In the Weeds: MORE Act Advances in Congress, Bright Green Registers Shares in U.S., FDA Warns CBD Sellers

April 6, 2022
Newsworthy Highlights

MORE Act Passes House Again. On April 1, 2022, the U.S. House of Representatives again passed the Marijuana Opportunity Reinvestment and Expungement Act (the MORE Act), a proposed piece of federal legislation that would remove cannabis as a “scheduled” drug under the Controlled Substances Act. If passed by the Senate and made law, the legislation would implement various criminal reforms related to cannabis, including the expungement of prior convictions. The bill also covers taxation, prohibits the denial of any federal public benefit based on an individual’s cannabis use or possession, and bars certain federally funded programs from declining to provide services to an otherwise eligible small business based on the business operating in the cannabis industry.

At this time, 37 states and Washington, D.C., already allow medical-use marijuana, and 18 states and D.C. allow adult recreational use. As noted by the bill’s chief sponsor, “[i]f states are the laboratories of democracy, it is long past time for the federal government to recognize that legalization has been a resounding success and the conflict with federal law has become untenable.”

Bright Green Corporation to be Publicly Traded on U.S. Markets. Bright Green Corporation, a cannabis company headquartered in Fort Lauderdale, Florida, recently received conditional approval from the U.S. Drug Enforcement Administration (DEA) to cultivate marijuana for research purposes, and announced on March 29, 2022, that it plans to file with the U.S. Securities and Exchange Commission (SEC) to register its shares on U.S. markets. In its SEC filing, the company indicated that it received conditional approval based on already-agreed terms from the DEA to produce cannabis and cannabis-related products for research, pharmaceutical applications and export.

Bright Green is one of only a few companies to receive conditional approval from the DEA. Final DEA approval is conditioned on completed construction and DEA inspection of Bright Green’s manufacturing and production facilities. Once registered with DEA, the company will be able to sell its cannabis products to DEA-registered manufacturers and researchers, and will be allowed to export cannabis internationally for research purposes.

Cannabis Regulatory System Provider Secures South Dakota Government Contract. Metrc, a top provider of cannabis regulatory systems in the United States, recently secured a contract with the state of South Dakota to aid the state’s regulation of its medical cannabis market. The company’s track-and-trace software platform provides a secure database for the state to track cannabis during every stage of production, from growth to sale. Specifically, the software platform allows the testing results, origin, handling and chain-of-custody information of each harvested or packaged plant used in a cannabis product to be traced through Metrc’s RFID tag system. This information is then made available to South Dakota regulators to promote transparency and ensure the health and safety of the state’s medical marijuana patients.

Marking its 20th government contract, Metrc now holds exclusive government contracts in every region of the United States, including California and Washington, D.C. Moreover, Metrc serves an array of over 250,000 users in various fields of the cannabis market, including testing facilities, growers, state regulators, law enforcement officers and dispensaries. With a growing number of states securing contracts with the company, Metrc continues to be an established partner of state marijuana regulators.

FDA Issues Warning Letters to Companies Selling CBD Products. On March 28, 2022, the Food and Drug Administration (FDA) issued seven warning letters to companies selling CBD products that attempt to use research studies to claim or imply misleadingly that their CBD products will cure, mitigate, treat or prevent COVID-19.

Importantly, FDA has not changed its position on CBD products. This is not the first time FDA has warned companies for inappropriately advertising CBD products, and these warning letters come in the context of greater oversight and enforcement from FDA regarding fraudulent COVID-19 products that purport to prevent, treat, mitigate, diagnose or cure COVID-19. The FDA exercises its authority to prohibit the sale of unapproved products and products asserting false or misleading claims, including by pursuing warning letters, seizures, injunctions or criminal prosecutions against products and firms or individuals that violate the law.

Companies selling CBD products should carefully examine FDA’s position in addition to product marketing strategies and any claims about the benefits of using a particular product.

Grassroots Federal/State Legislative Highlights

Pennsylvania Attempts to Authorize Cannabis Banking. Pennsylvania’s Senate Banking and Insurance Committee gave bipartisan approval to SB 1167, which, if passed, will authorize financial institutions to provide services to state-legal cannabis businesses. The bill will also allow Pennsylvania’s medical cannabis industry to deduct cannabis-related business expenses when filing state taxes. As of March 30, 2022, the bill was in the first consideration stage in the Senate. The bill must go through three rounds of consideration in the Senate, three rounds of consideration in the House and be approved by the governor before it becomes law.

Despite the widespread legalization of medical and recreational cannabis across the county, the mainstream banking industry faces legislative hurdles to servicing lawful cannabis businesses. Such hurdles generally stem from the federal law’s classification of cannabis as a Schedule I drug subject to the Controlled Substances Act. To date, certain bills, such as the Secure and Fair Enforcement (SAFE) Banking Act of 2021, have been proposed and would, if enacted, prohibit federal banking regulators from taking certain actions against financial depository institutions that offer services to cannabis businesses that are lawful on a state level. Despite legislative efforts, currently no laws exist on the federal level.

Utah Hands Hemp Regulation to USDA and Bans CBD in Food. On March 21, 2022, Utah Gov. Spencer Cox signed House Bill 385, Hemp and CBD Amendments. With the amendment, Utah Department of Agriculture and Food will no longer regulate hemp cultivation. Utah hemp producers will have to follow the U.S. Department of Agriculture programs. The amendments also ban producing, selling or using cannabinoid products that are added to food or beverages. Cannabinoid product is defined as a product that (i) contains or is represented to contain one or more naturally occurring cannabinoids and (ii) contains less than 0.3% tetrahydrocannabinol by dry weight.

Virginia Passes Bill That Would Restrict Legal Status of Delta-8 THC.Both houses of the Virginia state legislature passed SB 591, which, as drafted, redefines “marijuana” in the state of Virginia to include any substance containing: a total tetrahydrocannabinol (THC) concentration that exceeds 0.3 percent; or more than 0.25 milligrams of THC per serving or more than one milligram per package, including a hemp product or industrial hemp extract.

The bill excludes industrial hemp with a THC concentration under 0.3 percent possessed by a person or company holding a U.S. Department of Agriculture hemp producer license. This definition is more restrictive than that of the Federal Farm Bill, which currently defines hemp-derived products that contain a delta-9 tetrahydrocannabinol concentration of 0.3% or less as legal hemp, and does not impose per-serving or per-container limitations. SB 591 also imposes new product labeling and testing requirements on delta-8 products.

Some industry participants have lobbied against the bill, including the Virginia Hemp Coalition (VHC), which called for a veto or amendment by Gov. Glenn Younkin. Speaking to a local news outlet, the VHC president expressed concern that the bill could have a significant, negative impact on the state’s hemp industry. The bill was sent to the governor on March 22. The governor’s action deadline is April 11, 2022; if the governor does not take action by that date, the bill will become law.

Investment Highlights

4Front Ventures to Acquire Island Cannabis Company. On March 30, 2022, 4Front Ventures Corp. announced it intends to acquire California’s Island Cannabis Co. The move is significant because it signals another example of renewed interest in the California market by outside multistate operators (MSOs). Importantly, Island’s branding is on a hyper-local California cannabis image, with the company specializing in pre-rolled smokables and flower products, among others. 4Front’s leadership said the company is interested in getting more competitive in California by using what it gained in operational efficiency growing in other states and applying that to California. The well-known fragmented nature of the California market, from varying local rules to competitors, is viewed as an opportunity for larger consolidated MSOs, in 4Front’s opinion. The acquisition may be the first signal toward a more consolidated cannabis market run by non-California companies.

“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.