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Federal Judge Dismisses Marijuana Lawsuit

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A federal district court judge in Manhattan has dismissed a lawsuit challenging marijuana’s status under the Controlled Substances Act.

Plaintiffs in the case, which argues that cannabis is improperly classified in the most restrictive category of Schedule I, include former NFL player Marvin Washington and a 12-year-old girl who treats epilepsy with medical marijuana.

Attorneys and plantiffs told Marijuana Moment in advance of oral arguments earlier this month that they were hopeful the case would force the federal government to finally reschedule marijuana.

But Judge Alvin K. Hellerstein ruled on Monday that advocates have “failed to exhaust their administrative remedies” to alter cannabis’s legal status, and should pursue changes through the administration and Congress instead of in the courts.

“[P]laintiffs’ claim is an administrative one, not one premised on the constitution,” he wrote, and “is best understood as a collateral attack on the various administrative determinations not to reclassify marijuana into a different drug schedule.”

Federal Courts Hear Major Marijuana Cases This Week

Legalization advocates have long argued that marijuana is improperly classified in Schedule I, which is supposed to be reserved for drugs with no medical value and a high potential for abuse. A key claim of the lawsuit is that there is no rational basis for that categorization.

But Hellerstein wrote that “it is clear that Congress had a rational basis for classifying marijuana in Schedule I, and executive officials in different administrations have consistently retained its placement there… Even if marijuana has current medical uses, I cannot say that Congress acted irrationally in placing marijuana in Schedule I.”

However, the judge, who observers say appeared moved by anecdotes about the plaintiffs’ medical uses of cannabis during oral arguments, wrote that he does not reject out of hand the notion that marijuana can be beneficial:

“I emphasize that this decision is not on the merits of plaintiffs’ claim. Plaintiffs’ amended complaint, which I must accept as true for the purpose of this motion, claims that the use of medical marijuana has, quite literally, saved their lives. One plaintiff in this case, Alexis Bortell, suffers from intractable epilepsy, a severe seizure disorder that once caused her to experience multiple seizures every day. After years of searching for viable treatment options, Alexis began using medical marijuana. Since then, she has gone nearly three years without a single seizure. Jagger Cotte, another plaintiff in the case, suffers from a rare, congenital disease known as Leigh’s disease, which kills approximately 95% of those afflicted before they reach the age of four. After turning to medical marijuana, Jagger’s life has been extended by two years and his pain has become manageable. I highlight plaintiffs’ experience to emphasize that this decision should not be understood as a factual finding that marijuana lacks any medical use in the United States, for the authority to make that determination is vested in the administrative process.”

Also in the opinion, Hellerstein ruled that one plaintiff, the Cannabis Cultural Association, lacks standing to sue.

“Plaintiffs’ racial animus claim is based on a patchwork of statements by former Nixon Administration officials, many of which were made after the passage of the CSA,” he wrote. “Even taking these allegations as true, plaintiffs have failed to demonstrate that the relevant decisionmaker — Congress — passed the CSA and placed marijuana in Schedule I in order to intentionally discriminate against African Americans.”

Hellerstein dismissed every other claim in the lawsuit, as well, making it clear he’s done with the case.

“Because plaintiffs have failed to state a claim under any constitutional theory, all of plaintiffs’ remaining claims are also dismissed,” he wrote. “For the reasons stated herein, defendants’ motion to dismiss the complaint is granted. Plaintiffs have already amended their complaint once, and I find that further amendments would be futile.”

Joseph Bondy, an attorney on the case, said the legal team is considering their next steps.

“We believe the court didn’t properly consider our arguments, even declining to allow us to be heard on some points—particularly our equal protection argument,” he told Marijuana Moment. “We are exploring all options in furtherance of winning this case, whether through direct appeal or reconsideration, and will keep the community abreast of all developments. The legal team remains committed to the case and the cause, and thanks everyone for their unwavering support.”

Read Hellerstein’s full opinion below:

Federal Judge Dismisses Marijuana Lawsuit by tomangell on Scribd

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.

Tom Angell is the editor of Marijuana Moment. A 20-year veteran in the cannabis law reform movement, he covers the policy and politics of marijuana. Separately, he founded the nonprofit Marijuana Majority. Previously he reported for Marijuana.com and MassRoots, and handled media relations and campaigns for Law Enforcement Against Prohibition and Students for Sensible Drug Policy. (Organization citations are for identification only and do not constitute an endorsement or partnership.)

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Federal Grants For Hemp Farmers Should Be Expanded, State Agriculture Departments Demand At Annual Meeting

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The National Association of State Departments of Agriculture (NASDA) is urging the U.S. Department of Agriculture (USDA) to give hemp two different classifications depending on its intended use in order to expand access to federal grant programs.

Members of NASDA agreed last week to amend its organizational policy on USDA’s Specialty Crop Block Grant Program. They are now calling for two distinct categories for hemp, requesting that the federal agency allow businesses to designate the crop as either a specialty crop or agronomic commodity.

That’s consistent with a request that was included in a spending bill report from the Senate Appropriations Committee that was approved last month.

While the requested change may seem largely technical, it would make it so hemp farmers could have greater access to grants that stakeholders say would provide them with valuable resources as the industry continues to evolve. It’s not clear if USDA will follow through, but NASDA is an influential body that represents agriculture departments in all 50 states and four U.S. territories.

The new policy that the organization adopted during its annual meeting states that “NASDA supports the dual designation for hemp as a specialty crop based on the manner and purpose for which it is grown,” and it also “supports expanding the Specialty Crop Block Grant Program funding eligibility to hemp crops with horticultural uses.”

Jonathan Miller, general counsel for the U.S. Hemp Roundtable, told Marijuana Moment that the group is “really excited that NASDA is so working so closely with our industry to help identify solutions to support hemp farmers, and this is a technical issue, but it could open the door for funding and other support that hemp farmers so desperately need right now.”

What NASDA seems to be doing with this latest action is aligning its policy with the Senate appropriations report for fiscal year 2022, Herrick Fox, co-chair of the government relations committee at the National Industrial Hemp Council (NIHC) who previously spent 15 years working in USDA, told Marijuana Moment.

He said that the “only reason” hemp didn’t receive the dual designation from USDA in the first place is because “I think all the federal agencies are still trying to get used to the idea of hemp as a legal agricultural product—and in the first years following legalization, there was some unspoken reticence.”

NASDA CEO Barb Glenn said in a press release that “allowing hemp to be designated as both a specialty crop and a traditional commodity recognizes the crop’s up-and-coming nature and assures new farmers will be supported in their decisions to grow the crop for either food, fiber or horticultural use.”

“As the regulators and stewards of healthy agricultural industries in their states, NASDA members have been the leading voice for supporting the hemp industry since hemp’s inclusion in the 2014 Farm Bill,” she said. “This action would be another important step in helping hemp achieve long-term sustainability.”

USDA has made clear its intent to support the burgeoning industry.

For example, the agency recently announced that it is teaming up with university researchers to figure out the best ways to keep weeds (not the marijuana kind) out of hemp.

USDA also announced last month that it is moving forward with a large-scale survey to gain insight into the hemp market.

After requesting permission from the White House earlier this year to conduct the survey of about 20,000 hemp farmers, the agency’s National Agricultural Statistics Service recently said that the forms are being finalized to be filled out via mail or online.

USDA is asking questions about plans for outdoor hemp production, acreage for operations, primary and secondary uses for the crop and what kinds of prices producers are able to bring in. The questionnaire lists preparations such as smokeable hemp, extracts like CBD, grain for human consumption, fiber and seeds as areas the department is interested in learning about.

Last year, USDA announced plans to distribute a separate national survey to gain insights from thousands of hemp businesses that could inform its approach to regulating the industry.

That survey is being completed in partnership with National Association of State Departments of Agriculture and the University of Kentucky. The department said it wanted to learn about “current production costs, production practices, and marketing practices” for hemp.

There’s still much to learn about the burgeoning market, even as USDA continues to approve state regulatory plans for the crop. Most recently, the agency approved a hemp plan submitted by Colorado, where officials have consistently insisted that the state intends to be a leader in the space.

While USDA’s final rule for hemp took effect on March 22, the agency is evidently still interested in gathering information to further inform its regulatory approach going forward. Industry stakeholders say the release of the final rule is a positive step forward that will provide businesses with needed guidance, but they’ve also pointed to a number of policies that they hope to revise as the market matures such as USDA’s hemp testing requirements.

The federal Small Business Administration’s Office of Advocacy expressed a similar sentiment in a blog post in February, writing that it is “pleased with some of the changes that [USDA] has made to the rule, as they offer more certainty and are less burdensome to small farmers,” but “some concerns remained unaddressed in the final rule.”

USDA announced in April that it is teaming up with a chemical manufacturing company on a two-year project that could significantly expand the hemp-based cosmetics market.

Meanwhile, the U.S. Department of Energy (DOE) announced last month that it is sponsoring a project to develop hemp fiber insulation that’s designed to be better for the environment and public health than conventional preparations are.

IRS Official Offers Tax Advice To Marijuana Businesses And Says Feds Expect Industry To Keep Growing

Photo courtesy of Pixabay.

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IRS Official Offers Tax Advice To Marijuana Businesses And Says Feds Expect Industry To Keep Growing

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The Internal Revenue Service (IRS) says it expects the marijuana industry to continue to grow, and it’s offering some tips to cannabis businesses on staying compliant with taxes while the plant remains federally prohibited.

In a blog post on Monday, IRS’s De Lon Harris said that the “evolving and complex issue my organization has been focused on is the tax implications for the rapidly growing cannabis/marijuana industry.”

“The specific rules and regulations regarding how [marijuana] is taxed at the federal level provides the IRS an opportunity to promote voluntary compliance, not only through audits, but also through outreach and education,” he said, noting the rapid expansion of state-legal cannabis markets. “And while there are 14 states that still ban cannabis use, we expect both unlicensed and licensed marijuana businesses to grow.”

“It’s tricky from a business perspective, because even though states are legalizing marijuana and treating its sale as a legal business enterprise, it’s still considered a Schedule 1 controlled substance under federal law,” Harris wrote. “That means a cannabis/marijuana business has additional considerations under the law, creating unique challenges for members of the industry.”

The official, who serves as commissioner of IRS’s Small Business/Self Employed (SB/SE) Examination division, recognized that the status quo means that marijuana businesses are forced to operate on a largely cash-only basis, and federal prohibition also means that companies in the sector are precluded to taking key tax deductions.

However, while the tax statute known as 280E means the industry is ineligible for most federal tax deductions and credits, he noted that marijuana firms “can deduct their cost of goods sold, which is basically the cost of their inventory.”

“What isn’t deductible are the normal overhead expenses, such as advertising expenses, wages and salaries, and travel expenses, to name a few,” Harris said. “I understand this nuance can be a challenge for some business owners, and I also realize small businesses don’t always have a lot of resources available to them.

The official previewed a new “Cannabis/Marijuana Initiative” the agency is launching that will provide specific job training to tax officials to effectively carry out audits within the industry, ensure that there’s consistency in the IRS’s policy for cannabis, work with stakeholders to ensure tax compliance and help to identify non-compliant businesses.

“I’m very focused on the success of this strategy because it’s very important for business owners to understand that under our nation’s tax laws, and specifically Internal Revenue Code 61, all income is taxable, even if someone is running a business that’s considered illegal under federal law,” he said. “This is a truly groundbreaking effort for our agency.”

“Our strategy is not limited to pushing information out via our website in the hope that business owners will find it. I’ve made it a priority for my SB/SE organization to engage with the cannabis/marijuana industry through speaking events and other outreach. I have done three of these types of events over the last year, and what I have heard is a genuine desire to comply with the tax laws regarding the industry. Through this extended outreach, we hope to help small business owners and others fully understand the unique tax rules before there are any compliance issues.”

“Since the unique circumstances of the cannabis industry can make tax preparation challenging, I hope that new and experienced business owners take my advice in this post and use our resources to ensure they understand their tax obligations and avoid penalties associated with non-compliance,” the blog post concludes. “We’re always here to help with tools, information and guidance.”

This is yet another signal that while marijuana remains federally illegal, agencies are increasingly recognizing that a policy shift is happening in states and may well be on the horizon at the congressional level.

As leadership in the House and Senate work to advance legislation to deschedule cannabis, lawmakers have also pushed to enact clear, statutory protections for financial institutions that work with state-legal marijuana businesses. And that would be accomplished through House-passed standalone legislation, or an amendment that was attached to a defense spending bill this week.

In the interim, banks and credit unions are operating under 2014 guidance from the Financial Crimes Enforcement Network (FinCEN) that lays out reporting requirements for those that choose to service the marijuana industry. FinCEN released a report last week showing that there were 706 financial institutions that said they were actively serving cannabis clients as of the last quarter.

IRS separately hosted a forum last month dedicated to tax policy for marijuana businesses and cryptocurrency.

The seminar, which was presented by a representative of the National Association of Tax Professionals (NATP), examined issues such as allowable tax deductions while cannabis remains federally illegal and how different states approach taxing marijuana. It also covered issues related to paying taxes on earnings in Bitcoin and other forms of digital currency.

Earlier this year, IRS Commissioner Charles Rettig told Congress that the agency would “prefer” for state-legal marijuana businesses to be able to pay taxes electronically, as the current largely cash-based system under federal cannabis prohibition is onerous and presents risks to workers.

Former Treasury Secretary Steven Mnuchin said in 2019 that he’d like to see Congress approve legislation resolving the cannabis banking issue and he pointed to the fact that IRS has had to build “cash rooms” to deposit taxes from those businesses as an example of the problem.

IRS released updated guidance on tax policy for the marijuana industry last year, including instructions on how cannabis businesses that don’t have access to bank accounts can pay their tax bills using large amounts of cash.

The update appears to be responsive to a Treasury Department internal watchdog report that was released earlier in the year. The department’s inspector general for tax administration had criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws. And it directed the agency to “develop and publicize guidance specific to the marijuana industry.”

Harris’s predecessor at IRS SB/SE also participated in an informational webinar in December, offering candid insights on a variety of cannabis industry issues from the federal perspective.

Marijuana Arrests Dropped Sharply In 2020 As Both COVID And Legalization Spread, FBI Data Shows

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Massachusetts Lawmakers Discuss Drug Decriminalization And Safe Injection Sites At Hearing

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Massachusetts lawmakers on Monday heard testimony on separate proposals to decriminalize drug possession and establish a pilot program for safe injection facilities where people could use illicit substances in a medically supervised environment to prevent overdose deaths and facilitate treatment.

The state legislature’s Joint Committee on Mental Health, Substance Use and Recovery held a hearing on the harm reduction proposals, with experts and people personally impacted by substance misuse advocating for new approaches to drugs that destigmatize addiction and offer people resources outside of a criminal justice context.

The decriminalization bill would replace criminal penalties for the possession of any controlled substance with a civil fine of up to $50. To avoid the fine, individuals could enroll in a “needs screening to identify health and other service needs, including but not limited to services that may address any problematic substance use and mental health conditions, lack of employment, housing, or food, and any need for civil legal services.”

For the safe injection site legislation, the state would establish a 10-year pilot program where at least two facilities would “utilize harm reduction tools, including clinical monitoring of the consumption of pre-obtained controlled substances in the presence of trained staff, for the purpose of reducing the risks of disease transmission and preventing overdose deaths.”

A separate, less far-reaching bill that was added to the agenda in a late addition would direct the Department of Public Health to simply “evaluate the feasibility” of safe consumption sites and then report back to lawmakers by July 31, 2022..

The joint committee listened to academics, health professionals, lawmakers discuss the reform proposals but did not take immediate action on any of the legislation. It’s unclear when the bills will be taken up again for further consideration.

“By every metric, the war on drugs has been a catastrophic failure,” Rep. Mike Connolly (D) said. “In the United States and here in Massachusetts, the criminalization of drug possession is a major driver of mass incarceration. We know that black people have been incarcerated at a rate eight times higher than white people, and there’s no question that the criminalization of substance use issues has contributed to these terrible disparities.”

Connolly is also the sponsor of legislation that received a Joint Judiciary Committee hearing in July on  studying the implications of legalizing psychedelics like psilocybin and ayahuasca.

Officials with at least one Massachusetts city, Somerville, said that there are plans in the work to launch a safe injection facility in the jurisdiction. And they want to see the statewide bill pass to provide additional protections against being federally penalized.

“State legislation, wielding its constitutionally granted powers to enact laws for public health and safety, has the ability to greatly minimize these risks through legislation authorizing a pilot of safe consumption sites,” Hannah Pappenheim, assistant city solicitor at the City of Somerville, said. “In addition, state legislation would also minimize the risk of costly—but more importantly, lengthy—litigation.”

The official noted that a separate, Pennsylvania-based case on the legality of safe injection sites has been ongoing in federal courts for years at this point.

A coalition of 80 current and former prosecutors and law enforcement officials—including one who is President Joe Biden’s pick for U.S. attorney of Massachusetts—recently filed a brief urging the Supreme Court to take up the case.

Xavier Bacerra, the Biden administration’s secretary of health and human services, was among eight top state law enforcement officials who filed an earlier amicus brief in support of the Philadelphia-based Safehouse’s safe injection site plan when he served as California’s attorney general.

“State legislation paves the way for a more expedient process in Somerville, and of course elsewhere in the Commonwealth,” Pappenheim said.

Somerville Mayor Joseph Curtatone (D) said at Monday’s hearing that “it’s important for Massachusetts to finally lead—not just compiling, but implementing a strategy that reduces harm and save lives.” He conceded that he previously opposed the concept of allowing safe consumption sites; but his personal experience knowing people in his immediate family who suffered from addiction—as well as his own review of the scientific literature on harm reduction alternatives to criminalization—led him to embrace the reforms.

Massachusetts lawmakers advanced similar legislation last year, but it was not ultimately enacted.

The governor of neighboring Rhode Island signed a bill in July to establish a safe consumption site pilot program where people could test and use currently illicit drugs in a medically supervised environment. It became the first state in the country to legalize the harm reduction centers. It’s not clear whether the Department of Justice will seek to intervene to prevent the opening of such facilities in that state.

Oamshri Amarasingham, deputy legislative director of the ACLU of Massachusetts, voiced support for both reform proposals at Monday’s hearing and told WGBH that establishing a safe injection site pilot program “is one piece of that puzzle” that is “critically important and that’s had great success in other countries.”

Shaleen Title, a former Massachusetts cannabis commissioner who now heads the Parabola Center, juxtaposed how laws handle substances like caffeine, alcohol and nicotine differently from currently illegal drugs.

“What separates that from when we have these illicit drugs, where handcuffs and cages are involved, and what led that to be? The reason has nothing to do with science, or evidence or the relative dangers of those drugs,” she said. “The reason is because—and this is well-documented—those drugs could be scapegoated and blamed on their association with indigenous and Indian and Mexican and Chinese and other cultures, and then used to target communities of color, particularly black and Latino people nationally and here in Massachusetts.”

At the same time that Massachusetts legislators are looking into harm reduction and broad drug decriminalization, local activists in the state have also been pursuing psychedelics reform.

Three Massachusetts cities—Northampton, Somerville and Cambridge—have each passed resolutions to deprioritize enforcement of laws against the possession, use and distribution of a wide range of psychedelics and other drugs. The Easthampton City Council is also exploring a resolution to decriminalize a wide range of entheogenic substances, with a meeting set for Friday.

Marijuana Arrests Dropped Sharply In 2020 As Both COVID And Legalization Spread, FBI Data Shows

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