In the Weeds: DEA Hemp Rule Dispute, Landowners Fined for Tenants’ Crop, Dispensary Workers Seek Union, Feds Address Marijuana Use

January 26, 2022
Newsworthy Highlights

Drug Enforcement Administration Asks Court to Dismiss Hemp Industries Association DEA Rule Challenge. On Nov. 29, 2021, the Drug Enforcement Administration (DEA) filed a pair of briefs for separate but related appeals with the U.S. Court of Appeals for the D.C. Circuit, asking the court to dismiss Hemp Industries Association and Re Botanicals Inc.’s challenges against a DEA hemp manufacturing rule. The 2020 DEA rule at issue establishes that any product that exceeds a certain THC threshold (0.3 percent) is considered a controlled substance regulated by the DEA, including the manufacture of hemp products.

The challengers argued that hemp byproducts are outside the scope of the definition of marijuana and are not controlled substances subject to DEA regulation because they do not contain THC or qualify as hemp. They also claimed the 2018 Farm Bill was intended to bring all hemp activities, including waste hemp material, under the authority of the U.S. Department of Agriculture, not the DEA. The DEA contended that the challengers cite no evidence in their arguments and that the 2018 Farm Bill left room for the DEA to regulate substances exceeding the THC limit. On a future date, the appeals will be argued together before a D.C. Circuit panel.

Oregon Landowners Fined for Tenants Allegedly Growing Marijuana Illegally on Their Land. According to news articles, landowners in Jackson County, Oregon, were fined $150,000 for alleged illegal marijuana grown on their land by tenants who were leasing the property. The tenants constructed many greenhouses on the property and advised the landowners that it was only temporary. The owners believed the tenants to be industrial legal hemp growers and claimed they did not believe they had to request proof of permits for the hemp or greenhouses.

In June 2021, Oregon State Police raided the landowners’ home and seized the property. During the raid, the tenants of the leased property fled the alleged illegal grow site. According to the Jackson County sheriff, the county is finding more and more cases where tenants have been dishonest with property owners about the extent of their cultivation, whether it is legal or not, and what permits are required. Regardless of whether landowners are aware of tenants’ illegal marijuana operations, they may still be liable for violations under county law.

In fall 2021, Jackson County warned property owners in a letter sent with property tax bills about potential fines for renting property to illegal marijuana growers (see McGuireWoods’ Nov. 16, 2021, alert). Some have argued that this is government overreach and that landowners should not be liable for the illegal actions of tenants; however, land use experts maintain that the laws place the burden on property owners because they are ultimately responsible for compliance with all laws that deal with the use of their land.

The articles indicated the landowners plan to appeal the violation.

What Does Virginia’s New Governor Have in Store for Cannabis? In 2021, Virginia officially began the process to legalize adult-use cannabis in the state. As of July 1, 2021, the commonwealth eliminated criminal penalties for possession of up to one ounce of marijuana (by persons 21 years of age or older) and is permitting home cultivation under certain conditions. While the legalization of retail sales is on the horizon, such activities are not slated to begin in the commonwealth until 2024. These changes stem from a bill signed by Gov. Ralph Northam and passed by the 2021 General Assembly.

Notably, numerous provisions of the bill are subject to reenactment by the 2022 General Assembly, many of them covering cultivation, manufacture, wholesale and retail sale of retail marijuana products. New Virginia Gov. Glenn Youngkin stated that, while he does not intend to overturn the law on personal possession, he does plan to reevaluate some of the regulatory and licensing structure, such as the “forced unionization” present in the current bill.

St. Louis Medical Marijuana Dispensary Employees File for Union Election. A group of six employees at a St. Louis medical marijuana dispensary filed for a union election with company management and the National Labor Relations Board (NLRB). Union elections follow unionizing campaigns that have received signatures of support from at least 30 percent of workers in the potential bargaining unit, per the NLRB. Local 655 of the United Food and Commercial Workers is seeking to represent the workers in bargaining negotiations.

Speaking to the St. Louis Post-Dispatch, an NLRB spokeswoman said, “I can confirm the petition was received by the NLRB’s Regional Office in St. Louis and it is being docketed.” One of the dispensary workers supporting the union filing noted: “We love our jobs and we want to secure them into the future, but we want it to be through a contracted deal that we have in writing and that can’t be changed without our authorization.” The director of dispensary operations for the St. Louis dispensary noted that the company “will not stand in the way of unionization efforts.”

Filing a petition for representation election does not guarantee successful unionization; according to the NLRB’s website, 1,269 petitions for representation election were submitted in 2021, 862 elections were held and 663 elections were won by the union. Industry insiders should continue to monitor these budding unionization efforts in the cannabis industry.

Feds Address Hiring for Government Jobs and Marijuana Use. On Dec. 21, 2021, National Intelligence Director Avril D. Haines issued a memorandum regarding how the federal government should evaluate marijuana-related activities when determining eligibility for access to classified information or eligibility to hold sensitive positions.

Mindful of the increase in state and local governments legalizing or decriminalizing marijuana, the memorandum begins with a reminder that marijuana is illegal under federal law. Disregard of federal law can raise security concerns about an applicant’s reliability and trustworthiness and may raise concerns about personal and criminal conduct. Accordingly, disregard of federal law pertaining to marijuana remains relevant, but not determinative, to security-related adjudications.

Nevertheless, the memorandum instructs evaluators to weigh a number of factors in an individual’s life to determine whether behavior raises a security concern. For example, evaluators should consider frequency of cannabis use and likelihood of recurring use. Evaluators may ask applicants to sign attestations on these topics, and evaluators are encouraged to advise applicants to refrain from all future marijuana use.

Importantly, the memorandum also addresses the use of CBD products. As previously discussed, products containing greater than a 0.3 percent concentration of delta-9 THC are outside the definition of “hemp.” Thus, such products labeled as “hemp-derived” may nevertheless be considered marijuana. The U.S. Food and Drug Administration (FDA) does not certify levels of THC in CBD products, and studies show that THC levels advertised on product labels may be inaccurate. Accordingly, an applicant who uses CBD products risks testing positive for marijuana. The memorandum echoes the FDA’s warnings about inaccurate THC labeling.

Finally, the memorandum addresses the topic of individuals investing in marijuana businesses. It explains that an applicant’s knowing decision to invest directly in stocks or companies that specifically pertain to marijuana growers and retailers could reflect questionable judgment and an unwillingness to comply with laws. Accordingly, such investment could negatively affect an applicant’s security-related adjudication (although agencies should consider mitigating factors, such as divestment of such activity). On the other hand, investment in marijuana companies through a diversified, publicly traded mutual fund would not constitute “direct” investment and would not be considered relevant when determining adjudications.

On balance, the memorandum reflects the federal government’s acknowledgement that security evaluations should take into account the changing tide of state and local marijuana laws, while still reflecting marijuana’s place as a Schedule I drug.

Grassroots Federal/State Legislative Highlights

Los Angeles Votes for Administrative Penalties for Illegal Cannabis Activities. The Board of Supervisors of Los Angeles County recently voted to set administrative penalties at a maximum of $30,000 per day for illegal commercial cannabis activities in unincorporated areas of the county. Although the Los Angeles County Code already prohibits commercial cannabis activity in the county’s unincorporated areas, Supervisors Kathryn Barger and Sheila Kuehl, the sponsors of the motion, indicated that the county has continued to experience growth of prohibited cannabis operations in these areas. In their motion, they also cited problems, such as trespass, the use of dangerous pesticides and fertilizers, and water theft caused by illegal large-scale cannabis cultivation.

The new ordinance would declare any unpermitted commercial cannabis activity within unincorporated areas of the county to be unlawful and a public nuisance; establish administrative procedures for the abatement of the public nuisance, including an opportunity to appear and be heard before abatement; and establish administrative procedures for imposing penalties and costs of abatement. Adoption of the ordinance was scheduled for the Jan. 25, 2022, Board of Supervisors meeting.

Virginia Bill Proposes to Decriminalize Possession of Certain Psychedelic Drugs. Virginia legislators recently introduced HB 898, which proposes to reduce penalties for possession of psychedelic mushrooms. Currently, Virginia law considers possession of psychedelic or psychoactive substances (including psilocybin, the active ingredient in psychedelic mushrooms) a Class 5 felony, which is punishable by up to 10 years in prison. The new legislation would change the offense from a felony to a civil offense punishable by a modest $100 fine.

Up to this point, most efforts to decriminalize psychedelics have been limited to municipalities, such as Washington, D.C. To date, the only state that has created a comprehensive program for medical use of psilocybin is Oregon.

Even if HB 898 succeeds, psychedelics will remain illegal in Virginia. Proponents of the bill argue that the goal is not to legalize the drug outright, but rather to remove the stigma associated with felony charges and to open the door for more studies on the potential positive effects of psilocybin on individuals’ mental health.

Investments and Transactions Highlights

Dama Financial Announces Acquisition of GrowFlow. On Jan. 20, 2022, it was announced that Dama Financial had entered into an agreement to acquire GrowFlow Corp. Dama Financial is a California-based comprehensive financial services company for the cannabis industry; GrowFlow, a Washington-based company, offers business management and compliance software to cannabis wholesalers and retailers.

The pair seeks to offer a fully integrated business, financial and compliance platform to cannabis industry participants. Dama CEO Anh Hatzopoulos noted that “[w]ith this acquisition we are creating the leading platform for cannabis operators, essentially a one-stop shop for the business tools they need to thrive.” GrowFlow CEO Travis Steffen noted that “[b]ringing our solutions together will allow us to serve customers in many unique ways and to compete on much more than price.” Subject to regulatory approvals, the transaction is expected to close in the first quarter of 2022.

“In the Weeds” is McGuireWoods’ biweekly ounce of highlights in the budding cannabis, hemp and CBD industries. For more information, see our newsletter archive, our Edible Bites podcast series (available on Apple and Spotify), or visit our Cannabis, Hemp & CBD practice.