Covid-19’s Impact on the Cannabis Industry

by

COVID-19’s Impact on the Cannabis Industry

Chrystal James

Chrystal James is a California licensed attorney who has been practicing business and civil litigation for over seventeen years. Chrystal is a recognized expert in the cannabis industry through her legal work with local businesses and jurisdictions on cannabis law. Chrystal has advised public and private clients on how to navigate local, state, and federal marijuana laws since 2006. She practices in Los Angeles and Riverside Counties.*

I. INTRODUCTION

2020 has been a uniquely challenging year for the entire world. No industry was untouched by the unanticipated arrival of the Coronavirus disease (COVID-19). COVID-19 officially hit the United States on January 21, 2020, when the first case was confirmed by the Centers for Disease Control and Prevention (CDC).1 Borders were closed, cities shutdown, families sheltered in place, and "business as usual" became a distant memory. While many of us were focused on securing new supply avenues for basic necessities (i.e., the big "TP Panic"), businesses were quickly pivoting their operations in response to state-ordered shutdowns, remote workflow changes, social distancing requirements, and consumer behavior changes. The cannabis industry was no exception.

Prior to COVID-19, the U.S. cannabis sales’ revenue expectations were projected to be $19.3 billion for 2020, significantly increased from the prior year of only $12.4 billion.2 In California, projected cannabis excise tax revenue alone was $479 million for the 2019-2020 fiscal year and $550 million for the 2020-2021 fiscal year. The expected annual growth was 15 percent.3

Given the high expectations for the cannabis industry, cannabis business owners and investors faced significant uncertainty when COVID-19 surfaced. Would COVID-19 change these projections dramatically? Would the cannabis industry react similarly to the alcohol industry and prove itself to be "recession-proof"? The cannabis industry has been called the next "green boom" or "green rush" industry because it is a new and emerging market where small investors and small operators still have the opportunity to start and grow large businesses that could create generational wealth. Not many industries today provide this type of opportunity. Thus, the cannabis industry had a lot at stake at the onset of COVID-19.

This article provides an overview of how the cannabis industry reacted to the COVID-19 pandemic. It explores how cannabis businesses adjusted to the statewide shutdowns, the designation of "essential" business status, workforce changes, exclusion from federal stimulus relief, and reopening strategies.4 Specifically, it examines 2020 cannabis sales revenues, consumer preference shifts, employee displacement impact, legislative and regulatory delays, and the impact on the efforts of other states and the federal government toward cannabis legalization. In conclusion, it will consider what some of the enduring changes might be to the cannabis industry post-COVID-19.

A. The Pre-Covid-19 State of the Cannabis Industry Faced Market Growth and Contraction

The cannabis industry was experiencing a growth in consumer demand just prior to COVID-19. Demand for cannabis products created more opportunity for new cannabis businesses to enter the market through the end of 2019 and the beginning of 2020.5 However, the cannabis industry was simultaneously experiencing an unanticipated contraction in corporate market expansion due to a decrease in access to investment capital. In fact, the cannabis industry was in the midst of a revaluation (or more accurately devaluation) crisis. Much of the initial investment excitement surrounding the cannabis industry had waned as evidenced by the announcements of repeated merger collapses. Raising investment capital became difficult and unpredictable as investors acquired more accurate valuations of their potential investments. The cannabis industry found itself faced with a surplus of grossly overvalued companies that were now coming to terms with their actual worth. After an initial onslaught of premature rushes to public offerings fueled by huge profits gained through state legalization, a severe contraction of the merger and acquisition activity occurred.6 Many companies that experienced the initial surge of growth after legalization failed to adopt solid business plans to sustain such growth and to effectively expand their businesses to the next level to meet their investors’ expectations. Major acquisition deals collapsed, fringe cannabis operations succumbed to bankruptcy, and a shift in focus to reorganization of internal business operations overshadowed the desire of public offerings.

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B. The Illicit Cannabis Market Contributed to the Cannabis Industry Contraction Problem

Along with capital market contraction, the cannabis industry was also dealing with an ever-growing illicit cannabis market (illicit market). The illicit market is comprised of unlicensed cannabis growers (farmers), manufacturers, distributors, and retailers. Illicit cannabis businesses range from what is commonly referred to as neighborhood "dealers" on up to large illegal cannabis farms hidden in desolate areas of the state. Of particular concern are the unlicensed retail shops selling directly to consumers and the unlicensed farms growing untested cannabis. Many cannabis advocates believed that state legalization of cannabis would eliminate the illicit market. However, the onerous and expensive licensing process that now exists keeps many cannabis business operators from entering the legal cannabis industry and fuels the growth of the illicit market. Indeed, the continued growth of the illicit cannabis market, despite state legalization of cannabis, has forced many legal cannabis operators out of business. 7

Since cannabis is still listed as a Schedule I drug under the Controlled Substance Act, rendering it federally illegal, cannabis businesses are forced to operate differently than businesses in other industries.8 Cannabis businesses lack access to essential business tools due to federal illegality, which means the cannabis industry, as a whole, operates at a much higher cost-of-doing business.9 For instance, cannabis businesses are required to operate without many normal business protections such as insurance, banking, trademark, and copyright protections. Cannabis businesses are prohibited from engaging in interstate commerce, interstate advertising, and are excluded from most federal programs. Moreover, these businesses have limited federal tax breaks. Another significant difference is that cannabis businesses may be subject to federal, state, or local law enforcement raids at any given time due to the federal illegality of cannabis. These are all business conditions not faced by other industries.

Cannabis industry operators argue that these factors make it difficult to compete with illicit businesses who are not dependent on the normal business tools to make a profit, and therefore the factors contribute to the growth of the illicit cannabis market.10 Further, the lack of access to these business tools makes it more difficult for cannabis businesses to meet the requirements of becoming legal (or remaining legal) under the current state guidelines.11

C. The Impact of California’s Illicit Market on the Cannabis Industry Was Heightened During COVID-19

The California cannabis industry is more severely impacted by the illicit cannabis market than in other states due to the lack of licensing opportunities here.12 In California, cannabis industry operators cite to all of the issues set forth above as factors that make conducting business legally very difficult. However, they also point to unique obstacles in California that make it even more difficult to become legal than in other states. These obstacles include the high cost of market entry due to the expensive licensing process and limited jurisdictions allowing cannabis businesses; the high cannabis tax rates; and the lack of state banking alternatives.13 Legal cannabis operators expend large amounts of operating budget to acquire licenses, to provide security required for large cash handling transactions, to implement track and trace cannabis systems, to continuously meet regulatory compliance, and to pay cannabis taxes. None of these requirements exist in the illicit market, making it difficult for legal cannabis industry operators to compete with the lower cannabis prices offered in the illicit market.14

While there is not an easy solution to eliminating the illicit market problem all at once, recognition of its devastating impact on the legal cannabis industry was becoming more widespread. State officials such as those in the Bureau of Cannabis Control, state legislators, and even Governor Newsom were initiating steps to enact legislation aimed at combating growth of the illicit market by adopting stronger agency enforcement provisions and imposing additional civil penalties. However, these actions, discussed more fully in Sections V and VI, were postponed by the onset of COVID-19.

In spite of all the foregoing challenges, the year 2020 began with many cannabis companies optimistically projecting growth of operations, increased hiring, and greater profitability by year-end.15 This optimism was fueled by the increased demand for cannabis products by a growing consumer base. As more consumers began to have access to recreational adult-use cannabis, cannabis businesses were positioning to meet this increased demand for new and diverse cannabis products. Moreover, the new focus on improving fundamental business practices prevailing across the cannabis industry added to increased profitability expectations for year-end.

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That was all pre-COVID-19. When the COVID-19 pandemic hit, many cannabis operators were immediately challenged to adapt to unanticipated changes in their operations and adjust their projected year-end revenue expectations as well.

II. COVID-19 HAD A SURPRISING IMPACT ON CANNABIS SALES AND OPERATIONS

In one way, the cannabis industry was more suited to swiftly embrace the necessary changes brought on by COVID-19. After all, this is an industry that has proven its resiliency for decades. Through the efforts of many legacy operators and legalization advocates, who risked their own (and often times their families’) liberty and property before legalization, cannabis survived. Survival prior to state legalization required the ability to pivot and change at any given moment. Thus, it is not a question of whether the cannabis industry would survive COVID-19, but rather how well it would perform given the optimistic expectations set at the start to the year.

One of the most telling events impacting the cannabis industry came from state governments early in the pandemic. As government shutdown orders were issued, businesses across the country were suddenly faced with unprecedented financial crisis. The designation of cannabis businesses as "essential businesses" provided a much-needed lifeline to the cannabis industry early in the pandemic.

A. Cannabis Operations Were Designated "Essential" Businesses

On March 13, 2020, the United States declared a national emergency in response to the spread of COVID-19.16 On March 19, 2020, Governor Gavin Newsom issued a statewide "stay-in-place of residence" order (SIP Order) in an attempt to protect Californians by reducing the spread of COVID-19.17 This required the shutdown of all businesses not deemed "essential." In the initial state designation, it was not clear whether cannabis businesses were included as "essential."18 On April 28, 2020, Governor Newsom issued a clarification document that included cannabis businesses as "essential" businesses under the Public Health Sector (Essential Businesses or Essential).19 To meet requirements, they had to quickly pivot their operations to "adopt social distancing and anti-congregating measures and [to] follow the CDC’s Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease."20

B. Cannabis Sales Were Initially Boosted by COVID-19

The designation as "essential" allowed cannabis businesses to remain open and this immediately led to increased sales. Consumer fear of supply shortages created an initial surge of cannabis purchases. This fear of product shortages led to extra cannabis purchases and increased sales volume. As counties and states across the nation issued SIP Orders, sales surged in residential neighborhood markets that were comprised of recreational adult-use consumers. In fact, retail sales of cannabis increased by an average of 40 percent over 2019 totals for early March.21 However, around mid-March, in-person sales began to decline likely due to consumers complying with the SIP Orders and seeking alternative methods of purchasing their cannabis products. By mid-April, when the cannabis industry typically sees a spike in sales (as April 20th is unofficially National Weed Day), some retailers were disappointed with their sales as compared to those seen in 2019.22 Other retailers reported a spike in sales continuing well after the panic purchases stabilized in the weeks following the issuance of the SIP Orders.23 Cannabis industry analysts discovered that although consumers were not shopping for cannabis as frequently as they had pre-COVID-19, they were now making bigger purchases when they did shop.24 These consumer buying shifts meant consumers shopped less often, but made higher-valued purchases leading to unexpected increases in sales revenues.

Sales revenues as of August 2020 show that California (and almost every other legalized state), cannabis sales increased over 2019 sales despite COVID-19’s interruption. Wholesale sales of cannabis remained steady and the supply chain remained generally unaffected during the pandemic.25 This was crucial to the cannabis industry’s ability to achieve those increased sales during the pandemic.

1. Consumer Payment Preferences Change During COVID-19 Pandemic

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Cannabis businesses were forced to pivot into more efficient business models. The SIP Order and social distancing created new opportunities for product delivery and contact-free transactions that did not exist prior to COVID-19. Another significant change to the industry came in how consumers chose to pay for their cannabis purchases. COVID-19 created a shift from in-person, cash transactions to an increased use of e-commerce platforms. These platforms included more online ordering and payments as well as cash-free, contact-free transactions through curbside pick-up or delivery. Previously, cannabis businesses struggled with ways to handle non-cash transactions due to the lack of banking access. Cannabis consumers typically cannot just walk into a business and use their debit or credit cards to complete a sales transaction. This is true because a majority of banks do not provide merchant accounts to cannabis operators due to the federal illegality of the cannabis business. Consequently, most cannabis businesses conducted the majority of their transactions in cash.

However, with the increase in online ordering and a new fear that cash handling might possibly lead to transmitting disease, cannabis businesses were forced to quickly convert to electronic payments for cannabis transactions.26 Cannabis businesses that could quickly make this transition to e-commerce reported a significant increase in sales. This resulted in an increase in sales for ecommerce companies that cater to the cannabis industry as well. Companies like Jane Technologies reported that online ordering from new users increased 142 percent in the month of March alone.27 Similarly, cannabis delivery businesses saw an increased demand because more consumers relied on home delivery due to the SIP Order. Most cannabis retailers immediately instituted curbside pickup services, a service that was not permitted prior to the pandemic.28 This new option of curbside pickup allowed retailers to increase daily transactions leading to increased sales revenues over those in 2019.

2. Consumer Product Preferences Shift During COVID-19 Pandemic

There were other consumer behavior shifts as a result of COVID-19. Some cannabis businesses saw a shift in consumer product preferences. Prior to COVID-19, products like pre-rolls and other inhalables derived from the flower of the cannabis plant were best sellers. However, during the pandemic, consumer demand for cannabis edibles and beverages reached an all-time high.29 Experts believe concern over the respiratory nature of the COVID-19 virus most likely explains this sudden shift in consumer preference.30 Whatever the reason, the newly increased popularity of edibles and beverages brought an unexpected boost to new product lines much sooner than expected.

3. Supply and Distribution Chains Remained Steady

As wholesale orders changed with the shifting consumer demands, supply and distribution operations became more fluid. Cannabis wholesalers (farmers) adapted to the market changes and held off any significant supply chain interruptions.31 Many wholesale cannabis businesses saw a significant increase in orders from retailers during the earlier stages of the pandemic. More importantly, wholesale cannabis revenues continued to keep pace with or surpass 2019 sales figures well into the second part of the year.32

C. COVID-19 Initially Negatively Impacted Employment in the Cannabis Industry

Despite the increase in cannabis sales during the initial stages of the pandemic, the cannabis industry was not immune to employment disruptions caused by COVID-19.

1. Some Cannabis Employees Faced Unemployment or Furloughs

Many employers reported permanently reducing their workforce and furloughing their employees during the early stages of the pandemic.33 Although cannabis businesses were considered "essential" and allowed to remain open, they were still required to implement new safety and social distancing protocols to meet new workplace requirements. Many of their employees began working remotely. Some cannabis businesses were not sufficiently prepared to pivot quickly enough to make these necessary changes brought on by COVID-19. This inevitably led to some layoffs and furloughed employees. Thus, unemployment among cannabis industry employees did increase during the first months of the pandemic.34 During the second half of the year the cannabis industry began to see an uptick in employment opportunities again as businesses fully reopened and SIP Orders expired.35

2. Cannabis Employees Were Allowed to Receive Stimulus Relief Benefits

Cannabis businesses, as a whole, were not eligible for federal stimulus relief (further discussed below in Section II.D.). However, cannabis employees who faced furlough or layoff were eligible under the Federal Pandemic Unemployment Compensation (FPUC) for the additional $600 per week unemployment benefits, in addition to the benefit amount provided by the state. Further, they were eligible for stimulus check payments, if otherwise qualified to receive such, under Internal Revenue Service rules. Such federal stimulus relief was not available to cannabis business owners.

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D. Cannabis Businesses Were Not Allowed Federal Stimulus Relief

One of the consequences of the cannabis industry still being illegal under federal law is that cannabis businesses were not eligible to secure federal assistance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As a result, cannabis businesses was not eligible for programs like the Package Paycheck Protection Program and the Small Business Association (SBA) Disaster Assistance loan program.36 These programs provided much needed financial security to small businesses. The lack of access to federal relief left many cannabis businesses struggling. They were forced to finance compliance with the new health and safety procedures on their own. Further, they were left to meet their employee payrolls on their own as well. This lack of access to federal relief programs likely contributed to the employee displacement seen in the early months of the pandemic.

E. California Provided Some Stimulus Relief to Cannabis Businesses

Governor Newsom and the three California cannabis regulatory agencies, the Bureau of Cannabis Control (BCC), California Department of Food & Agriculture (CDFA), and California Department of Public Health (CDPH), instituted some temporary relief to the cannabis industry. As previously mentioned, Governor Newsom quickly designated cannabis businesses "essential," which allowed these businesses to remain open. In addition, the regulatory agencies announced a new program that offers relief to businesses with expiring licenses. Businesses could request a 60-day deferral of their licensing fee payments. This program was implemented to provide some financial assistance to cannabis businesses impacted by COVID-19 as cannabis license fees are quite costly.37

Additionally, cannabis businesses regulated by the BCC were afforded more relief under the Disaster Relief Section 5038 of the California Code of Regulations. This section provides temporary relief to licensees that are unable to comply with licensing requirements due to a disaster (such as required improvements to business premises). Under the temporary relief provided by this section, a licensee would not be subject to enforcement action (such as a shut-down order) due to a violation of a license requirement.38 The BCC has stated the COVID-19 pandemic falls within the definition of "disaster" under this section.39

A similar program announced by the California Department of Tax and Fee Administration (CDFTA), offered "all businesses with less than $5 million in annual taxable sales the ability to defer payment up to $50,000 in sales and use tax liability without incurring any penalties or interest."40 Pursuant to that program, qualified businesses, including cannabis businesses, could enter into payment plans with the CDTFA to extend their tax payments over a twelvemonth period without interest. This program supplemented an earlier-announced relief program that provided taxpayers a three-month tax filing extension and a sixty-day extension to request refunds or appeal decisions. This program provides relief to cannabis businesses paying very high cannabis taxes.

III. THERE WERE DELAYS TO FEDERAL CANNABIS LEGISLATION DUE TO COVID-19

Despite the state and regulatory relief programs discussed above to reduce the impact of COVID-19, the cannabis industry suffered several significant regulatory and legislative setbacks. Some state and federal agencies have shelved additional cannabis legislation for the remainder of this year.

A. The Secure and Fair Enforcement (SAFE) Banking Act Is Stalled

COVID-19 has postponed some efforts intended to advance the legalization of cannabis on the national level. The congressional shut-down and resulting shifted focus to the COVID-19 stimulus bills delayed some important cannabis legislation. Specifically, the Secure and Fair Enforcement (SAFE) Banking Act bill fell victim to the political tug of war between the U.S. House of Representatives and the Senate during the passage of the COVID-19 stimulus packages. Last year, the House passed its version of the stand-alone bill in September.41 A Senate version was expected to reach the Senate floor for consideration by year-end. That failed to happen.

After COVID-19 hit, cannabis industry advocates successfully lobbied members of the House to include some provisions of the SAFE Banking Act bill in the COVID-19 stimulus package. The House included provisions in the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act) passed in May and again in the revised HEROES Act bill passed in October. 42 However, those efforts were subsequently quashed in the Senate. Instead, the SAFE Banking Act bill became a talking point in a political battle between the House and the Senate. Senator Mitch McConnell criticized the House’s inclusion of the bill’s provisions in the HEROES Act during comments he made on the Senate floor.43 Ultimately, the Senate did not include any of the provisions of the SAFE Banking Act bill in their version of the proposed stimulus program announced in August. Negotiations were not resolved before the election in November. Industry advocates are hopeful that the SAFE Banking Act bill provisions continue to be part of the negotiations for the next stimulus package if there is another attempt to pass a second round of stimulus relief. At the time of writing this article, the stand-alone bill remains in the Senate banking committee without further action.44

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B. Federal Legalization of Cannabis May Be Delayed Even Longer

In a recent poll of cannabis advocates conducted in July 2020, results show that most respondents believe that cannabis would be federally legalized by Washington D.C. regardless of which candidate wins the upcoming presidential election.45 The party that controls the Senate after the election will play a major role in the necessary congressional buy-in to federal legalization. COVID-19 has not entirely derailed the push for federal legalization. On the one hand, it may have stalled the progress on some of the preliminary steps to its inevitable occurrence, such as passing a major piece of legislation like the SAFE Banking Act or achieving additional state legalizations. On the other hand, state and local governments are now taking a second look at cannabis legalization opportunities to further social policy agendas and to seek potential tax revenues at a time when many government coffers are near empty due to COVID-19.

IV. COVID-19 HAD AN IMPACT ON STATES’ PLANS FOR LEGALIZATION

COVID-19 has upended state cannabis policymaking expectations across the country. Prior to the November 2020 election, thirty-three states have legalized medical cannabis and eleven states have legalized adult-use recreational cannabis.46 Cannabis advocates anticipated 2020 to be a big year for further state legalization.

A. Some Ballot Initiative States Were Forced to Delay Legalization Efforts Until Next Year

At least eighteen states were expected to fully legalize or to take steps towards legalization of cannabis this year.47 That did not occur; instead, after COVID-19, only five states, Arizona, New Jersey, Mississippi, Montana, and South Dakota included cannabis on the ballot.48 COVID-19’s impact on a state’s legislative process varied depending on whether the state’s path to legalization was achieved through a ballot initiative or by a state legislature’s action. Further, each state’s position in the ballot initiative process when COVID-19 hit mattered greatly as to whether that state could move forward towards a vote for legalization. States such as the five above, which had already secured enough signatures to get the issue on the ballot for November faced the least impact from COVID-19.

However, in states like Nebraska and Ohio, where signature gathering was still in process or legal challenges to ballot inclusion remain unresolved, advocates were forced to delay their legalization campaign plans until next year.49 Organizers stated that signature-gathering and fundraising events would be postponed until next year due to the social distancing requirements.50

B. Some State Legislatures Were Urged to Consider Passing Legalization Sooner

Conversely, for states where the path to legalization lies within control of the state legislature, advocates are now armed with new ammunition to advance arguments for legalization as they can directly point to the state’s order deeming cannabis businesses as "essential." Moreover, they can highlight the potential for cannabis’ tax revenues to provide partial remedies to budget deficits created by COVID-19 shutdowns. For example, both Pennsylvania Governor Tom Wolf and New Mexico Governor Michelle Lujan Grisham urged their state legislatures to consider cannabis tax revenues as a way to counter their deficits or even to fund Medicare services. 51 Similar arguments were made by public officials in New York, New Jersey, and American Samoa.52 Additionally, lawmakers are seizing the opportunity to urge consideration of cannabis legislation to redress social injustice issues. Seventeen states have moved to pass some form of cannabis decriminalization and/or expungement measures to address the disproportionate harm done to communities of color from the War on Drugs.53

V. COVID-19 DELAYED CONSIDERATION OF SOME CALIFORNIA LEGISLATION

At the start of 2020, California had approximately thirty cannabis-related bills for consideration by the State Legislature and several cannabis-related proposals to the state budget by Governor Newsom. The bills ranged from tax relief to banking assistance to hemp-derived CBD regulation. COVID-19 forced many of those bills and proposals to be postponed. In the final (2019-2020) legislative session, only six cannabis-related bills were passed by the Legislature.

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A. California Cannabis-Related Bills Passed by the Legislature

The bills passed by the California Legislature were Assembly Bill (AB)-1458, AB-1470, Senate Bill (SB)-1244, AB-1525, and AB-1872. A brief summary of the bills follows below:

  • Three of the bills, AB-1458 Cannabis Testing Laboratories (2019-2020), AB-1470 Cannabis Testing (2019-2020), and SB-1244 Cannabis Testing Laboratories (2019-2020), primarily focused on expanding laboratory tests and clarifying testing protocols for the cannabis industry.54
  • AB-1525 Cannabis: Financial Institutions (2019-2020), is California’s attempt to address the banking issue at the state level. The bill, "[c]larifies that no state law prohibits an entity from providing financial services, as specified, to a licensed cannabis business." It also permits the sharing of cannabis businesses’ information with financial institutions.55 While this bill provides legal protection to financial institutions that serve the cannabis industry against state criminal action, it cannot provide protection under federal law. Financial institutions that serve the cannabis industry must also comply with the 2014 FinCEN Guidance regarding the Bank Secrecy Act reporting expectations for marijuana-related businesses to be protected under federal law.56
  • The Legislature also passed AB-1872 Cannabis (2019-2020) which is a much welcomed, albeit temporary, cannabis tax relief bill. AB-1872 provides a temporary tax freeze of the cannabis excise tax and the cannabis cultivation tax (a tax on the weight of the harvested cannabis plant prior to its processing). It does not lower the current 15 percent cannabis excise tax. Rather, it places a freeze on the annual "markup" rate the CDTFA uses to set the cannabis excise tax rate. Similarly, the cultivation tax rate is not lowered; instead, there is a freeze on the adjustment for inflation (unless it is less than zero) to the tax until the year 2023.57

B. Significant Cannabis-Related Legislation Not Passed by the Legislature

Other significant pieces of legislation that did not come into effect this year include AB-2094 Cannabis: Facilities Used for Unlawful Purpose (2019-2020) and AB-2122 Unlawful Cannabis Activity Enforcement (2019-2020). AB-2094 proposed to provide the Bureau of Cannabis Control (BCC) with authority to levy administrative fines up to $30,000 on property owners who rented, leased, or provided space "for the purpose of unlawfully manufacturing, distributing, or selling cannabis."58 Under this bill, each day is considered a separate violation. Thus, it could become extremely costly to property owners to allow unlicensed cannabis operations on their properties. Similarly, AB-2122, would impose the same $30,000 civil penalty (per violation) against any person found aiding and abetting an unlicensed cannabis operator.59 These bills would provide the BCC with additional civil enforcement powers to address the illicit market. Both AB-2094 and AB-2122 are still in the committee process.60

Many cannabis business owners advocated for the passage of AB-1948 Taxation: Cannabis (2019-2020) as a necessary tool to level the playing field against the illicit cannabis market. This bill would lower the excise tax rate to 11 percent and suspend the cultivation tax until 2023. However, the bill remains in committee. With the passage of the temporary freeze on cannabis taxes provided under AB-1872, it appears any permanent reduction in cannabis taxes will not come until at least the next legislative session.61 AB-228, the hemp regulation bill, (discussed in detail below in Section VI.C.), would have provided the long-awaited regulation for hemp-derived CBD additives to food, beverages, supplements, and cosmetics. It was not passed in this legislative session.

Whether these bills fell victim to unavoidable COVID-19 delays or to political maneuvering, is unclear. However, what is clear is that COVID-19 caused a shortened legislative session this year and a deficit in the state budget. The impact of COVID-19 has likely cost cannabis advocates important legislative advances and budget proposals this year.

C. COVID-19 Delayed the Budget Proposal for the Cannabis Regulatory Agencies Consolidation

Prior to COVID-19, the state budget included a proposal to combine the three state agencies that regulate cannabis businesses into one agency, the new Department of Cannabis Control. This consolidation was expected to make the cannabis licensing process more efficient and affordable. The proposal was postponed until next year due to a lack of revenue funds to complete the plan.62

Due to COVID-19, California went from a budget surplus of $6 billion in January to a budget deficit of $54.3 billion in August. Governor Newsom predicted a decline in overall cannabis revenues for this year and next based primarily on the state’s belief that the lack of banking access for the cannabis industry would create cash flow problems. Of additional concern was that the younger consumer base of cannabis products might be more negatively impacted by the recession due to the pandemic, resulting in decreased sales for the cannabis industry. Lastly, the state recognizes that the legal cannabis industry must still contend with the illicit market. For these reasons, the state expected decreased cannabis revenues in 2020.63

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However, the recent report of the CDTFA on cannabis tax revenues for the second quarter of 2020 shows an increase in tax revenues across cannabis taxes for 2020. The California cannabis excise tax generated $101.8 million in revenue compared to only $74.2 million for the same period in 2019. The cannabis cultivation tax generated $22.9 million in revenue, compared to $22.6 million in 2019. Similarly, the cannabis sales tax generated $83.7 million in revenue over only $47.4 million in 2019.64 Despite the state’s concerns set forth above, cannabis businesses have successfully pivoted to meet the new consumer preferences and demand. They have done so by adapting to changes in the workplace that have economized operations and maximized the new delivery platform options.

Despite the actual increase in cannabis tax revenues, Governor Newsom’s decision to delay consolidation of the three regulatory agencies until next year stands. Consequently, the current cannabis licensing process remains. This means many cannabis businesses seeking to enter the legal cannabis market will continue to be excluded from license opportunities due to the expense and onerous requirements across multiple state cannabis agencies.

VI. COVID-19 HAD A NEGATIVE IMPACT ON THE HEMP INDUSTRY

Despite the passage of the 2018 Farm Bill which removed hemp as a controlled substance under the CSA,65 many regulator issues remain in question. The hemp industry still awaits answers on hemp-derived CBD regulatory issues from the U.S. Department of Agriculture (USDA), more specifically the Food and Drug Administration (FDA), which is the agency charged with federal hemp oversight. In September 2019, the FDA submitted its federal hemp policy to the White House Office of Management and Budget (OMB) for approval. In July of this year the FDA sent its proposed draft policy for CBD enforcement to the OMB for review.66 The CBD policy has yet to be disclosed and it remains to be seen just how the USDA will actually implement this CBD enforcement policy once approved. It is likely the disclosure delay is related to the impact of COVID-19 on executive branch policy priorities.

A. Impact of COVID-19 on Federal Hemp Policy

In response to COVID-19, the USDA created the Coronavirus Food Assistance Program (CFAP) to assist farmers impacted by the COVID-19 who experienced at least 5 percent decline in commodity prices between January and April 2020. The USDA has declined to include hemp farmers in the coronavirus relief program stating that the "hemp commodity prices did not fall far enough to meet the 5 percent or more benchmark to make growers eligible for the Coronavirus Food Assistance Program."67 The agency cited hemp prices only declined by 1 percent during the first quarter and thus did not qualify for the federal relief. Not surprisingly, many farmers in the hemp industry were disappointed with the USDA’s determination that hemp should be excluded from federal relief. After several lawmakers and industry advocates called for reconsideration of the policy, the USDA updated its decision to include the possibility for re-evaluation of commodities (such as hemp) to determine if eligibility for the program is met.68

B. COVID-19 Likely Delays California’s Hemp Program

Last year, the California State Legislature approved SB-153 (in accordance with requirements of the 2018 Farm Bill), which directed the California Food and Agriculture Department (CDFA) to submit the state’s "hemp plan" to the USDA by May 2020.69 California is still drafting its plan for USDA review.70 While it is not stated on the CDFA’s website that the delay was directly a result of COVID-19, it is likely that the government shutdowns and other related COVID-19 events contributed to this delay.

C. Legalization of Hemp-Derived CBD in California Is Delayed Until Next Session Possibly Due to Shortened Legislative Session

Little progress has been made in California on the regulation or oversight of the hemp-derived cannabidiol (CBD) industry. While marijuana-derived CBD is legally available at licensed cannabis businesses, hemp-derived CBD additives are currently unregulated and illegal in California.71 The dilemma between regulation of hemp-derived CBD and marijuana-derived CBD predates COVID-19. California’s delay in passing regulation has been a thorn in the side of the hemp-derived CBD industry since 2018. The upheaval of the legislative agenda this year due to the pandemic did not help.

A 2020 proposed amendment to AB-228 Food, Beverage, and Cosmetic Adulterants: Industrial Hemp Products: (2019-2020), spearheaded by Assembly Member Cecilia Aguiar-Curry did not pass in the Legislature. AB-228 seeks to prohibit restrictions on the sale of foods and other consumer products that contain hemp-derived CBD. Last year, the bill passed the Assembly Appropriations Committee but remained in the Suspense File until this year.72 The amendment to the bill would have provided for the regulation of hemp-derived CBD products such as food, beverages, dietary supplements, and cosmetics. It came to an unexpected halt just days before the end of the legislative session for undisclosed reasons. Consequently, hemp-derived CBD remains unregulated and illegal as an additive under California law.

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VII. ENFORCEMENT AGAINST ILLICIT CANNABIS BUSINESSES AND FARMS

Enforcement is one of the few areas in the cannabis industry that has not been entirely impacted by the pandemic. As the states’ most commonly used tool to combat the illicit market, enforcement actions against illegal cannabis operations continue to be a major focus of federal, state, and local agencies. New federal agencies, such as the Federal Trade Commission and the Federal Communications Commission have entered the cannabis enforcement arena by issuing enforcement letters to and instituting actions against cannabis businesses using false or unsubstantiated claims in their advertising.73

More raids on outdoor and indoor cannabis growing operations occurred as local law enforcement increased their efforts to stop illegal grow sites. Cities such as Los Angeles instituted new ways to combat illegal retail operations by authorizing the shutting off of the premises’ utilities and water. Additionally, there is a new emphasis on deterring landowners from allowing and profiting from illegal cannabis operations on their real property (AB-2094). Many cannabis advocates are seeking alternative ways to reduce illegal cannabis operations rather than perpetuating criminalization of the actions. However, most agree that much like with the alcohol industry, until federal legalization of cannabis occurs, elimination of the illicit market cannot be completely achieved. Consequently, enforcement actions will continue, whether criminal or civil, to dominate government responses.

VIII. WHAT DOES THE FUTURE HOLD FOR THE CANNABIS INDUSTRY AS A LASTING RESULT OF COVID-19?

What can we expect to see in the cannabis industry moving forward as a result of the COVID-19 impact? These are several areas of the cannabis industry that will likely benefit by continuing to see growth or expansion due to the lasting effects of COVID-19.

  • There will likely be continued growth of cannabis sales revenue. More consumers of cannabis products can be expected as COVID-19 continues to impact daily lives. The result of cannabis businesses being deemed essential businesses has served to reduce the stigma of cannabis further. Moreover, COVID-19 has created new demand for diverse cannabis product lines. California cannabis sales revenue for 2020 is predicted to increase over the nearly $3 billion achieved in 2019.74
  • Experts predict more access to capital investment for cannabis operators. Investors have jumped back into the game as cannabis businesses emerge more efficient and more profitable from operational changes forced by COVID-19. These businesses have shown they can weather the storm of ever-changing regulatory controls, shifting consumer behaviors, and still efficiently pivot to new and profitable business models. New access to capital began to emerge in the second half of this year.75
  • Expansion of delivery services of cannabis products and increased use of ecommerce platforms will likely continue. Consumer preferences for home delivery of cannabis products and ecommerce platforms supporting contact-less transactions that arose in response to COVID-19 dangers will drive more cannabis businesses to provide these services.
  • An increase in the number of local and state governments taking a second look at cannabis legalization policy is already occurring. States and municipalities are considering the opportunities cannabis legalization can provide to address social justice issues and to provide much needed tax revenues to fill budget gaps created by the pandemic.
  • While increased enforcement actions against illegal cannabis businesses may not be a direct result of COVID-19, they are crucial to the future success of the cannabis industry and cannot be excluded from any look into the future of the cannabis industry. Increased enforcement actions against landowners at the federal level through agencies such as the Drug Enforcement Agency (DEA) will occur. The threat of losing one’s property for allowing unlicensed cannabis activities to occur on such, serves as an effective deterrent to most landowners. There is likely to be increased actions against CBD manufacturers (for false or misleading advertising) by the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) as well, until standard hemp regulations are promulgated across all legalized states and implemented by the USDA. On the state level in California, increased enforcement through the BCC will likely occur through the passage of bills giving the agency more authority to bring civil actions and impose fines.
  • State consolidation of the three California cannabis regulatory agencies’ oversight of cannabis programs into the Department of Cannabis Control will likely be proposed again next year in the state budget. Further, increased cannabis tax revenues will likely fund the process. Cannabis industry advocates will continue to push for a more streamlined and affordable licensing process to assist in eradicating the illicit cannabis market.

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IX CONCLUSION

There is still significant uncertainty on the road ahead for the cannabis industry. Whether the sustained growth witnessed this year in the face of the COVID-19 pandemic is an indicator of continued success beyond COVID-19 remains to be seen. In fact, whether the cannabis industry is truly recession-proof against other economic disruptors (such as long-term massive unemployment) is still unknown. However, the cannabis industry has shown that it can weather a crisis. Further, it has shown that it has the ability to quickly adapt to requisite change. It has also been deemed to be "essential" in the midst of a public health crisis. Cannabis business operators and investors can continue to look with some confidence toward a thriving consumer demand for products. Federal legalization may occur in the next few years or it may take many more years. That is still unknown. Yet, in the interim, more states are taking steps towards legalization. This in turn creates the potential for tremendous growth in the cannabis industry during the coming years. Therefore, continued interest in investing and operating cannabis businesses will not likely diminish anytime soon.

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* Chrystal James may be contacted at cbjameslaw@gmail.com.

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Notes:

1. See https://www.cdc.gov/media/releases/2020/p0121-novel-coronavirus-travel-case.html.

2. See Statista, Forecast of Recreational Marijuana Sales Value in California from 2018 to 2024 (Nov. 2019), https://www.statista.com/statistics/1074990/us-california-cannabis-recreational-sales-value-forecast/.

3. Cal. State Budget, Jan. 2020, at 171, http://www.ebudget.ca.gov/2020-21/pdf/BudgetSummary/FullBudgetSummary.pdf.

4. Essential businesses are those that fall under sixteen critical infrastructure sectors identified by the federal government "whose assets, systems, and networks, whether physical or virtual, are considered so vital to the United States that their incapacitation or destruction would have a debilitating effect on security, economic security, public health or safety, or any combination thereof." A list of such businesses is available at https://www.cisa.gov/identifying-critical-infrastructure-during-covid-19.

5. See BDS Analytics, The State of Legal Cannabis Markets Webinar, https://bdsa.com/the-state-of-legal-cannabis-markets-webinar/.

6. Did COVID-19 Kill The Cannabis Industry’s Merger and Acquisition Activity?, Marijuana News, Apr. 10, 2020, at 3, https://420intel.ca/articles/2020/04/13/did-covid-19-kill-cannabis-industry%E2%80%99s-merger-and-acquisition-activity.

7. Cannabis industry operators’ complaints about the reasons for the illicit market are examined in this first-hand report by CBS News Program 60 Minutes available at https://www.cbsnews.com/news/marijuana-in-californa-black-market-weed-buzzkills-for-california-legal-weed-industry-60mnutes-2020-08-02s.

8. The Controlled Substances Act of 1970 (CSA) makes it "unlawful for any person knowingly or intentionally to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance." Although there are exceptions to this prohibition, the only current exception to drugs categorized as "Schedule I" drugs is for government-approved research projects. Cannabis operations remain illegal and subject to federal criminal prosecution.

9. Id. at 7.

10. Id.

11. Id.

12. Currently, the majority of California counties and cities ban cannabis operations. Out of fifty-eight counties in California only twenty-four counties allow for some form of legal cannabis operations. Similarly, only 161 of 482 municipalities allow some form of cannabis operations. See John Schroyer & Eli McVey, Chart: Most California Municipalities Ban Commercial Cannabis Activity (Feb. 18, 2019), https.//mjbizdaily.com/chart-most-of-california-municipalities-ban-commercial-cannabis-activity/. Those municipalities that do allow cannabis operations place limits on the number of licenses available for most types of cannabis operations. Further, for the counties and cities that choose to regulate cannabis businesses, they find that they must continuously reform their ordinances and regulations to incorporate changes to industry issues that arise. This creates ongoing confusion for both businesses and those regulating the businesses, which adds to the cost of doing business legally.

13. Kevin Murphy, Cannabis’ Black Market Problem (Apr. 4, 2019), https://www.forbes.com/sites/kevinmurphy/2019/04/04/cannabis-black-market-problem/#13a4a008134f.

14. Id.

15. Statista, supra note 2.

16. On March 13, 2020, President Trump declared a state of emergency under section 501(b) of the Stafford Act in response to the outbreak of the coronavirus. See https://www.fema.gov/news-release/20200726/covid-19-emergency-declaration.

17. On March 19, 2020, Governor Gavin Newsom signed Executive Order N-33-20 directing residents to stay at home and non-essential businesses to shut down.

18. See definition of essential businesses at supra note 4.

19. Essential Workforce PDF 2, ¶ 7 (cannabis businesses listed under Healthcare/Public Health Sector), https://covid19.ca.gov/img/EssentialCriticalInfrastructureWorkers.pdf.

20. Interim Guidance for Businesses and Employers Responding to Coronavirus Disease 2019 (COVID-19), https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html.

21. See Vangst, Leaflink & Flowhub, The State of the Cannabis Industry 2020; Cannabis, COVID-19, and Beyond (White Paper, Aug. 2020), https://stateofthecannabisindustry.com/, which is based upon a survey conducted by the three companies of cannabis sales over the period of February 1st through June 12th 2020 compared with the same period in 2019, resulting in an average of 40 percent growth in cannabis sales during 2020.

22. Id. at 9.

23. Id.

24. Vangst, Leaflink & Flowhub, supra note 21, at 10.

25. Vangst, Leaflink & Flowhub, supra note 21, at 6.

26. HYPUR Industries Consumer Payment and Promo Preferences Survey (Jun. 9, 2020), https://hypur/cannabis-consumer-promo-preferences/.

27. Rosie Mattio, What the Cannabis Industry’s Overnight Transition Teaches Us About the New Retail (Apr. 28, 2020), https://www.adweek.com/brand-marketing/what-the-cannabis-industrys-overnight-transition-teaches-us-about-the-new-retail/.

28. Prior to COVID-19, cannabis retailers were not permitted to conduct curbside delivery of cannabis purchases. Consumers had to conduct purchases in store or select delivery services in municipalities that allow delivery businesses.

29. Alison Stine, You Know What Else Has Sold Well During the Pandemic? Weed Edibles (Sept. 4, 2020), https://nytimes.com/2020/07/13/style/weed-edibles-pandemic.html.

30. Id.

31. Vangst, Leaflink & Flowhub, supra note 21, at 17.

32. Id.

33. Id. at 13.

34. Id. at 15.

35. Id.

36. This program offered low interest loans to small businesses impacted by COVID-19 to meet operating expenses, including payroll expenses. Cassie Neiden, Cannabis Operators Excluded from SBA’s Disaster Assistance During COVID-19 Pandemic (Mar. 18, 2020), https://www.cannabisbusinesstimes.com/article/sba-coronavirus-cannabis-operators/. Carol Chastang, SBA Public Affairs specialist, stated therein that, "[b]ecause federal law prohibits the sale and distribution of cannabis, the SBA does not provide financial assistance to businesses that are illegal under federal law." She further confirmed to the Cannabis Business Times that, "[b]usinesses that aren’t eligible include marijuana growers and dispensers, businesses that sell cannabis products, etc., even if the business is legal under local or state law." See also, https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.

37. See Press Release, California Cannabis Portal (May 14, 2020), https://cannabis.ca.gov/2020/05/14/state-cannabis-licensing-authorities-offer-60-day-license-fee-deferrals/.

38. Cal. Code Regs. tit. 16, § 5038a-f (Disaster Relief).

39. See Instructions for Requesting Disaster Relief During the COVID-19 Pandemic, https://bcc.ca.gov/coronavirus19/.

40. Press Release, CDTFA (Apr. 3, 2020), www.cdtfa.ca.gov/services/covid19.htm.

41. Secure And Fair Enforcement Banking Act of 2019, H.R. 1595, 116th Cong. (2019-2020), https://www.congress.gov/bill/116th-congress/house-bill/1595/text.

42. Eric Sandy, U.S. House Passes SAFE Banking Act as Part of New Coronavirus Relief Bill: UPDATE (May 18, 2020), https://www.cannabisbusinesstimes.com/article/us-house-adds-safe-banking-act-coronavirus-relief-bill/. Revised HEROES Act bill language available at https://appropriations.house.gov/sites/democrats.appropriations.house.gov/files/Updated%20Heroes%20Act%20Summary.pdf.

43. Kyle Jaeger, Mitch McConnell and Other GOP Lawmakers Slam Marijuana Banking Provisions in Coronavirus Bill (May 14, 2020), https://www.marijuanamoment.net/mitch-mcconnell-and-other-gop-lawmakers-slam-marijuana-banking-provisions-in-coronavirus-bill/.

44. Id. at 43.

45. See July 23, 2020 online Facebook poll conducted by The Fresh Toast available at https://thefreshtoast.com/news/tft-poll-trump-and-biden-equally-likely-to-legalize-marijuana-if-elected/.

46. See Map of Marijuana Legality By State (July 2020), https://disa.com/map-of-marijuana-legality-by-state.

47. German Lopez, Marijuana Legalization Is About to Have a Huge Year (Jan. 23, 2020), https://www.vox.com/policy-and-politics/2020/1/23/21076978/marijuana-legalization-2020-ballot-initiatives.

48. Summer Fox, 2020 Could Still be a Big Year for Cannabis Legalization (Aug. 8, 2020), https://weedmaps.com/news/2020/08/2020-could-still-be-a-big-year-for-cannabis-legalization/; Kyle Jaeger, Medical Marijuana Measure Removed From Nebraska Ballot by State Supreme Court (Sept. 10, 2020), https://www.marijuanamoment.net/medical-marijuana-measure-removed-from-nebraskas-november-ballot-by-state-supreme-court/.

49. Summer Fox, 2020 Could Still be a Big Year for Cannabis Legalization (Aug. 8, 2020) https://weedmaps.com/news/2020/08/2020-could-still-be-a-big-year-for-cannabis-legalization/.

50. Id.

51. Kyle Jaeger, New Mexico Governor Calls for Marijuana Legalization to Fund Medicaid Amid Coronavirus Budget Crunch (Sept. 11, 2020), https://www.marijuanamoment.net/new-mexico-governor-calls-for-marijuana-legalization-to-fund-medicaid-amid-coronavirus-budget-crunch/; Kyle Jaeger, Legalizing Medical Marijuana Could Free Up Federal Medicaid Dollars American Samoa Official Says (Aug. 26, 2020), https://www.marijuanamoment.net/legalizing-medical-marijuana-could-free-up-federal-medicaid-dollars-american-samoa-official-says/.

52. Id.

53. See Collateral Consequences Resource Center Map (Mar. 2020), https://ccresourcecenter.org/2020/03/12/legalizing-marijuana-and-expunging-records-across-the-country/ database.

54. See Cannabis Testing Laboratories, Assemb. B. 1458 (2019-2020); Cannabis Testing, Assemb. B. 1470 (2019-2020); Cannabis Testing Laboratories, S.B. 1244 (2019-2020).

55. Cannabis: Financial Institutions, Assemb. B. 1525 (2019-2020), Bill Summary, Assembly Floor Analysis—Concurrence in Senate Amendments Analysis 1 (Aug. 21, 2020), https://201920200AB1525_Assembly%20Floor%20Analysis_%20(1).pdf.

56. Financial Crimes Enforcement Network (FinCEN) Guidance: BSA Expectations Regarding Marijuana-Related Businesses (Feb. 14, 2014) FIN-2014-G001.

57. Cannabis, Assemb. B. 1872 (2019-2020).

58. Cannabis: Facilities Used for Unlawful Purpose, Assemb.

B. 2094 (2019-2020).

59. Unlawful Cannabis Activity: Enforcement, Assemb. B. 2122 (2019-2020).

60. Cannabis: Facilities Used for Unlawful Purpose, Assemb. B. 2094 (2019-2020) (status: in committee as of May 07, 2020); Unlawful Cannabis Activity: Enforcement, Assemb. B. 2122 (2019-2020) (status: referred to committee on judiciary as of July 1, 2020).

61. Taxation: Cannabis, Assemb. B. 1948 (status: in committee as of March 9, 2020).

62. The three California cannabis regulatory bodies are the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health. The new cannabis regulatory agency would be the Department of Cannabis Control. See Revised California State Budget (2020-2021), at 111-12.

63. See Governor Newsom’s comments, "[w]hile similar products like alcohol and tobacco tend to be recession-resistant, the forecast assumes that cannabis businesses will be more negatively impacted by the COVID-19 pandemic … [c]annabis businesses have less access to banking services that could provide liquidity, have a younger consumer base likely to be disproportionately affected by the COVID-19 recession, and still must contend with competition from the black market." Revised California State Budget (2020-2021), at 111-12.

64. News Release NR20-11, California Department of Tax and Fee Administration Reports Cannabis Tax Revenues for the 2nd Quarter of 2020 (Aug. 19, 2020), https://www.cdtfa.ca.gov/news/20-11.htm; News Release NR19-19, California Department of Tax and Fee Administration Reports Cannabis Tax Revenues for the 2nd Quarter of 2019 (Aug. 22, 2020), https://www.cdtfa.ca.gov/news/19-19.htm.

65. The Agriculture Improvement Act of 2018 ("The 2018 Farm Bill") was signed into law in December 2018. The 2018 Farm Bill legalized hemp operations by removing the hemp crop and its derivatives from the definition of marijuana under the Controlled Substances Act (CSA). Regulatory oversight of hemp and hemp CBD lies with the U.S. Department of Agriculture and specifically within the oversight of the Food and Drug Administration (FDA). The FDA was charged with development and implementation of a federal hemp regulation policy. Additionally, it has oversight for approval of each state and territorial hemp program.

66. Laura Drotleff, FDA Submits CBD Enforcement Policy Draft Guidance to White House (July 23, 2020), https://hempindustrydaily.com/fda-submits-cbd-enforcement-policy-draft-guidance-to-white-house.

67. Cassie Neiden, Cannabis Operators Excluded from SBA’s Disaster Assistance During COVID-19 Pandemic (Mar. 18, 2020), https://www.cannabisdispensarymag.com/article/sba-coronavirus-cannabis-operators/.

68. Notification of Funding Availability; Coronavirus Food Assistance Program (CFAP) Additional Eligible Commodities, https://www.federalregister.gov/documents/2020/08/14/2020-17781/notification-of-funding-availability-coronavirus-food-assistance-program-cfap-additional-eligible.

69. California’s "hemp plan" would consist of the state’s rules and regulations for the hemp industry, including farming, cultivation, testing, manufacturing, and distribution rules.

70. See CDFA website FAQs page, CDFA Has Not Yet Submitted a Proposed State Regulatory Plan to the U.S. Department of Agriculture (USDA) for Review and Approval but Is in the Process of Preparing a Plan for Submission, https://www.cdfa.ca.gov/plant/industrialhemp/faq.html#:~:text=According%20the%20U.S.%20 Department%20of,process%20of%20developing%20 a%20state.

71. CBD is short for Cannabidiol, a chemical compound derived from the cannabis plant. CBD is derived from a non-psychoactive portion of the plant. CBD additives are regulated by the Food and Drug Administration at the federal level and the California Department of Public Health (CDPH) at the state level. The CDHP prohibits the sale of hemp-derived CBD in foods, beverages, dietary supplements, and other consumer products. It has taken the position that as an additive, hemp-derived CBD is illegal because it "adulterates" the product and therefore violates the California Sherman Food, Drug & Cosmetic Law.

72. The Suspense File is used by the California State Assembly Appropriations Committee to set any bill with an appropriation annual cost of $150,000 or more for a single hearing after the state budget has been prepared. This allows the committee to consider the revenue now available to fund the bill before final consideration. See https://apro.assembly.ca.gov/overview.

73. Press Release, Federal Trade Commission (Sept. 10, 2019), https://www.ftc.gov/news-events/press-releases/2019/09/ftc-sends-warning-letters-companies-advertising-their-cbd-infused. United States Department of Agriculture ("USDA") October 31, 2019 interim rules on the "Establishment of a Domestic Hemp Production Program" available at https://www.federalregister.gov/documents/2019/10/31/2019-23749/establishment-of-a-domestic-hemp-production-program.

74. Eli McVey, Exclusive: U.S. Retail Marijuana Sales on Pace to Rise 40% in 2020, Near $37 billion by 2024 (June 30, 2020), https://mjbizdaily.com/exclusive-us-retail-marijuana-sales-on-pace-to-rise-40-in-2020-near-37-billion-by-2023/.

75. See Vangst, Leaflink & Flowhub, supra note 21.