Marijuana Salad Flap Hints at Legal Pitfalls: Cannabis Weekly

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A lawsuit involving pot-laced salads shows just how absurd the clash between federal and state cannabis laws in the U.S. can be -- and how lawyers are finding ways to take advantage of it.

The litigation in question emerged in the aftermath of last year’s failed merger between Harvest Health & Recreation Inc. and Verano Holdings Corp. A former employee of Harvest is now accusing Verano of racketeering as part of a plan to expand into new states.

The specifics of the lawsuit, filed March 8 in Colorado District Court, are so convoluted you’ll need a flow chart to keep everything straight -- yes, there’s one in the complaint -- but what’s most interesting is a claim at the center of it all.

In June 2019, a Verano employee allegedly slipped some clippings of the company’s marijuana into salads purchased from Whole Foods, boarded a flight from Chicago to Memphis, Tennessee, and then drove the greens into Arkansas. There, according to the suit, he used them to grow exact genetic clones of the mother plant in order to start growing marijuana in the state with Harvest.

Federal law makes interstate transport of marijuana illegal, but companies that win licenses to cultivate it in new states typically need to bring their genetic material there to get started. After all, the strains of marijuana that companies grow, with their unique THC levels and cannabinoids, are a key part of their intellectual property.

Verano says the allegations “are completely and totally false and absurd” and have turned an employment dispute into “a sensationalized and imagined series of events aimed at a company like Verano with a proven track record of compliant operations.”

Regardless of the veracity of the claims, the alleged salad-smuggling reveals a major problem for cannabis companies that seek to begin grow operations in new states.

“This is not a one-off situation. When a company finally gets one of these highly coveted marijuana licenses, the first thing they ask is: ‘Where do I get my seed or starter plants?’” Dustin Robinson, a founding partner at Mr. Cannabis Law told me in an email exchange about the lawsuit. “Unfortunately, the laws in most of the states do not account for this.”

State agencies tend to bury their heads in the sand, he said, and act as if the cannabis just magically appears. “The marijuana licensee essentially has no choice but to violate federal law.”

Some states have tried to craft laws to account for such issues. Pennsylvania, for example, allows growers to bring seeds or immature plants into the state within 30 days of the operational date.

But as long as cannabis is federally illegal, it’s not clear that even matters from a federal point of view. That has led to a rash of other claims against cannabis companies from plaintiff’s firms that eye an opportunity.

As the 51-page complaint against Verano states in its opening point: “It is a bedrock principle of the United States Constitution that federal law is the supreme law of the land. State laws that are flatly inconsistent with constitutionally authorized federal law have no force or effect.”

COLUMNIST’S NOTE

This newsletter currently publishes Sundays at 10 a.m. New York time. After receiving feedback, we will be moving its publication to Monday mornings at 7 a.m., starting April 5. If you have any questions or concerns, please contact the columnist at: tkary@bloomberg.net

QUOTE OF THE WEEK

“There’s still a large percent of the population that isn’t necessarily comfortable with trying cannabis products. With higher standards of testing, there’s a real opportunity longer term to bring in people who are cannabis-shy and are reluctant to try it,” Organigram Chief Strategy Officer Paolo De Luca said in an interview.

NUMBER OF THE WEEK

$840 million: Projected size of the Mexican adult use cannabis market for its first full year in operation, according to data from Headset.

WHAT YOU NEED TO KNOW

  • Amazon.com Inc.’s policy of screening new hires for marijuana has become the target of a lawsuit.
  • Vertical farms are branching out into hemp for CBD.
  • Japan’s pensioners are invested in marijuana despite the country’s zero-tolerance policy. Disclosures show the country’s Government Pension Investment Fund has stakes worth $80 million in at least three pot companies.
  • In Singapore, with some of the world’s toughest drug laws, authorities confiscated more than 20.5 kilograms of cannabis in the biggest haul in 14 years.
  • The meteoric surge of pot ETFs is prompting one mutual fund to join the list of those seeking to tap into the abundance of cash flowing into the $6 trillion exchange-traded fund industry.
  • Democratic Representative Ed Perlmutter introduced a bipartisan bill that would let cannabis companies access the banking system in states where it’s legalized.
  • Cresco Labs agreed to buy Cultivate Licensing and BL Real Estate for $90 million, plus an earn-out of up to $8 million.
  • Cannabis-focused real estate investment trusts NewLakeCapital Partners Inc. and GreenAcreage Real Estate Corp. are merging to create one of the largest players in the burgeoning industry.
  • Canopy Growth, the Canadian company with a deal to enter the U.S. market upon federal legalization, took out a $750 million loan.

EVENTS

MONDAY 3/22

  • Akerna Corp. reports second-quarter results after the market closes.

TUESDAY 3/23

  • TerrAscend Corp. reports fourth-quarter results before the market opens.
  • Trulieve Cannabis Corp. reports fourth-quarter results before the market opens.

WEDNESDAY 3/24

  • GrowGeneration Corp. reports fourth-quarter results after the market closes.

THURSDAY 3/25

  • Charlotte’s Web reports fourth-quarter results before the market opens.
  • Cresco Labs Inc. reports fourth-quarter results before the market opens.

FRIDAY 3/26

  • Real Cannabis Entrepreneur Conference 2021 begins.

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