The 4/20 Edition of the Leaflet

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WELCOME TO THE 4/20 EDITION OF THE LEAFLET

As a cannabis law firm, our work is tied to the broader movement for cannabis legalization, and one of the engines of that movement is the culture of cannabis. 420 is the best-known celebration of that culture – the day when cannabis advocates gather to celebrate the plant that is steadily remaking the nation’s attitudes towards its own drug laws and driving an increasingly significant portion of its economy. Like most high-profile celebrations that have made their way into pop culture, 420’s origins and significance are often lost. And what better place to remind everyone than right here, in the 420 Edition of The Leaflet. The term “420” and its association with cannabis can be traced back to the early 1970’s, when a group of California teenagers that called themselves the Waldos found a treasure map that supposedly led to a cannabis plant growing somewhere in the California wilderness. (Link). Every day, the Waldos would meet after school to go off in search of the mythical plant. Even though they never found it, their designated meeting time – 4:20 p.m. – became a part of cannabis lore when one of the Waldos became a roadie for the Grateful Dead and the term caught on with millions of dedicated Deadheads.

Today, the 420 holiday is celebrated around the world. But its impact goes far beyond the gathering of cannabis enthusiasts. The term became a rallying cry for cannabis advocates, as they campaigned for legalization. As VOX wrote in 2019, while “some people want to get high and have fun, others see the day as a moment to push for legalization.” (Link). Damian Marley, the cannabis entrepreneur and son of Bob Marley, told Rolling Stone that “420 is positive, because it raised a lot of conversations and discussions about the plant,” and that the holiday is more relevant than ever because of legalization. (Link). In fact, in 2003, the California legislature codiﬁed the ballot measure legalizing the use of cannabis for medicinal purposes. What was the name of the bill, you ask? Well, it was Senate Bill 420 of course! (Link).

420 started as a counter-cultural event. A chance for cannabis enthusiasts to protest unjust drug laws and celebrate a plant that they believed could make the world a better place. The fact that this counter-cultural movement has made its way to the mainstream – with more states legalizing adult-use cannabis, and the legal cannabis industry growing so fast that some experts expect it to have more than $130 billion in total economic impact by 2024 (Link) – is a testament to the success of that movement. As a ﬁrm, that in many ways owes its very existence to the movement, we here at Feuerstein Kulick just want to wish everyone a very happy 4/20.

As a ﬁrm, that in many ways owes its very existence to the movement, we here at Feuerstein Kulick just want to wish everyone a very happy 4/20.

THAT’S JUST YOUR OPINION, MAN (We can’t believe it took us 3 issues to drop a Lebowski gif)

What better place to launch a new section for The Leaﬂet than here, in our special 420 Edition. Welcome to “That’s Just Your Opinion, Man”, where we let one member of the FK team sound off on the cannabis issue of the day. Kicking things off is this little piece from FK co-founder, Mitch Kulick.

What’s in a name?

“As you are reading these words, you are taking part in one of the wonders of the natural world. For you and I belong to a species with a remarkable ability: we can shape events in each other's brains with exquisite precision.” ― Steven Pinker, The Language Instinct: How the Mind Creates Language.

Language is a powerful tool that can help or hinder peoples’ understanding of the world around them. The words we choose have consequences – for better or worse – and so it is with the nation’s attitude towards cannabis. For decades, anti-cannabis zealots sought to stigmatize the substance and justify the imprisonment of those that used it for medicinal or recreational purposes by purposefully coining the term “marijuana”, which (according to NPR) “came into popular usage in the U.S. in the early 20th century because anti-cannabis factions wanted to underscore the drug’s ‘Mexican-ness’” and to “play off anti- immigrant sentiments.” (Link).

As the nation rethinks its harmful attitudes towards cannabis, it’s important that those of us within the cannabis industry choose our words carefully, in a way that avoids the stereotypes and stigmas that have marred so much of our recent history. For that reason, it’s time that we banish the term “Black Market” from the cannabis-industry lexicon.

As more states have legalized recreational and medicinal cannabis, those of us within the industry have had to confront a vexing terminological problem – how to distinguish between the ever-increasing number of legal cannabis markets, and the illegal cannabis market, where people have historically been forced to buy their cannabis products (and where many still do). For years, the term “Black Market” has been the way people have commonly referred to this illegal marketplace. But, like “marijuana”, the term has troubling implications.

The precise origins of the phrase are debatable, but one theory suggests that it came out of the WWII era when everything from food to raw materials were rationed by the federal government in service of the war effort. Those trading in goods that were supposed to be rationed did so in the dark of night and so the illegal markets they created came to be known as the “Black Market.” Another theory was that after the abolition of slavery, markets were still held to sell slaves. These illegal markets became known as “Black Markets.”

Whatever its origins, the association of the supposedly illicit marketplace for cannabis and other illegal items as “black” is problematic in the extreme. As the Hufﬁngton Post wrote in 2020: The symbolism of white as positive and black as negative is pervasive in our culture. . . [as] color is “related to extortion (blackmail), disrepute (black mark), rejection (blackball), banishment (blacklist), impurity (‘not the driven snow’) and illicitness (black market).” (Link). The use of the term “Black Market” in the cannabis context is even more troubling, given that black and brown people are four times as likely to be arrested for cannabis-related offenses as white people, even though the two groups use cannabis at the same rate. (Link).

For all these reasons, cannabis industry leaders should reconsider using the term Black Market to describe the illegal cannabis market that still exists alongside the legal market in almost every state. At our ﬁrm, when discussing the illegal marketplace, we refer to it as the Traditional Market or the Legacy Market. Referring to it in these terms not only avoids the harmful stigmas of the “Black Market”; it pays tribute to those who traded in cannabis before the creation of the legal markets in which so many of our clients operate. It honors those who came before us and relegates a harmful term to the dustbin of history.

To be clear, that doesn’t mean we need to vilify everyone that unknowingly deploys the term Black Market without realizing how it perpetuates harmful ideas. The phrase Black Market has been around for nearly 100 years and has become part of the vernacular. But we should strive for something better.

One of the driving forces of cannabis legalization has been the earnest desire of many in the industry to promote social equity, and to reverse as much of the harm caused by the war on drugs as possible (along with our cultural attitudes towards those unjustly caught in its crossﬁre). Retiring the phrase “Black Market” in favor of “Legacy Market” would be one (admittedly small) step forward in the industry’s quest for social equity.

CANNABIS CHATTER

Five Things You Should Know About New York’s New Adult-Use Cannabis Law

The cannabis industry ﬁnally harpooned its white (or maybe green) whale when Governor Cuomo signed The Marijuana Regulation and Taxation Act (or “MRTA”) into law on March 31 – legalizing adult-use cannabis throughout New York. For anyone keeping tabs on the Empire State’s state of cannabis – long viewed by many as one of the most exciting and potentially lucrative adult-use markets out there – you know it’s been a long, hard and winding road. But hey, if adult use can make it here, it can make it . . . And while it’s still early days for the adult-use market in New York – regulators have yet to be appointed, rules have yet to be written – there’s still a lot to learn from the text of MRTA itself. Here are ﬁve things you should know about the MRTA.

The Cannabis Control Board

The newly created Cannabis Control Board (“CCB”) will be the epicenter of adult-use regulatory authority in New York. Among its many powers and responsibilities, the CCB will: (1) have the power to issue licenses; (2) have the discretion to limit the number of licenses issued in order to prioritize social equity applicants, encourage small business opportunities and to prevent the New York market from being controlled by a small group of large MSOs; and (3) promulgate the rules that will govern everything from licensing applications to the operation of New York’s cannabis cultivators, distributors and retailers. The CCB will consist of ﬁve members, with the Chairperson and two other members being appointed by the Governor (with advice and consent of the State Senate), and the other two members appointed by the legislature – one by the Senate President, and one by the Speaker for the State Assembly.

Adult Use Licensing Criteria

While the CCB will have a lot to say about the form, content and evaluation of applications for the different category of licenses, the MRTA does include certain “selection criteria” meant to guide the CCB’s rule-making process. In addition to prioritizing social and economic equity applicants (see more on that below), the CCB will seek to determine an applicant’s ability to (1) comply with existing state laws and regulations, and the ability to guard against the illegal distribution of cannabis, (2) effectively use the license (does the applicant have the necessary land, equipment and experience to carry out the activities contemplated by the license), (3) “mitigate adverse environmental impacts”, including carbon emissions, and (4) “contribute to communities and people disproportionally harmed by enforcement of cannabis laws.”

This list is by no means exhaustive, and the CCB’s regulations will put more meat on these bones, but the MRTA’s criteria provides an important starting point for evaluating what kinds of applicants will have the best chances of procuring the license of their dreams.

#SocialEquityGoals

One of the MRTA’s core, overarching legislative purposes is to promote social and economic equity by providing certain groups with a leg-up in what is certain to be a highly competitive licensing application process. To that end, the MRTA directs the CCB to “promote diversity in commerce, ownership, and employment, and opportunities for social and economic inequality in the adult- use cannabis industry.” In fact, the MRTA provides the CCB with a specific social equity goal – “to award fifty percent of adult-use cannabis licenses to social and economic equity applicants.” These include minority and women- owned businesses, distressed farmers (as defined in the law), and service- disabled veterans. The law also sets forth the requirements to qualify as one of these social and economic equity applicants. For example, in order to qualify as a women-owned business, women must own at least 51 percent of the company and exercise control over the day-to-day operations of the business.

No “Vertical” Licenses

While some states award “vertical” licenses – allowing a single company to cultivate, process, distribute and sell medical or adult-use cannabis – New York is forcing operators to pick a lane. The MRTA makes it unlawful for any person authorized to cultivate, process or distribute cannabis from having any direct or indirect interest in an entity licensed to operate a cannabis retail, delivery or on- site consumption business. In other words, it’s one or the other.

Existing Registered Medical Organizations Don’t Automatically Qualify For Adult-Use License

Licensed participants in New York’s pre-existing medical cannabis program (referred to as Registered Organizations) may qualify for a license to also participate in the adult-use program but won’t do so automatically. Instead, a Registered Organization’s ability to obtain adult-use licenses is subject to the discretion of the CCB, and RO’s looking to make the leap will have to meet certain requirements, and will be subject to all fees, rules and conditions imposed by the board.

CANNABIS NERD ALERT A Different Kind of Illegality Defense

In our February issue of The Leaﬂet, we wrote about a cannabis-related action dismissed by a federal court in Colorado because it concluded that enforcing the contract at issue would violate the Controlled Substances Act. (See full write up here). And while cannabis litigants are no strangers to the perils of litigating in federal court, where the Controlled Substances Act can render otherwise valid commercial agreements unenforceable, a recent decision by a District Court in Washington State provides a new and interesting twist on the potential for defendants to assert illegality defenses to seemingly valid cannabis-related contracts.

In Polk v. Gontmaher, the plaintiff alleged that they had contributed to the success and profits of the company Northwest Cannabis Solutions and were entitled to a share of its profits generated by the company pursuant to a contract. Polk v. Gontmaher, Case No. 2:18-cv-01434 (RAJ), 2021 WL 1090739 (W.D. Wash. March 22, 2021). The Court in Polkinitially rejected the defendants’ argument that reliance upon an illegal contract alone (that is, one that violates the CSA) is insufficient to warrant the granting of a motion to dismiss – an emerging consensus position among federal district courts throughout the country. Nevertheless, the Court dismissed the plaintiff’s claims because the agreement in question ran afoul of Washington State law.

The Court concluded that, because the plaintiff was seeking a share of the company’s profits, the plaintiff was a “true party of interest” under the Washington’s cannabis statute. Id. at *2. That same statute requires any such “party of interest” to submit to a vetting process to be conducted by the Washington Liquor and Cannabis Board or “LCB”. The plaintiff, however, was never identified as a party of interest in any of the company’s filings with the LCB, and so he was never vetted in the manner required by Washington law. Thus, the Court in Polk concluded that it could not enforce the agreement entitling plaintiff to a share of the company’s profits because to do so would effectively award the plaintiff “party of interest” status even though he was never subject to the required vetting process.

The decision in Polk thus highlights a new and signiﬁcant wrinkle in a court’s willingness to adopt an illegality defense in a cannabis-related dispute. Plaintiffs seeking to enforce cannabis-related contracts need not only contend with the obstacles provided by federal law but must also establish that the agreement does not run afoul of applicable state law as well. The decision also illustrates the importance of understanding and abiding by all the requirements of the state and local regulatory authorities that have the greatest control over the legal cannabis industry. (For more information contact [email protected] and [email protected]).

SCOTUS Narrows the Path for Robocall Class Actions

What do robocalls, Facebook and the cannabis industry have to do with one another? More than you might think in light of a recent Supreme Court Decision narrowing the scope of the Telephone Consumer Protection Act (“TCPA”) – the federal statute prohibiting the use of automatic telephone dialing systems to generate and call random telephone numbers.

In Facebook v. Duguid, SCOTUS took up the question of whether the TCPA applied to companies like Facebook – which asks customers to input their phone numbers and then sends them automated text messages – or whether it is limited to companies that randomly generate phone numbers using their own software. Resolving a circuit split on the issue, the nation’s highest court unanimously held that the TCPA does not apply to notiﬁcation systems like the one deployed by Facebook because an “autodialer” must have the ability to generate the phone number itself in order to fall within the scope of the TCPA. As a result, the TCPA “excludes equipment like Facebook’s login notiﬁcation system, which did not use such technology.”

The holding should come as a relief to thousands of businesses across the country that utilize some form of automated marketing/consumer notiﬁcation systems. Indeed, many businesses within the cannabis space (from dispensaries to delivery services) use some form of automated text messaging service to stay in touch with their customers. Prior to the decision in Duguid, these businesses may have had signiﬁcant liability exposure under the TCPA if they found themselves operating in one of the circuits (like the 9th, which includes states like California, Washington and Nevada, among others) that had previously adopted a broader view of the TCPA. But now, so long as these companies’ automated messaging services do not actually generate the phone numbers in question, they should (under Duguid) fall outside the scope of the TCPA. (For more information contact [email protected] and [email protected]).

HIGH POINTS

Three Questions for FK’s Fresh Faces With cannabis M&A activity surging, and the industry looking poised to continue its unprecedented growth, Feuerstein Kulick hired two new associates, Anan Kahari and Radina Angelova, to bolster its ever-growing corporate group. But you’re not a full-fledged member of the FK team until you’ve been cajoled into writing something for The Leaflet. So, in the final step of their initiation, here are three questions for Anan and Radina:

You’re not a full-ﬂedged member of the FK team until you’ve been cajoled into writing something for The Leaﬂet. (Anan building his rare book collection)

1. What brought you to Feuerstein Kulick?

Anan: Traditional ﬁrms can leave associates feeling like a potted plant, with no room to grow. (Editor’s Note: At the Leaﬂet, plant-based wordplay is encouraged). I was drawn to FK by the opportunity to work with a likeminded and entrepreneurial team, while honing my skills in a fast-growing industry.

Radina: I wanted the opportunity to be part of a small, close-knit team and to work on some of the most interesting deals in the cannabis industry. FK is unique in that it started as a ﬁrm connecting East Coast capital with West Coast opportunity ﬁve years ago, and because of that it is now ideally positioned to service the growing cannabis industry on the East Coast.

2. What do you like most about being a cannabis lawyer?

Anan: The most interesting aspect of being a cannabis lawyer for me is the need to constantly learn and adapt. As the cannabis sector evolves, we as lawyers have to evolve along with it, to meet the new and novel demands of our clients as they join the “Green Rush.”

Radina: My favorite thing about being a cannabis lawyer is that you have to constantly think through the quickly developing mosaic of legal issues that the cannabis industry presents as the law changes every day. In addition, the ﬁeld attracts young and interesting lawyers who are never afraid of a challenge.

3. Tell us something that has nothing to do with your work.

Anan: When I’m not reviewing contracts, I’m dusting off my amateur rare book collection. My stash includes ﬁrst-edition titles by Hemingway and Capote, as well as a coveted ﬁrst-edition Fight Club by Chuck Palahniuk, which of course, I am not at liberty to talk about.

Radina: When I am not in front of my laptop, I go for long walks along Hudson River Park and admire the gardens and the sculptures. It is especially beautiful this time of year and my favorite cheat sheet is the Bloom Guide. The picture is at Pier 45. (Radina enjoying the gardens at Pier 45 in Manhattan)

FK CELEBRATES FIVE GREAT YEARS

On April 8, the FK Family celebrated the Firm’s Five-Year anniversary at the Perfect Pint – the East Side pub where our founders came up with the concept for a New York-based cannabis law firm that would (one day) serve cannabis clients across the country. Some wished them well, others (politely) said they were crazy. But here we are, five years later, and what started as a four-person firm working out of a single WeWork space has grown into one of the top cannabis law firms in the country, with a family of more than 20 dedicated and kind cannabis attorneys, all of whom owe their current jobs to a seemingly crazy idea born over a round of Guinness at the Perfect Pint.

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