Welcome back to Higher Law, our weekly briefing on all things cannabis. I'm Cheryl Miller, reporting for Law.com from Sacramento. Oh, Martha! The queen of crafty, Martha Stewart, has joined the CBD craze, signing up to advise Canopy Growth. First up for Snoop Dogg's pal: a line of CBD pet products. As one industry lawyer told me, "When Martha comes to the party, you know that’s where it’s at."
This week, we look at the D.C. Circuit's take on a pilot who survived an emergency landing only to get popped when cops found legally purchased pot-laced candy in an onboard bag. Plus: another appellate panel has sided with the IRS audit of a medical marijuana dispensary, again. And lawyers head to court over the right to Harvest.
Thanks as always for reading. Have any story ideas? Tales of Martha Stewart making you feel inferior as a sheet-folder, butter-churner or scarf-knitter? Drop me a line at firstname.lastname@example.org or you can call me at 916-448-2935. Follow me on Twitter at @capitalaccounts.
Is the IRS Unbeatable in Cannabis Cases?
Another week, another rejected attempt to curb the Tax Man's power to audit marijuana businesses. The U.S. Court of Appeals for the Tenth Circuit on Tuesday affirmed two district court rulings allowing the IRS to obtain bank documents and electricity-use records tied to a New Mexico-licensed dispensary.
High Desert Relief argued that the tax agency's audit of its 2014 and 2015 filings amounted to a back-door investigation of federally illegal drug activity. But the dispensary “fails to present any evidence that the IRS has operated with criminal prosecution in mind,” Judge Jerome Holmes wrote for the unanimous three-judge panel.
“For one … the IRS had not referred the matter to the DOJ for prosecution under the Controlled Substances Act," Holmes wrote. "For another, there is no plausible reading of the record that would indicate that HDR had in fact been investigated, charged, or prosecuted criminally under the CSA for business activities stemming from fiscal year 2014 or 2015.”
High Desert Relief is represented by Thorburn Walker, the Greenwood Village, Colorado, firm that's made a name for itself challenging IRS audits of state-legal marijuana businesses. The firm is still looking for its first big court victory on the issue.
Pilot Grounded Over Legal Pot Candy
What's worse than having to crash-land your plane on a rural Kansas road? Safely walking away from that landing only to have law enforcement find three cannabis-infused candy bars in a bag on board.
That's what happened to Utah resident and pilot Jeff Siegel in October 2016. And this week, my colleague C. Ryan Barber wrote, the U.S. Court of Appeals for the D.C. Circuit upheld federal regulators' decision to revoke Siegel's private pilot certificate.
It doesn't matter that Siegel, who had been flying a Lancair Evolution like the one above, was never accused of being impaired or that the chocolate cannabis was meant for personal use, not re-sale, the three-judge panel held.
“Likewise, that the marijuana was purchased in Colorado does not change the fact that marijuana is illegal under federal law and in federal airspace," Senior U.S. Circuit Judge David Sentelle wrote.
Siegel can re-apply for his license one year after the official revocation date. The state-federal conflict over licensed marijuana might take longer to resolve.
Who Owns 'Harvest'?
Lawyers for rival medical marijuana dispensaries head to court tomorrow in a fascinating battle over who owns the rights to the name "harvest" and associated intellectual property. First reported by Bay Area public radio station KQED, the case involves Harvest Enterprises of Arizona and Harvest on Geary Inc. of San Francisco.
Harvest Enterprises, represented by Gordon Rees Scully Mansukhani, has a dispensary in Napa and plans to open two more outlets elsewhere in California. Harvest of San Francisco, represented by Ad Astra Law Group, has two dispensaries in the Bay Area city. Each side says it's entitled to sole use of the Harvest name.
Lawyers for Harvest Enterprises say the company's federal trademark gives it sole rights to the name. The company sued its Bay Area competitor in Arizona in a 2017 case that's still going on. Harvest of San Francisco argues that its California-registered mark governs and sued the Arizona company for infringement after its Napa store opened.
>> With marijuana still illegal on the federal level, "this leaves only state law trademark rights and remedies," Ad Astra lawyers wrote in a December 2018 complaint filed in San Francisco Superior Court.
Ad Astra partner Katy Young said a cancellation action targeting Harvest of Arizona's federal mark is pending before the U.S. Patent and Trademark Office.
Harvest of California's request for a preliminary injunction is scheduled to be heard in San Francisco Superior Court on Friday.
Who Got the Work
• Marc Hauser has joined Reed Smith's San Francisco office as co-vice chair of the firm's cannabis law team. Hauser most recently worked as a partner and head of the cannabis law department at GVM Law in Napa, California. Hauser advises businesses and investors in the cannabis and hemp space, focusing on transactions and risk. Claudia Springer, chair of Reed Smith’s cannabis law team, said in a statement: “Marc’s depth of experience in this relatively new area of law will dramatically enhance our capabilities as well as expand our growing client base.”
• As New York moves toward a regulated recreational market, PharmaCann has retained former state Senate leader Jeff Klein as a lobbyist, WNYC reports. Klein lost the Bronx district he held for two decades in last year's primary election. He joined Mercury Public Affairs, which counts PharmaCann as a client, in January. Klein is barred from lobbying his former colleagues for two years, but he is free to lobby the governor's office or state agencies.
• Franklin Square Group has picked up San Francisco-based PAX Labs as a lobbying client in Washington, D.C. Federal filings show that PAX, which markets electronic vaporizers, plans to lobby on "banking, tax, innovation, and consumer safety in the cannabis technology industry."
• California's Bureau of Cannabis Control has awarded Sacramento-based KP Public Affairs a two-year, $1.7 million contract to develop a public awareness campaign that will urge marijuana operators to get licensed and encourage customers to buy from permitted businesses.
• New Florida cannabis czar Holly Bell told the Miami Herald that "she's been trying to connect" with the "tight-knit" and "vocal" marijuana community. Some long-time legalization advocates in the state criticized Florida ag commissioner Nikki Fried's decision to hire Bell, an "outsider" from Tennessee. “It’s different than interacting with other communities that I’ve dealt with," Bell said, "but I find it interesting and fun.”
In the Weeds...
>> New Jersey Gov. Phil Murphy said he'll sign a recreational cannabis bill iflegislators add language expunging the records of those previously convicted of marijuana offenses. “This is the right step for eliminating decades-old and persistent racial and social inequities,” Murphy said in a speech outlining his $38.6 billion budget proposal. NJ Advance Media has reported that legislative leaders have a deal in principle that would tax marijuana at $42 an ounce and address expungements. New Jersey Law Journal
>> The US Attorney for Massachusetts wants an "uneasy detente" with state-licensed dispensaries. Andrew Lelling told the Boston Globe's editorial board that his office is focusing on illegal sales to minors and cartel activity in the marijuana space. "I mean, 2,000 people died last year from opioid overdoses, not from smoking pot," he said. The Boston Globe
>> Michigan's governor has abolished the board that issued licenses for medical marijuana businesses. A new agency within the Department of Licensing and Regulatory Affairs will take over permitting for both medical and recreational operations. The volunteer members of the Medical Marihuana Licensing Board had struggled to process medical marijuana operating licenses in a timely manner even as the state prepares to open recreational market. Detroit Free Press
>> It's a good time to be a New Mexico grower. The state just temporarily boosted the number of plants that medical marijuana operators can grow from 450 to 2,500. A state judge last year struck down the 450-plant cap as arbitrary and gave regulators until March 1 to set a new figure. Over the next six months state officials will work on a new rule setting a permanent number for allowable plants. Associated Press
Your Calendar: All the Things!
March 11-12: The Missouri Medical Cannabis Trade Association hosts MoCannBizCon & Expo in St. Louis. Scheduled speakers include Lyndall Fraker, director of Missouri's medical marijuana program, and Brian Vicente, founding partner of Vicente Sederberg.
March 12: The Medical Marijuana Business Association of Florida hosts "The Florida Medical Marijuana Police Conference 2.0" in Tallahassee. Scheduled speakers include Jonathan Robbins, chair of Akerman's cannabis practice, and Radleypartner Donna Blanton.
March 12-13: The fifth annual Canna East takes place in Manhattan. Speakers include Alphonso David, counsel to New York Gov. Andrew Cuomo, and Andrew Brisbo, director of the Bureau of Marijuana Regulation in Michigan.
March 13: Katy Young, president of the National Cannabis Bar Association, and Jeremy Siegel, senior compliance director at Eaze, are among the scheduled speakers at "The Emerging Cannabis Legal Field." The panel event will be held at the UC Berkeley School of Law.