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In today’s Republican-held Senate, the cannabis industry’s best hope for progress has been the Secure and Fair Enforcement Banking Act of 2019 (or the “SAFE Act”), which would allow state legal cannabis business to work freely with banking institutions. The Act puts in place safe harbors from federal money laundering and regulatory issues for banks dealing with the cannabis industry and would therefore open up banking for the entire industry, allowing it to take another step toward legitimacy in the eyes of the federal government. More importantly, passage of the SAFE Act allows the industry to grow and flourish with the assistance of the banking industry, which is fundamental to continued growth.

The SAFE Act is an incremental step forward, which is vital when dealing with Congress; nothing happens overnight in Washington D.C. This is especially true when talking about an industry with a War on Drugs-sized stigma attached to it. However, the main argument against the SAFE Act is that it’s just that: incremental; a half measure when a full measure is called for. That brings us to the Marijuana Opportunity Reinvestment and Expungement Act (the “MORE Act”).

The MORE Act includes many sweeping provisions, starting with the removal of marijuana from the Controlled Substances act (which would decriminalize cannabis on the federal level, allow states to set their own marijuana policies, and free any U.S. marijuana companies of their tax code 280(e) designation). It would also cause for incentivization for states to expunge low-level cannabis convictions, and create a federal tax on marijuana which would fund the newly created Opportunity Trust Fund, which is meant to assist groups which historically have been disproportionately affected by the War on Drugs. In my time dealing with federal lawmakers, a sweeping reform act such as the MORE Act has been described to me as a “Democratic Pipe Dream” with little hope of passing the Senate with its current membership.

However, the Senate’s membership is set to change subject to the November election results. Many political pundits (Politico, Forbes, NY Times) believe that the Republican-held senate could be vulnerable to falling into the Democrats’ hands, changing the political landscape for the next few years. As such, the cannabis industry’s federal fight could abruptly pivot from incremental steps forward like the SAFE Act to the MORE Act’s sweeping cannabis reform. This switch would mirror a recent PEW Research Center’s finding that an overwhelming amount of Americans believe marijuana should be legal for medical or recreational purposes (the full study can be found here).

While I appreciate the value (and current necessity) of an incremental, strategic approach to federal reform of the cannabis industry, the best-case scenario for the industry moving forward would be a Democrat controlled Senate in November. This will allow the cannabis industry to push for full-fledged reform of federal cannabis laws, moving the industry forward at a rate which would be impossible under our current incremental approach. Right now, the cannabis industry in America is poised to be a massive boon (Forbes Cannabis Industry Projections), helping to create jobs and opportunities for millions of Americans. With the right help from the federal lawmakers, that dream can become a reality much sooner than expected.

With the complications surrounding certified seed in the state of Florida and other complications causing delay of hemp production within Florida, our clients with Hemp Food Establishment Permits are being forced to source hemp product from outside of Florida. Some are sourcing fully packed finished product while others are sourcing extract that will be formulated and packaged within Florida. Some are sourcing direct from suppliers outside of Florida while others are sourcing through brokers or distributors. Some are sourcing from nearby states like Tennessee while others are sourcing from west-coast states like Oregon.

Regardless of the where, what, and how of the product being sourced, all food consisting of or containing hemp or hemp extract must be sourced from an “approved source.”  Fla. Admin. Code. R. 5k-4.034(4)(a). Fla. Admin. Code R. 5k-4.034(2)(a) defines an “approved source” as a “food establishment manufacturing, processing, packaging, holding, or preparing food or selling food at wholesale or retail that meets local, state, or federal food safety standards from the jurisdiction of origin.” In order to demonstrate that the product is from an “approved source”, a Florida Hemp Food Establishment should require its supplier provide (a) a valid food license/permit; (b) the most recent food safety inspection report; and (c) a Certificate of Analysis verifying that the hemp product has been tested and contains less than 0.3% THC on a dry weight basis.

In many instances, applying the “approved source” rule is simple. Assume a Florida hemp retailer purchases a hemp tincture from a licensed Virginia hemp company. Similar to Florida law, Virginia regulates hemp tinctures as food and requires that the hemp companies obtain a food license and a food safety inspection report. Thus, the Florida hemp retailer should be able to easily obtain from the Virginia company the valid food permit, the most recent food safety inspection report, and a Certificate of Analysis verifying that the hemp product has been tested and contains less than 0.3% THC on a dry weight basis.

However, in other instances, the “approved source” rule is more complex. Assume that a Florida hemp retailer purchases a hemp tincture from a hemp company located in a state that does not regulate hemp as a food. Such company would likely not be able to produce a food license nor would it be able to provide a food safety inspection. Thus, such hemp tincture would not be from an “approved source” and the Florida hemp retailer should refuse to do business with such out-of-state hemp company.

Another instance that may cause confusion is when there are several middle-men between buyers and sellers. As the hemp supply chain has developed, many of these deals involve a broker or distributor that is trying to conceal the identity of the seller so that the buyer doesn’t try to go direct to the seller. For example, assume a Florida hemp retailer purchases a hemp tincture from a licensed Virginia hemp company but it is being purchased through a broker that is trying to conceal the identity of the Virginia hemp company. Under such circumstances, the Florida hemp retailer must demand that the broker provide a valid food license and a food inspection report for the seller. If the broker is not willing to produce such documentation, then the Florida hemp retailer should walk away from the deal.

The “approved source” rule is just one example of the complications created by a lack of uniformity in state hemp programs and a lack of guidance from the FDA with respect to hemp extract used in food. The team at Mr. Cannabis Law is here to help you navigate through this complex web of laws and regulations rife with legal inconsistencies and legal contradictions.

By Dustin Robinson and Zachary Hyman

This article is featured in the eBook, Pivot Under Pressure: A Comprehensive Guide to Minimize Impact and Revitalize Your Small Business, which is available at https://millenniallaw.com/pivot/

The Coronavirus has impacted many businesses and industries, including the Cannabis industry.  The Coronavirus closures and government regulations concerning the distribution of Cannabis has created uncertainty as it relates to the future of the industry. To make matters worse, federal funding is not available, and Cannabis companies cannot file for bankruptcy. However, Assignment for the Benefit of Creditors (or “ABC”) state statutes, such as Florida Statute Section 727.104, provide an affordable alternative to bankruptcy that permits business owners to close while limiting your potential liability.

The ABC proceeding is commenced with the execution of an irrevocable assignment in writing.  Upon execution of this assignment, the party receiving the assignment receives control over a “legal estate” comprising of all of the assets of a business, and the assignor (or business) loses power and control over its property. Then, the assignee, or neutral third party who is responsible for marshalling and selling the assets of your business, commences an assignment proceeding. Generally speaking, an ABC is an efficient, relatively economical, and faster means for the administration of insolvent estates in Florida, and remains a viable alternative to Bankruptcy, especially if bankruptcy is not available to a company.

Below is a summary of what an assignment for the benefits entails, and how it can benefit your business.

1. You get to choose the assignee. Pursuant to Fla. Stat. § 727.104, the people or entities in control of a business can select the assignee, or the person that will be managing the liquidation process, which gives flexibility in the approach to be taken with respect to your company, and the assignee can operate your business during the pendency of the ABC process.
2. ABCs Limit Liability. An assignee has the right to reject real and personal property leases, and may be required, at a maximum, to only pay back rent and future rent not to exceed the greater of one year’s rent or fifteen percent of the rent remaining, and rent must be charged at the contract rate. Damages arising from the termination of employment agreements are also limited.
3. Unsecured Creditors Cannot Pursue Collection Efforts. An unsecured creditor, such as a credit card company, or a creditor that does not have a security interest in your businesses’ assets, is prohibited from commencing any claims against your business, and must file a proof of claim in the Assignment of Benefits Case. As a result, all of the claims against your business, with the exception of secured claims, mortgages or other claims where a creditor has a security interest in your business’ property, must be heard and addressed in a single forum.
4. The Assignee Can Assign and Prosecute Claims. The Assignee can assign and prosecute claims on behalf of your business, and certain legal defenses to such claims, such as claims based on your participation in the wrongdoing, do not apply to an assignee. This means the assignee can sell potential claims on behalf of your business at a higher value to creditors.

The ABC process provides business owners, for whom bankruptcy is not available, because they are in the Cannabis industry or cannot afford the process, a mechanism to close their company and limit potential liability from creditors. If your business is struggling, then the ABC process may be a viable solution to your financial distress. Consult with an attorney or financial advisor to see if the ABC process is appropriate for you and your business.

Bringing Clarity to a Trippy Legal Framework

By: Dustin Robinson, Founding Partner of Mr. Cannabis Law and Mr. Psychedelic Law

Over the past six months, the Mr. Cannabis Law team has received several inquiries from clients interested in selling magic mushrooms and sclerotia truffles in Florida; and the clients are insistent that magic mushrooms and sclerotia truffles are legal in Florida based on the client’s google searches. At first, I thought to myself that these clients must be “tripping.” But, upon further research, I realized that this misconception is based on a reasonable misunderstanding of two basic legal concepts: (1) facial v. as applied constitutionality; and (2) mens rea.

The Florida Case – Fiske v. State

The case that is causing much of the confusion is the 1978 case of Fiske v. State, 366 So. 2d 423, 424 (Fla. 1978). In Fiske, the defendant was arrested after leaving a field. Police officers found a bag of wild mushrooms near him. Id. The mushrooms were taken into the custody and the mushrooms were tested. Id. The tests concluded that the mushrooms contained psilocybin. Id. Under the Florida Statutes, “any material which contains a quantity of the hallucinogenic substance ‘psilocybin’” was labelled a Schedule I controlled substance. Id. Importantly, the statute does not specifically list wild mushrooms as a Schedule I controlled substance. The defendant was found guilty for possession of the psilocybin, which was a felony of the third degree. Id. The defendant appealed his case to the Florida Supreme Court.

The Florida Supreme Court determined that the Florida Statute was unconstitutional “as applied” to the defendant. Id. The court reasoned that the statute did not mention magic mushrooms or any other psilocybin organic substance that can grow naturally in the wild. Id. Furthermore, the court determined that if the statute specified that psilocybin can be found in certain identifiable mushrooms, and named the mushrooms that contained psilocybin, the statute would give notice to a prospective defendant that possession of certain mushrooms could be a crime. Id. Without the Florida Statute specifying that naturally growing mushrooms could contain psilocybin, a defendant does not have the proper notice or knowledge that some naturally growing mushrooms may contain a Schedule I substance. Id. Thus, the court determined that the Florida Statute was unconstitutional “as applied” because the statute did not give the defendant a “fair warning” that possession of the naturally grown mushrooms he possessed was a crime. Id. Therefore, the defendant did not have the required mens rea to be found guilty of possession of psilocybin. Id. Yet, the court made clear that the Florida Statute is “facially” constitutional because the statute can be applied in other circumstances where the defendant had the requisite mens rea. Id. Importantly, the Florida Statute has not been revised since Fiske and the Florida Supreme Court has not reversed its position in Fiske. Thus, Fiske is still good law in Florida.

“Facial” v. “As Applied” Constitutionality

In order to gain a full understanding of the Fiske holding, one must understand the the difference between “facial” v. “as applied” constitutionality. A statute’s constitutionality can be challenged “facially” or “as applied.” A statute is unconstitutional “on its face” when it would be unconstitutional in every situation. In contrast, a statute is unconstitutional “as applied” when the application of the statute is unconstitutional because of the fact-specific circumstances of the case. When a court finds that a statute is “facially” unconstitutional, the court will void the entire statute since it is unconstitutional under any circumstances. In contrast, when a court finds that a statute is unconstitutional “as applied”, the statute will remain in force but the circumstances for which that statute is constitutional will be narrowed. In Fiske, the court found that the statute was unconstitutional “as applied” to the facts and circumstances of the case.

Mens Rea

“Mens Rea” refers to a person’s mental state at the time of carrying out the act of a crime. Because of due process, a person’s mens rea must have some sort of level of intent in order to be guilty of a crime. In other words, a person who has committed a criminal “act” cannot be guilty of a crime unless such person has the requisite mens rea when committing such criminal act. A prosecutor in a criminal case must prove mens rea beyond a reasonable doubt. If a statute does not put an individual of ordinary intelligence on proper notice of the nature of the crime, an individual cannot have the required mens rea to commit such crime. While ignorance of the law is no excuse, that principal “may be abrogated when a law is so technical or obscure that it threatens to ensnare individuals engaged in apparently innocent conduct.” United States v. Caseer, 399 F.3d 828, 837 (6th Cir.2005). In Fiske, the court found that the defendant did not have the requisite mens rea since the defendant was not aware that magic mushrooms contained psilocybin and the defendant was not on notice that magic mushrooms contain psilocybin because magic mushrooms were not specifically listed in the statute.

Key Takeaways from Fiske v. State

1. Fiske stands for the general proposition that criminal intent is required to commit a crime.

While many believe that the holding in Fiske means that possession of magic mushrooms in Florida is legal, such is not the case. Instead, Fiske stands for the general proposition that criminal intent is required to commit a crime. Florida Statute Section 893.03(1)(c)(33) lists psilocybin as a Schedule I controlled substance in Florida and has not been updated following Fiske to specify which natural substances include psilocybin. This means that a defendant may not be on notice as to which natural substances contain psilocybin and thus the defendant would not have the requisite mens rea. This issue is raised in Florida Jurisprudence, Second Edition March 2020 Update, which states, “the classification of ‘psilocybin’ may violate due process as applied to a defendant whose conviction arises out of possession of a bag of wild mushrooms that are determined to contain the drug, as the statute does not advise a person of ordinary and common intelligence that the prohibited substance is contained in a particular variety of mushroom.[1] Therefore, the issue of Florida Statute Section 893.03(1)(c)(33) not providing criminal defendants proper notice as initially raised by Fiske in 1978 remains an unresolved issue today.

2. Fiske does not stand for the proposition that a natural substance that is not specifically listed as a controlled substance (i.e. magic mushrooms) is legal when it includes another natural substance that is specifically listed as a controlled substance (i.e. psilocybin).

The Fiske case did NOT hold that a natural substance that is not explicitly listed as a controlled substance (i.e. magic mushrooms) is legal when it contains a controlled substance (i.e. psilocybin). Instead, the court based its decision on the lack of evidence demonstrating that the defendant had knowledge that magic mushrooms contain psilocybin.  See also United States v. Hassan, 578 F.3d 108 (2d Cir. 2008) (holding that khat is an illegal substance even though it is not explicitly listed as a controlled substance since khat contains cathinone which is a controlled substance; but also noting that the prosecutor would need to have proven beyond a reasonable doubt that the defendant knew that khat contained cathinone);  United States v. Mire, 725 F.3d 665, 679 (7th Cir. 2013), (holding same); State v. Reckards, 2015 ME 31, 113 A.3d 589, 594, (holding same).

3. Fiske makes it very difficult for prosecutors in Florida to prosecute defendants for possession of psilocybin unless the prosecutor has evidence to prove beyond a reasonable doubt that the defendant had knowledge that the magic mushrooms contained psilocybin.

The precedent established by Fiske makes it very hard for prosecutors in Florida to prosecute a defendant for possession of psilocybin. If magic mushrooms were explicitly listed as a controlled substance in Florida’s statutes, then a defendant would be on notice and would not be able to claim ignorance of the law. But, since magic mushrooms are not listed as a controlled substance in Florida’s statutes, the defendant is not on notice and thus the prosecution must prove beyond a reasonable doubt that the defendant knew the magic mushrooms contained psilocybin.  Without any modification to the Florida Statutes, a prosecutor will find it difficult to prove a defendant actually knew the mushrooms in the defendant’s possession contained psilocybin.

4. Fiske does not support the commercialization of magic mushrooms containing psilocybin or sclerotia truffles containing psilocybin.

The Fiske case does not offer much support to businesses that want to sell products that contain psilocybin. If a business were to grow, process, or sell a naturally-grown substance that contained psilocybin (ie magic mushrooms or sclerotia truffles), all business activities would likely be criminal. Following Fiske, the business and its agents would have the requisite mens rea or criminal intent to commit a crime. Specifically, if a business advertises or otherwise markets its psilocybin-based product, the business is operating with the requisite criminal intent of possessing and handling a controlled substance – psilocybin. To create commercial opportunities for psilocybin products, the Florida Statute would need to clarify which products that contain psilocybin are explicitly prohibited. Otherwise, businesses selling magic mushrooms or sclerotia truffles are operating at their own peril.

[1] 16B Fla. Jur 2d Criminal Law—Substantive Principles/Offenses § 1319