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Cannabis Law & Policy Virtual Summit April 21, 2019 Kick Off Remarks New York Attorney General North Dakota Attorney General Tish James Wayne Stenehjem Attorney General Alliance: 43 Members and Participating States Cannabis Project Study legislation and regulation Educate members on emerging trends Convene forums for discussion Supported by AG Advisory Council Industry Working Group Attorney General Authority Panelists Micah Tapman – BDS Analytics Alissa Gardenswartz – Brownstein Hyatt Farber Schreck Agustin Rodriguez and Bill Hurd – Troutman Sanders Jerry Kilgore – Cozen O’Connor, Former Attorney General of Virginia Micah Tapman BDS Analytics Who is average cannabis user and what are the national market projections BDSA MARKET OVERVIEW AG Alliance Cannabis Project Cannabis Law & Policy Virtual Summit April 21, 2020 ©2020 BDS Analytics | CONFIDENTIAL CANNABIS MARKET: THREE DEDICATED CHANNELS + CBD CONVENTIONAL Purchasing through specific retailers licensed at the state level (THC) – CBD loosely regulated • FDA approved • Epidiolex (GW Pharma) Medicinal (Pharma) • Epilepsy focused Conventional (CBD) • CBD compound • Nutraceutical or functional food analog Medical/Wellness • Not FDA approved or doctor prescribed • Commonly used for pain/sleep/anxiety/etc. • Sold in conventional channels & online • Licensed retailers • FDA approved topical use (not ingestion) • Larger retailers abiding by FDA guidelines • Smaller retailers ignoring ingestion prohibition • Analog to alcohol • Confusion rampant among consumers on benefits • Dosage ~5-10mg/serving and risks Recreational/Adult Use • 21+ age restriction on purchase • Licensed retailers (dispensaries) ©2020 BDS Analytics | CONFIDENTIAL 7 $15 BILLION GROWING TO $47 BILLION IN FIVE YEARS Worldwide Cannabis Market Size Forecast • Growth driven by $50 • Need/want – wellness & relaxation as primary motivators • Awareness – general knowledge and acceptance of cannabis $45 products and their benefits $40 • Availability – shift to trusted legal purchasing sources $35 • THC, CBD, CBG, CBN, etc. • Increased knowledge and desire for different cannabinoids $30 • THC = “getting high” but also pain relief, relaxation, etc. $25 • CBD already approved by FDA for topical use + Epidiolex for epilepsy $20 • CBG, CBN and other secondary cannabinoids showing various functions such as sleep aid $15 • New Products $10 • Better products created to fit certain needs $5 • Low dosage servings (1-3mg THC) • Fast-acting formulations (rapid onset) $0 • Beverages for social occassions 2018 2019 2020 2021 2022 2023 2024 2025 BDSA April 2020 ©2020 BDS Analytics | CONFIDENTIAL 8 WHO ARE CANNABIS CONSUMERS? What are their demographic & lifestyle characteristics? Compared to all adults 21+, past 6-month marijuana users are more likely to… • Be male (57% v. 48%) • Be younger (43 v. 49) • Have lower income ($50K v. $63K) • Have a college degree (47% v. 34%) • Work out at a fitness center regularly (31% v. 22%) • Spend more for higher quality products (47% v. 39%) • Engage in social activism (33% v. 20%) 71% Recreational & Social 32% Consume for 63% Health or Medical Recreational & Social and Health or Medical Reasons ©2020 BDS Analytics | CONFIDENTIAL 9 WHO ARE CANNABIS CONSUMERS? How do they buy and use marijuana? • 74% shop for marijuana at a recreational or medical dispensary • Spend over $200 per month on marijuana or CBD products • Inhalables (flower, vapes, etc.) are the most popular product form, preferred by 60% of consumers • Usage focused on wellness benefits BDSA Consumer Research Q3 2019: U.S. adults 21+ in Legal Level 1 States ©2020 BDS Analytics | CONFIDENTIAL 10 THERE ARE CONSUMERS, ACCEPTORS AND REJECTERS™ OF MARIJUANA Marijuana Acceptance is “Mainstream” and Growing …of adults 21+ in Fully Legal U.S. States Consume Cannabis or are % Open to Consuming 69 Cannabis 38% Consumers 31% Acceptors are Rejecters 31% (would not consider in the future) P6M Consumers Non BDSA Consumer Research Q3 2019: U.S. adults 21+ in Legal Level 1 States RAPIDLY INCREASING CONSUMER BASE Colorado consumer base (per capita) almost doubled from Q1 2017 – Q3 2019 Percent of Adults 21+ Consuming Cannabis (CO & CA) 42% 37% increase in % +75% of CO Consumers 24% 23% Q1 2017 Q1 2018 Q3 2018 Q1 2019 Q3 2019 California Colorado BDSA Consumer Research Q3 2019: U.S. adults 21+ in Legal Level 1 States ©2020 BDS Analytics | CONFIDENTIAL 12 MICAH TAPMAN Executive Chairman 13 ©2020 BDS Analytics | CONFIDENTIAL Alissa Gardenswartz Brownstein Hyatt Farber Schreck Consumer protection laws generally and applicable to cannabis, hemp, and CBD businesses State Attorney General Consumer Protection Authority: • State unfair deceptive acts and practices (UDAP) laws • Enforcement authority under certain federal consumer protection laws • Parens patriae authority/common law © 2019 Brownstein Hyatt 16 Farber Schreck, LLP How is Cannabis/CBD/Hemp Similar to Other Products Subject to AG Consumer Protection Oversight? • Advertising/Marketing claims • Similar to enforcement around nutritional supplements • Health benefit claims • Misrepresentations about product quality (pesticide free, organic) • Misrepresentations about product composition (e.g., THC levels) • A note about COVID-19 • Public health implications • Similar to enforcement around tobacco and opioids • AGs using UDAP and other laws to protect health and safety of their constituents • Licensing/regulation comes into play © 2019 Brownstein Hyatt 17 Farber Schreck, LLP How Could Particularities of the Cannabis Industry Impact AG Consumer Protection Oversight? • Differences in federal and state legality • Evolving industry • Recreational and medicinal © 2019 Brownstein Hyatt 18 Farber Schreck, LLP Agustin Rodriguez and Bill Hurd Troutman Sanders Unpacking Government Restrictions on First Amendment Commercial Speech Cannabis Law & Policy Virtual Summit Advertising and the First Amendment William H. Hurd Agustin E. Rodriguez Direct: 804.697.1335 Direct: 804.697.1381 Mobile: 804.201.7846 Mobile: 804.629.0669 [email protected] [email protected] April 21, 2020 First Amendment and Commercial Speech Speech that only proposes a commercial transaction is protected by the First Amendment. Va. State Bd. of Pharmacy v. Va. Citizens Consumer Council, 425 U.S. 748 (1976) 21 First Amendment and Commercial Speech Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557 (1980) 22 First Amendment and Commercial Speech Four-Part Analysis 1. The speech must concern lawful activity and not be misleading. 2. The asserted governmental interest must be substantial. 3. The regulation must directly advance the asserted interest. 4. The regulation must not be more extensive than necessary. Central Hudson, 447 U.S. at 566 23 First Amendment and Commercial Speech Things you can say Things you cannot say Things you can be required to say 24 First Amendment and Commercial Speech Struck down ban on cigar and smokeless tobacco advertising within 1,000 feet of school. Struck down ban on point-of-sale tobacco advertising lower than 5 feet from floor. Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001) 25 First Amendment and Commercial Speech A further twist on compelled disclosures… Required disclosures may reach beyond what is required to prevent deception. May require purely factual and uncontroversial information about the terms under which products or services are available. American Meat Inst. v. U.S. Dep't of Agric., 760 F.3d 18 (D.C. Cir. 2014)(en banc) (upholding country-of- origin disclosure on meat products). 26 First Amendment and Commercial Speech These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure or prevent any disease. 27 What is Cannabis? Cannabis sativa Marijuana Hemp Cannabinoids Federal Regulatory Landscape Industrial Recreational Medical CBD from hemp hemp (and other hemp extracts) Marijuana Hemp Cannabis Federal Regulatory Landscape - FDA and FTC Warning Letters • September 10, 2019: FTC announced it sent warning letters to certain companies regarding cannabidiol (CBD) claims regarding treatment of serious diseases including Cancer, Alzheimer's, and Multiple Sclerosis • November 25, 2019, the U.S. Food and Drug Administration (FDA) announced that it issued warning letters to 15 companies for illegally selling products containing CBD while allegedly making unapproved drug claims for humans and pets (e.g., claims that the products treat cancer, Alzheimer’s disease, opioid withdrawal, pain and pet anxiety) – Also published revised Consumer Update • Since March 31, 2020, FDA has issued several warning letters to CBD consumer products companies claiming their CBD products cure or protect against COVID-19 • Lack of First Amendment advertising cases (and federal enforcement litigation generally) – Conant v. Walters (9th Cir. 2002) 30 Consumer lawsuits • Six class actions filed against companies marketing CBD products – Plaintiffs’ claims are based on marketing practices prohibited by FDA, but only two of the four defendants received FDA warning letters. • McCarthy v. Elixinol (N.D. Ca.) • McCarthy v. Charlotte’s Web Holdings Inc. (N.D. Ca.) • Colette v. CV Sciences, Inc. (C.D. Ca.) • Dasilva v. Infinite Product Co. LLC (C.D. Ca.) • Fausett et al. v. Koi CBD LLC (C.D. Ca.) • Pfister v. Charlotte’s Webb Holdings, Inc. (N.D. Ill.) • Advertising resulting in a private claim based on the Racketeer Influenced and Corrupt Organizations Act (RICO) – Horn et al. v. Medical Marijuana Inc. et al. (W.D. Va.) • Weedmaps