDA’s letter did not necessarily dispute these claims.

“The reason that this letter exists at all is because the FDA has not been provided adequate information to determine whether the CBD products are safe or effective for any use whatsoever,” Cogan wrote. “The letter doesn’t opine on whether the products are safe and effective; it just explains that defendants cannot say that they are. And … plaintiffs’ claims fail to the extent that they are based on the lack of FDA approval.”

 

Judge Tosses Investors’ Suit Against Curaleaf for Falling Stock Prices

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After a year and a half of litigation, a New York federal judge has tossed a proposed securities class action suit against Curaleaf that alleged the company’s inaccurate labeling of its cannabidiol (CBD) products caused its share prices to drop.

Investors in the company filed the lawsuit in August 2019 after Curaleaf received a warning letter from the U.S. Food and Drug Administration (FDA) for selling CBD products with unsubstantiated health claims about the products treating cancer and Parkinson’s disease, among other health conditions. (Curaleaf responded by removing the health claims from its website and social media accounts.)

The day after the FDA administered its letter, Curaleaf’s stock price fell $0.54, or over 7 percent, and continued to fall in the following days.

The plaintiffs have argued that Curaleaf did not properly disclose the risks associated with selling CBD products.

However, in a Feb. 16 ruling, U.S. District Judge Brian Cogan said Curaleaf has been fully transparent about the legality of its business.

“Starting on its first day in existence, the Company publicly and repeatedly acknowledged the very information that plaintiffs contend it concealed: its cannabis-based products are not approved by the FDA and thus the FDA may regard their promotion as violating established law,” Cogan wrote in his opinion.

According to the opinion, the company’s listing statement (administered when the company made its IPO) disclosed that:

  • the company’s cannabis-based products “are not approved by the [FDA] as ‘drugs.’” 

  • the FDA may regard their marketing “as the promotion of an unapproved drug in violation of the [FDCA].” 

  • the “FDA has issued letters to a number of companies selling products that contain CBD . . . warning them that the marketing of their products violates the FDCA.” 

  • an “FDA enforcement action against the [company] could result in a number of negative consequences, including fines, disgorgement of profits, recalls or seizures of products, or a partial or total suspension of the [company’s] production or distribution of its products.”

  • “[a]ny such event could have a material adverse effect on the [company’s] business, prospects, financial condition, and operating results.” 

“What more need the Company disclose about this risk? The Listing Statement says it all,” Cogan wrote in his opinion.

The plaintiffs also argued that Curaleaf did not disclose this information in all press releases, “perhaps recognizing the weakness of their claim that the Listing Statement did not adequately disclose this information,” Cogan wrote. However, the judge found that not every public statement needs a full list of disclosures.

An additional argument from the plaintiffs was that Curaleaf claimed its products were safe, effective and had the health benefits advertised. But the plaintiffs alleged the FDA’s letter proved these claims were false.

Cogan, however, found the FDA’s letter did not necessarily dispute these claims.

“The reason that this letter exists at all is because the FDA has not been provided adequate information to determine whether the CBD products are safe or effective for any use whatsoever,” Cogan wrote. “The letter doesn’t opine on whether the products are safe and effective; it just explains that defendants cannot say that they are. And … plaintiffs’ claims fail to the extent that they are based on the lack of FDA approval."

 

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HEXO Corp. Picks Up Zenabis Global Inc. in $235-Million Deal

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HEXO Corp. announced its acquisition of Zenabis Global Inc. earlier this week, a major headline that sees the Canadian licensed producer planting a flag in Europe’s cannabis market. The deal was inked at $235 million, a standout sum that adds to the tentative optimism surrounding large-scale cannabis M&A in 2021.

HEXO will pick up Zenabis’ two indoor cultivation facilities and 2.1 million square feet of greenhouse space (all located in Canada) to ramp up capacity with another 111,200 kg of production annually.

“The transaction gives HEXO immediate access to the European medical cannabis market through Zenabis’ local partner, with an established facility in the European Union supplying pharmaceutical products to the European market,” according to a press release announcing the move. “The facility also serves as a European Union Good Manufacturing Practice packaging and distribution center for medical cannabis products produced in Zenabis’ Atholville facility.”

Atholville is located in New Brunswick, Canada. Zenabis’ local partner on the ground in Europe is ZenPharm, based in Malta.

“We’re thrilled to welcome the Zenabis team into the HEXO family. Zenabis has built solid relationships and they share HEXO’s vision of bringing exceptional branded cannabis experiences to adults everywhere, in Canada and abroad” said Sebastien St-Louis, CEO and co-founder of HEXO Corp., in a public statement. “We are proceeding with this transaction because we believe it should be accretive for our shareholders, and it also positions HEXO for accelerated domestic and international growth while supporting near-term requirements for additional licensed capacity. HEXO’s growth strategy includes expanding our global presence, and this acquisition is an important step in that direction.”

On the past five days of trading (as of Feb. 17), HEXO is down 6%.

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How to Determine if it’s Time to Expand Your Cultivation Business Domestically?

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Editor’s note: This is an excerpt from "From Seed to Success: How to Launch a Great Cannabis Cultivation Business in Record Time" by Ryan Douglas. Douglas is founder of Ryan Douglas Cultivation, a cannabis cultivation consulting firm. He was Master Grower from 2013-2016 for Tweed, Inc., Canada’s largest licensed producer of medical cannabis and the flagship subsidiary of Canopy Growth Corporation. He also has contributed to Cannabis Business Times.

Domestic expansion is the addition of one or more cultivation sites within the same state, province, or country. A cannabis business can expand by building new cultivation assets from scratch, or acquiring existing operations that are fully functional. However, entrepreneurs should determine whether they are legally permitted to expand their business before they establish high hopes for domestically increasing their cultivation footprint.

Do you have permission to expand?

The biggest deciding factor on whether or not to expand a cultivation business should be determined by regulations. If your existing license allows for more than one cultivation site, and you are now in a position to take advantage of that option, initiating an expansion project should be fairly simple. If your current license only allows for one cultivation site per license, expansion won’t be as easy. In this scenario, a cultivation business must either purchase an existing license or submit a new license application. Regulations governing these activities differ by state and country, and some jurisdictions prohibit the transference of licenses between companies.  

Expansion through building more facilities

If you’re considering expansion, then you’ve already been through the start-up process and you recognize the importance of proper land selection and facility design. Review Chapters Four and Five, or consult the site assessment checklist found in the Appendix to help expedite these processes.

Expanding to an additional site should be much faster than starting your first cultivation site. The buildout process will be the same, but the launch should be expedited. You can pull from seasoned personnel and previous experiences to help make the second launch much smoother. You already have protocols in place, and an entire staff trained on your company’s SOPs. You will have genetics that have been grown out several times and refined to varieties that are appropriate for commercial production. You’ll also be able to promote from within—moving lower-level employees up to management positions at the new site.

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Vicaa Launches Website Offering Range of High-Quality Growing Media for Medical Cannabis

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ALBANY, New York, Feb. 17, 2020 – PRESS RELEASE – Governor Andrew M. Cuomo today announced 30-day amendments to the Governor’s proposal to establish a comprehensive adult-use cannabis program in New York. Specifically, these amendments will detail how the $100 Million in social equity funding will be allocated, enable the use of delivery services, and refine which criminal charges will be enforced as it relates to the improper sale of cannabis to further reduce the impact on communities hit hardest by the war on drugs.

“As we work to reimagine, rebuild and reopen New York, we’re taking every opportunity to address and correct decades of institutional wrongs to build back better than ever before,” Cuomo said. “We know that you cannot overcome a problem without first admitting there is one. Our comprehensive approach to legalizing and regulating the adult-use cannabis market provides the opportunity to generate much-needed revenue, but it also enables us to directly support the communities most impacted by the war on drugs by creating equity and jobs at every level, in every community in our great state.”

Allocation of $100 Million Cannabis Social Equity Fund

Social and economic equity are the bedrock of Cuomo’s proposal to legalize cannabis for adult-use and as part of that, his proposal includes a $100 million dollar fund to help revitalize communities that have been most harmed by the war on drugs.

Through this fund, qualified community-based nonprofit organizations and local governments would apply for funding to support a number of different community revitalization efforts, including, but not limited to:

  • Job placement and skills services,
  • Adult education,
  • Mental health treatment,
  • Substance use disorder treatment,
  • Housing,
  • Financial literacy,
  • Community banking,
  • Nutrition services,
  • Services to address adverse childhood experiences,
  • Afterschool and child care services, system navigation services,
  • Legal services to address barriers to reentry, and
  • Linkages to medical care, women’s health services and other community-based supportive services

The grants from this program may also be used to further support the social and economic equity program.

Under the amended proposal, the Department of State would allocate the funding, through grants administered by Empire State Development Corporation, in collaboration with the departments of Labor and Health, as well as with the Division of Housing and Community Renewal, and the offices of Addiction Services and Supports and Children and Family Services. Final allocations and administration of funding would also be contingent upon approval from the Division of the Budget.

Enabling the Use of Delivery Services

The legalization of cannabis is expected to play an important role in helping rebuild New York’s economy following the damaging effects of the COVID-19 pandemic. In fact, legalization is projected to create more than 60,000 new jobs and spur $3.5 billion in economic activity while generating an estimated $350 million in tax revenue once fully implemented.

Cannabis legalization also has the potential to have a significant economic benefit on distressed areas in New York, providing employment opportunities for all levels of the workforce. As social and economic equity are the bedrock of Cuomo’s proposal, delivery services offer a low-cost entry point into the industry, particularly in communities that have been especially impacted by the war on drugs.

Recognizing this, Cuomo is amending his proposal to allow for the permitting of delivery services as a way to open up access to this new industry even further so more New Yorkers can participate as it grows. As part of this, local governments would have the opportunity to opt-out of delivery services occurring within their jurisdiction.

Criminality of Improper Sales

When establishing a new product market, as Cuomo’s proposal does, there will inevitably be attempts by bad actors to skirt rules and commit fraud for their own financial gain. This makes it critically important to ensure that penalties are carefully calibrated to ensure that all those who wish to participate in this new market are operating on the same level playing field.

Cannabis, however, adds another complicating factor to this dynamic – years of outdated policies stemming from the war on drugs have disproportionately impacted communities of color. Already, New York has taken steps to decriminalize cannabis and as this new market is realized, and it’s critical that criminal penalties are thoughtfully assigned, as to ensure that the progress which has already been made, is not inadvertently reversed.

As such, under Cuomo’s amended proposal, specific penalties will be reduced as follows:

  • Criminal sale in the third degree (sale to under 21 years old) will be made a class A misdemeanor
  • Criminal sale in the second degree (sale of over 16 ounces or 80 grams of concentrate) will be made a class E felony
  • Criminal sale in the first degree (sale of over 64 ounces or 320 grams of concentrate) will be made a class D felony

Cuomo’s proposal builds on years of work to understand and decriminalize cannabis for adult use. In 2018, the Department of Health, under Cuomo’s direction, conducted a multi-agency study which concluded that the positive impacts of legalizing adult-use cannabis far outweighed the negatives. It also found that decades of cannabis prohibition have failed to achieve public health and safety goals and have led to unjust arrests and convictions, particularly in communities of color.

In 2019, Governor Cuomo signed legislation to decriminalize the penalties for unlawful possession of cannabis. The legislation also put forth a process to expunge records for certain cannabis convictions. Later that year, Cuomo spearheaded a multi-state summit to discuss paths towards the legalization of adult-use cannabis that would ensure public health and safety and coordinate programs regionally to minimize the cross-border movement of cannabis products.

Building on that important work, Cuomo’s proposal reflects national standards and emerging best practices to promote responsible use, limiting the sale of cannabis products to adults 21 and over and establishing stringent quality and safety controls, including strict regulation of the packaging, labeling, advertising and testing of all cannabis products. Cannabis regulation also offers the opportunity to invest in research and direct resources to communities that have been most impacted by cannabis prohibition.

Cannalytics Becomes First Accredited Cannabis Lab in Puerto Rico

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In a press release sent out this week, A2LA announced they have accredited Cannalytics to ISO 17025:2017. With the finalized accreditation in December 2020, Cannalytics is the first cannabis testing laboratory in Puerto Rico to get accredited to the standard.

Jorge Diaz, owner and director of Cannalytics, says their two main objectives are business excellence and quality. “Being the first ISO/IEC 17025 accredited cannabis laboratory in Puerto Rico affirms our mission to provide continuous quality science to our clients while safeguarding the health of Puerto Rico’s medical cannabis patients,” says Diaz.

Cannalytics is a medical cannabis and hemp testing lab based in San Juan, Puerto Rico. They offer compliance and R&D analysis in their suite of testing services.

“We are glad to see the continued growth of our cannabis program in a new territory, which further promotes the value that accreditation adds in ensuring quality in this emerging industry,” says Anna Williams, A2LA Accreditation Supervisor.

Governor Cuomo Announces 30-Day Amendments to Legislation Establishing Comprehensive Adult-Use Cannabis Program in New York

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ALBANY, New York, Feb. 17, 2020 – PRESS RELEASE – Governor Andrew M. Cuomo today announced 30-day amendments to the Governor’s proposal to establish a comprehensive adult-use cannabis program in New York. Specifically, these amendments will detail how the $100 Million in social equity funding will be allocated, enable the use of delivery services, and refine which criminal charges will be enforced as it relates to the improper sale of cannabis to further reduce the impact on communities hit hardest by the war on drugs.

“As we work to reimagine, rebuild and reopen New York, we’re taking every opportunity to address and correct decades of institutional wrongs to build back better than ever before,” Cuomo said. “We know that you cannot overcome a problem without first admitting there is one. Our comprehensive approach to legalizing and regulating the adult-use cannabis market provides the opportunity to generate much-needed revenue, but it also enables us to directly support the communities most impacted by the war on drugs by creating equity and jobs at every level, in every community in our great state.”

Allocation of $100 Million Cannabis Social Equity Fund

Social and economic equity are the bedrock of Cuomo’s proposal to legalize cannabis for adult-use and as part of that, his proposal includes a $100 million dollar fund to help revitalize communities that have been most harmed by the war on drugs.

Through this fund, qualified community-based nonprofit organizations and local governments would apply for funding to support a number of different community revitalization efforts, including, but not limited to:

  • Job placement and skills services,
  • Adult education,
  • Mental health treatment,
  • Substance use disorder treatment,
  • Housing,
  • Financial literacy,
  • Community banking,
  • Nutrition services,
  • Services to address adverse childhood experiences,
  • Afterschool and child care services, system navigation services,
  • Legal services to address barriers to reentry, and
  • Linkages to medical care, women’s health services and other community-based supportive services

The grants from this program may also be used to further support the social and economic equity program.

Under the amended proposal, the Department of State would allocate the funding, through grants administered by Empire State Development Corporation, in collaboration with the departments of Labor and Health, as well as with the Division of Housing and Community Renewal, and the offices of Addiction Services and Supports and Children and Family Services. Final allocations and administration of funding would also be contingent upon approval from the Division of the Budget.

Enabling the Use of Delivery Services

The legalization of cannabis is expected to play an important role in helping rebuild New York’s economy following the damaging effects of the COVID-19 pandemic. In fact, legalization is projected to create more than 60,000 new jobs and spur $3.5 billion in economic activity while generating an estimated $350 million in tax revenue once fully implemented.

Cannabis legalization also has the potential to have a significant economic benefit on distressed areas in New York, providing employment opportunities for all levels of the workforce. As social and economic equity are the bedrock of Cuomo’s proposal, delivery services offer a low-cost entry point into the industry, particularly in communities that have been especially impacted by the war on drugs.

Recognizing this, Cuomo is amending his proposal to allow for the permitting of delivery services as a way to open up access to this new industry even further so more New Yorkers can participate as it grows. As part of this, local governments would have the opportunity to opt-out of delivery services occurring within their jurisdiction.

Criminality of Improper Sales

When establishing a new product market, as Cuomo’s proposal does, there will inevitably be attempts by bad actors to skirt rules and commit fraud for their own financial gain. This makes it critically important to ensure that penalties are carefully calibrated to ensure that all those who wish to participate in this new market are operating on the same level playing field.

Cannabis, however, adds another complicating factor to this dynamic – years of outdated policies stemming from the war on drugs have disproportionately impacted communities of color. Already, New York has taken steps to decriminalize cannabis and as this new market is realized, and it’s critical that criminal penalties are thoughtfully assigned, as to ensure that the progress which has already been made, is not inadvertently reversed.

As such, under Cuomo’s amended proposal, specific penalties will be reduced as follows:

  • Criminal sale in the third degree (sale to under 21 years old) will be made a class A misdemeanor
  • Criminal sale in the second degree (sale of over 16 ounces or 80 grams of concentrate) will be made a class E felony
  • Criminal sale in the first degree (sale of over 64 ounces or 320 grams of concentrate) will be made a class D felony

Cuomo’s proposal builds on years of work to understand and decriminalize cannabis for adult use. In 2018, the Department of Health, under Cuomo’s direction, conducted a multi-agency study which concluded that the positive impacts of legalizing adult-use cannabis far outweighed the negatives. It also found that decades of cannabis prohibition have failed to achieve public health and safety goals and have led to unjust arrests and convictions, particularly in communities of color.

In 2019, Governor Cuomo signed legislation to decriminalize the penalties for unlawful possession of cannabis. The legislation also put forth a process to expunge records for certain cannabis convictions. Later that year, Cuomo spearheaded a multi-state summit to discuss paths towards the legalization of adult-use cannabis that would ensure public health and safety and coordinate programs regionally to minimize the cross-border movement of cannabis products.

Building on that important work, Cuomo’s proposal reflects national standards and emerging best practices to promote responsible use, limiting the sale of cannabis products to adults 21 and over and establishing stringent quality and safety controls, including strict regulation of the packaging, labeling, advertising and testing of all cannabis products. Cannabis regulation also offers the opportunity to invest in research and direct resources to communities that have been most impacted by cannabis prohibition.

FAQs: How Cannabis Businesses Can Avoid TCPA Liability

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As the cannabis industry continues to experience growth in markets across the country, cannabis businesses are becoming an ever-increasing target of plaintiff’s lawyers in Telephone Consumer Protection Act (TCPA) lawsuits. Text messaging provides a potent channel of customer engagement, but at the same time is subject to strict regulations under the TCPA, with violators subject to steep statutory penalties of $500-$1,500 per message. While one-off cases won’t typically break the bank, that’s far from the case when many thousands of texts are bundled together in a class action. And this potential for big paydays means plaintiff’s lawyers have a financial incentive to file cases as class actions whenever they can.

Some well-known names in cannabis have been the target of TCPA class action. Cannabis delivery service Eaze has battled some fairly well-publicized TCPA class actions in the past couple of years. There has also been an assortment of dispensaries across several western states that have been the targets of similar lawsuits. Notably, these lawsuits share a common thread: they are based on marketing or promotional text messages sent to consumers.

In this landscape, firing off texts without the proper compliance safeguards is a game of roulette. At some point in time, one or more messages will invariably land in the wrong hands, sparking an expensive, high-stakes class action. In this competitive space, there are far more productive things any cannabis business can be doing than spending the time and resources on this type of lawsuit.

So how can your business avoid being caught in a TCPA trap? The following Q&A will walk you through some of the questions you should be asking if you are currently texting, or planning to text your customer base for marketing purposes. One quick note before starting: the TCPA has different rules for different types of messages (such as informational versus marketing messages). This Q&A will cover the distinction between these types of messages, but focuses on the rules around marketing messages since these are rules cannabis businesses get tripped up in most frequently when sued for TCPA violations.

Question: How do I know if the TCPA applies to me?

Answer: Are you texting your customers? If so, are you using some kind of platform that lets you send multiple texts at once? If you answered yes to both, then the TCPA most likely applies to you.

In short, the TCPA prohibits calling or sending texts to cell phones using an Automatic Telephone Dialing System (ATDS). Without getting into the many nuances of how courts have interpreted the legal definition of that term (and risk boring you to death), you can assume that unless you’re hitting send on each and every single text that goes to your customers, that you’re using an ATDS, and your texts are subject to the TCPA.

Q: So it looks like the TCPA applies to me. What now?

A: If you don’t have a compliance plan in place, now’s the time to implement one. To start, take stock of (a) how you’re sending texts; (b) who you’re texting; (c) where you obtained their phone number; and (d) whether you have their prior express written consent. That last part is key: under the TCPA, if you’re sending any text messages to your customers for “telemarketing” purposes, you’ll need what the TCPA calls “prior express written consent”.

Q: But I’m a cannabis business, not a telemarketer. Why should I worry about the TCPA again?

A: The TCPA’s rules requiring prior express written consent apply when the text is sent for “telemarketing” purposes, defined as “the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services, which is transmitted to any person.” Put simply, if you are sending texts to market or promote something you sell, then it’s likely the message will be considered “telemarketing” under the law. In contrast, if you’re sending a text for purely information purposes, such as sending a receipt for a transaction, or advising on the status of a delivery, then those message are still regulated by the TCPA, but subject to a more relaxed consent standard (a topic for another article).

Q: What do I need to do to get prior express written consent from my customers?

A: It’s important to know that prior express written consent is a technical, legally defined term that requires the caller be provided a written disclosure containing certain information and disclosures, which they “sign.” There are three key components to prior express written consent:

First, the consent agreement has to be in a signed writing. The law affords some flexibility here, allowing callers to obtain consent digitally through a number of mediums including web-based and electronic forms. If structured properly, consent may even be obtained through a text message flow.

Second, the consent agreement has to say certain things. It must authorize the caller to deliver advertisements or marketing messages using an ATDS, it must specify the phone number to which messages are being authorized, and it must say that the consumer doesn’t have to provide their consent as a condition to receiving goods or services.

Third, the disclosures must be “clear and conspicuous”. There’s no real rocket science here, but this is a very important part of the rule. It’s challenging to enforce an agreement that’s hard for a consumer to find or see, meaning the consent disclosures can’t be hidden away, in imperceptible font, or baked into another legal document (such as terms and conditions).

Q: I have a great customer contact database, but I don’t think I check all the boxes for prior express written consent. Can I still text them with specials and promotions?

A: No. At least not with your usual automated or mass-texting platform. But with some legwork, you can leverage your existing database and obtain consent. It’s not ideal, but it’s better than taking the risk of texting in this situation.

Let’s start with the fact that people like to get deals and specials on cannabis products, so there will likely be interest across your customer base for signing up. And with the flexibility afforded by the E-SIGN Act, businesses can try multiple avenues in obtaining prior express written consent from existing customers. This could include a call-to-action campaign, where consumers can initiate a text message consent flow by texting a keyword to a short code. The TCPA does not regulate e-mails, so businesses can consider an e-mail campaign that encourages their customers to follow a link that takes them to a web-based consent form. For businesses with storefronts, customers can be encouraged to sign up for texts on-site by filling out and submitting a form on a tablet device. Bottom line, there’s room for some creativity in designing campaigns to enrich your existing customer database with the necessary consent to send marketing texts.

Q: What happens when a consumer opts out of receiving texts?

A: You should stop all texts to their phone number unless and until they opt back in to receiving texts. Under the TCPA, a consumer has the right to revoke their consent, and any text message sent after an opt-out will violate the TCPA. This means it’s important to have clear opt-out instructions in every message you send (i.e. text stop to stop), and to ensure you have the proper systems in place to automatically suppress any further texts to the consumer’s phone number following an opt out.

Q: If I don’t follow these rules, what are the odds of getting sued for a violation?

A: Pretty high in my opinion. As mentioned, the TCPA is a very lucrative statute for Plaintiff’s lawyers. There are several thousand TCPA cases filed in federal courts each year, and lately cannabis businesses are becoming an increasing share of the defendants named in those suits. Additionally, the TCPA has a four-year statute of limitations, meaning exposure for non-compliant practices has a really long tail. It’s far easier to develop and execute a compliance plan up front, than to take on the risk that comes without one.

Q: Is there anything else I can be doing to protect my business?

Absolutely. Your TCPA compliance policy should be one layer of a holistic approach to legal compliance. Businesses have other tools at their disposal, such as arbitration provisions and class action waivers, that they can build into their consent-gathering process to further protect themselves in the event of a legal dispute.

Q: Any other tips to help keep my business out of the TCPA fracas?

A: Yes. Lots. More than I could fit into just this one article. But my goal here was to get you to think in the right direction when it comes to the TCPA, if you aren’t already. While I tried to make the basics of this as straightforward as possible, there are plenty of grey areas and nuance when it comes to compliance (especially when you inject the real world into the situation). This is where having lawyer experienced in this arena can come in really handy to vet your disclosures, review your compliance processes, and help you implement other risk mitigation strategies.

TCPA claims have become the cost of doing business when contacting consumers on their cell phones. But by being proactive, businesses have ample opportunity to mitigate their risk, and protect themselves in the event the legality of their text message campaigns is challenged.