The legalization of medicinal and recreational cannabis in various regions of the United States has given birth to a rapidly expanding market with numerous business opportunities in the cannabis industry. Thirty-two states allow medical cannabis use, while 10 states (and the District of Columbia) have legalized cannabis for recreational use by adults.
However, despite being legalized in numerous states, with even more states considering legalization, cannabis is treated as a controlled substance under federal law—which impacts businesses and stakeholders in the cannabis industry. As such, cannabis-related businesses must carefully consider a host of potentially conflicting licensing, regulatory, and compliance issues. In addition, cannabis industry stakeholders, such as financial services organizations, should be familiar with associated risks.
To understand such a complicated and constantly evolving legal framework, cannabis-related businesses require coordinated and multidisciplinary legal representation and guidance. Epstein Becker Green offers such a coordinated approach. Utilizing their extensive experience working with clients in highly regulated industries (including health care and financial services), Epstein Becker Green attorneys can advise cannabis-related businesses, potential investors in those businesses, as well as ancillary-market companies, to help them understand the complicated matrix of federal, state, and local laws and regulations.
As more fully discussed below, Epstein Becker Green provides legal counsel to cannabis-related clients on the following issues:
- Health care regulation and HIPAA requirements
- Corporate, mergers & acquisitions, and investor relations
- State and local licensing
- Regulatory compliance and enforcement
- Government investigations, litigation, and white-collar criminal defense
- Food and Drug Administration (“FDA”) regulation
- Labor and employment policies and litigation
- Banking and finance regulations
Health Care Regulation and HIPAA Requirements
Hospitals, nursing homes, and providers are seeing an increase in patients certified to use medical cannabis. Additionally, health care providers and institutions that support the medical use of cannabis will face considerable legal and regulatory issues.
Epstein Becker Green understands the challenges that the health care industry faces in storing and administering medical cannabis. We counsel facilities and health care providers that participate in federal health care reimbursement programs (e.g., Medicare and Medicaid) on the potential consequences associated with patient or resident use of medicinal cannabis and how to prevent the violation of provider participation conditions under Medicare and Medicaid regulations.
In addition, because both health care providers and medical cannabis businesses must ensure the protection of sensitive patient/customer health information, Epstein Becker Green attorneys:
- Advise on compliance with Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act requirements
- Handle HIPAA-or other privacy based litigation and investigations
- Advise clients on how to meet state medical confidentiality requirements
Corporate, Mergers & Acquisitions, and Investor Relations
Investors and cannabis-related businesses confront not only the same challenges that other businesses face in corporate transactions but also additional obstacles resulting from conflicting federal and state laws relating to cannabis.
Epstein Becker Green attorneys advise investors and cannabis-related businesses on:
- Corporate formation and structuring in compliance with applicable laws
- Establishing corporate governance structures and mechanisms to maximize protection
- Identifying risks and formulating investor disclosures
- Navigating federal and state securities laws and registration requirements
- Identifying red flags during due diligence, with focused scrutiny on financial and legal issues that are unique to cannabis-related businesses
- Drafting legally enforceable transaction documents, with an eye toward the considerations applicable only to the cannabis industry (e.g., representations relating to legal and regulatory compliance)
- Identifying the special rules relating to holding funds in escrow
- Tailoring indemnification provisions to adequately address risks, liabilities, and obligations of the parties
- Addressing tax and related structuring issues
- Obtaining trademarks
- Following state regulatory requirements for changes of ownership and corporate restructuring—including, as applicable, disclosure of any and all new direct and indirect owners
State and Local Licensing
The type of licensing and documentation required by state and local governments on a cannabis-related enterprise depends on both the location of its operation and the type business being conducted. For example, an enterprise that grows and markets cannabis to retail businesses may require different licensing and permits than a health care provider or someone operating a dispensary. Navigating these various state and local licensing frameworks can be a challenging endeavor.
Epstein Becker Green’s extensive experience in highly regulated fields makes us well qualified to advise cannabis-related clients on state and local licensing and permit issues.
Regulatory Compliance and Enforcement
Compliance with local and state regulatory standards is crucial to the success of cannabis-related businesses. Epstein Becker Green has successfully assisted numerous organizations with creating and operating effective compliance programs to help minimize the risk of potentially ruinous federal and state enforcement actions. Our ability to guide clients through regulatory and compliance issues is an essential service for those operating in the cannabis industry.
Our services include:
- Creating and implementing an effective compliance program
- Counseling cannabis-related businesses in day-to-day compliance issues
- Advising on transaction structures that are in compliance with applicable state and local laws and regulations
- Analyzing current or proposed business relationships for compliance
- Providing representation in connection with regulatory enforcement actions, such as challenging surveys, inspections and any resulting penalties imposed
- Counseling cannabis-related businesses in addressing self-identified compliance violations
Government Investigations, Litigation, and White-Collar Criminal Defense
Due to the current tension between federal and state laws, as well as the uncertain enforcement policies of the federal government, cannabis-related businesses are susceptible to criminal and civil enforcement action.
Epstein Becker Green’s attorneys have extensive experience in federal prosecution and white-collar crime defense and with working through complex regulatory requirements and actions. This deep experience enables us to provide legal counsel on issues ranging from financial compliance to allegations of money laundering.
In addition, our attorneys have represented and defended companies that have faced a variety of challenges—from actions by the Federal Trade Commission (“FTC”) related to advertising and labeling issues to disputes with the FDA concerning complex statutory and regulatory issues (as well as litigation of those issues). With this background, Epstein Becker Green is well suited to advise companies in the cannabis industry, which will likely face similar challenges from state and federal regulators.
The booming cannabis market has led to growth opportunities for certain ancillary businesses that do not directly handle cannabis products, such as manufacturers of cannabis consumption devices; companies that provide equipment, supplies, software, and services essential for cannabis-related businesses; and producers of derivative products, such as hemp derived cannabidiol. Such ancillary-market companies generally face less risk compared with businesses that grow or dispense cannabis. Nonetheless, ancillary-market companies should still be mindful of potentially applicable legal challenges and enforcement consequences.
Epstein Becker Green has extensive experience and knowledge of FDA regulatory and compliance issues. Our team of skilled FDA lawyers can assist ancillary-market companies with:
- Early product development and investigational phases
- The FDA approval process
- Post-approval compliance and enforcement
- Corporate compliance for manufacturers and other businesses regulated by the FDA
Labor and Employment
The rapid expansion of the cannabis industry has led to projections that it will add 250,000 workers by 2020. However, employers face unique workforce challenges in a landscape where cannabis is legal under state law but illegal under federal law. The U.S. Department of Labor has yet to provide guidance on the use of cannabis by employees.
The legalization of cannabis also has employment implications that extend beyond the cannabis industry. Employers with operations in states that have legalized cannabis face questions regarding, for example, drug testing, enforcement of zero-tolerance policies, and screening for drug convictions.
In light of this changing legal landscape, Epstein Becker Green:
- Assists employers in drafting effective and compliant drug-testing policies and other workplace policies
- Provides advice regarding employee background checks and screenings, anti-discrimination protections, and the potential discipline of cannabis users
- Counsels employers through accommodation requests by medical cannabis users and on similar employment-related issues
- Represents employers in cannabis-related employment disputes
Banking and Finance
Cannabis-related businesses face obstacles in obtaining banking services at regulated financial institutions. The Financial Crimes Enforcement Network (“FinCEN”) issued guidance in 2014 to clarify the Bank Secrecy Act expectations for financial institutions seeking to provide services to cannabis-related industries. Financial institutions should be familiar with the “know your customer” due diligence requirements applicable to cannabis-related businesses, such as how to review and scrutinize a cannabis-related business’ licensing applications and related information. And financial institutions are obligated to file Suspicious Activity Reports (“SARs”) on marijuana-related businesses as well as currency transactions reports in connection with cannabis-related businesses, consistent with existing regulations and thresholds that apply.
Epstein Becker Green’s extensive experience in banking litigation and corporate financing matters gives us the background to effectively guide cannabis-related businesses and financial institutions through a challenging reality. We advise financial institutions willing to enter the cannabis industry on associated risks, diligence and reporting requirements, and state guidelines permitting affiliations with cannabis-related entities. In addition, we resolve disputes between cannabis-related businesses and financial service providers.
Disclaimer: Cannabis is still classified as a Schedule I controlled substance by the U.S. Drug Enforcement Agency, and, as such, it remains a federal crime to grow, sell, and/or use cannabis. Any content contained herein is not intended to provide legal advice to assist with the violation of any state or federal law.