Main Menu Main Content
Photo of Cannabis & Hemp
Cannabis & Hemp

Many jurisdictions have made recent strides to open the market for legal cannabis.  Consumers are projected to spend on average $57 billion per year on legal cannabis products by 2027.  But the cannabis industry is fraught with pitfalls, and the consequences can be severe — even criminal.  Without a deep understanding of the uncertain, constantly changing, and often contradictory regulatory landscape, missed opportunity may be the least of your concerns. 

Anyone looking to enter the cannabis and hemp industries, operate within them, or even interact with them, will face difficult questions.  For example:

  • How can your business position itself to launch in a market where legalization is imminent, but not guaranteed?
  • Once launched, how will your business ensure compliance with extensive regulatory requirements for sourcing, handling, storage, testing, reporting, protection against diversion, and tracking?
  • Hemp is now legal at the federal level, but significant regulatory restraints exist. And those regulations will be changing soon in every jurisdiction.  How can you be sure your company is in compliance?  For example, what impact does the United States Food, Drug, and Cosmetic Act (FDCA) have on the sale of hemp-derived cannabidiol (CBD) products?  How will the Federal Trade Commission deal with CBD products?
  • How will your business protect its intellectual property interest in a name or technology connected to a federally banned substance or federally illegal enterprise?
  • How will your business ensure its products comply not only with cannabis-specific laws, but product labeling laws, trade practices laws, and best practices?
  • How will your business handle its revenue, where banks hesitate to transact with the cannabis industry?
  • How can your business manage tax burdens imposed by IRS Section 280E, and by additional taxes imposed on the cannabis industry? Has the validity of those taxes been challenged?  Should it?
  • How will your business navigate protections for employees who legally use cannabis?
  • What are the risks faced by suppliers and other businesses servicing the cannabis industry, and how does that differ between jurisdictions?
  • For investors and lenders, what unique issues are raised by investing in the cannabis and hemp industries? What does the limited availability of federal bankruptcy court remedies mean for the industry?

The Hodgson Russ Cannabis and Hemp Practice provides the insight and counsel needed to navigate through these and other questions, meet the challenges of the industry, and adapt as the law continues to change.  We provide legal advice on the full spectrum of issues facing companies that cultivate, process, distribute, or sell cannabis and hemp products and their derivatives.  We also advise clients looking to service the cannabis and hemp industries, including equipment manufacturers, landlords, food and beverage organizations, financial services providers, and others.

Licensing and Regulatory Compliance

Cannabis regulation varies from country to country, state to state, and, in some jurisdictions, even town to town.  Each jurisdiction has its own licensing process, regulatory landscape, reporting requirements, testing requirements, and other specific obligations.  For example, New York’s current proposed legislation would require license applicants to have facilities and operations in place at the time of application.  Failure to comply could mean inability to obtain a license.  Similarly, mismanagement of your business’s compliance program could have serious, potentially criminal, consequences.  Hodgson Russ can guide you through the licensing process.  We also help our clients know and understand the regulatory landscape, meet applicable requirements, anticipate compliance issues, and limit exposure if mistakes are made.  

Mergers and Acquisitions

2018 was a banner year for transactions in the cannabis and hemp industries, and the Hodgson Russ team helped clients position themselves with strategic acquisitions.  Our experience gives us insight into the industry’s complex regulatory requirements, including the potential impact of a change of control on a target company’s pending license applications and ways to structure a transaction accordingly.  In addition, we have been involved with unique financing options in support of strategic acquisitions.

Securities

Running a cannabis business is capital-intensive.  Today’s operators range from startups with a few angel investors to publicly traded companies listed on national exchanges.  Whatever the size of your company, Hodgson Russ has the securities expertise to structure your capital raising in a manner that satisfies the registration requirements under the U.S. Securities Act, or is otherwise exempt from such registration.  Although it remains a challenge for businesses with U.S. cannabis operations to be listed on a U.S. stock exchange, there has been a flurry of fundraising activity by such companies on various public stock exchanges in Canada, where the cannabis industry has been legalized.  Hodgson Russ does not practice Canadian law, but through our extensive cross-border contacts, we can assist your company in finding the right partners for a going public transaction north of the border. 

Corporate Structure and Governance

Many states limit the types of businesses and individuals who can own and operate as cannabis cultivators, processors, distributors, or retailers.  Moreover, regulators insist on strict adherence to corporate formalities.  Your business will need to follow the law and best practices applicable to corporate governance, and keep meticulous documentation.  Hodgson Russ corporate attorneys have extensive experience helping individuals, startups, and established companies with the myriad issues and regulations applicable to the operations of corporate boards and the conduct of their directors.  In addition to helping our clients choose and create the best corporate structure for their needs, we assist corporate clients in developing charters, bylaws, and compliance policies; in performing board self-assessments; and in creating board structure. 

Federal, State, and Local Tax

In an industry that is still illegal under federal law, your business cannot afford to make mistakes with its books.  Your cannabis business needs a carefully structured tax plan, it needs pristine recordkeeping, and a team of experienced professionals to address any IRS inquiries. Hodgson Russ is a leading firm for New York, New York City, and multistate tax matters including planning, compliance, litigation, and damage control.  Our professionals have the breadth and depth of experience necessary to anticipate tax questions arising from new, ever-changing laws and regulations specific to the cannabis industry.  For example, courts have held under IRS Code Section 280E, a business involved in the sale, production or distribution of Schedule I or II controlled substances (i.e., cannabis) cannot take tax deductions and credits on its federal tax return beyond cost of goods sold.  And cannabis activities may be subject to state and local taxes unique to each jurisdiction, all along the supply chain.  Hodgson Russ stands ready to help your cannabis business navigate the tax minefield with confidence.

Criminal Defense

Federal statutes outlaw cannabis, but it is legal (to varying degrees) in some states.  Both cannabis and hemp remain highly regulated at the state and federal levels.  Political winds can change, prosecutors can take aggressive positions, and a company’s compliance program can fail.  When that happens, the Hodgson Russ team is ready to stand in your corner.  Hodgson Russ also assists corporate clients with internal investigations, and responses to inquiries from the SEC and other government agencies. Our professionals include former state and federal prosecutors with extensive experience negotiating with the government, defending the accused, and protecting the rights of individuals and businesses under investigation.

Litigation

Whenever laws and regulations are uncertain, litigation is sure to follow.  Municipalities adopting their own rules have seen challenges.  Approval of cultivation and processing facilities has been challenged under environmental review statutes.  Disputes over patents and other intellectual property in cannabis products have received national attention.  Hodgson Russ has significant litigation experience representing its clients in land use, intellectual property, and business disputes.  We also have broad expertise across a spectrum of issues, allowing us to anticipate and handle novel theories from Day 1, including products liability, business torts, contract litigation, and environmental and toxic torts.  Our lawyers also have extensive experience representing clients before a variety of state and federal agencies, including the IRS, Federal Trade Commission (FTC), Food and Drug Administration (FDA), United States Department of Agriculture (USDA), United States Patent and Trademark Offices (USPTO), and state tax and regulatory agencies.

Real Estate Issues

Real estate questions for the cannabis industry include acquisition of land for cultivation or processing operations, structure of leasehold interests, ensuring compliance with zoning laws, and many others.  Hodgson Russ provides counsel to individuals and businesses across the spectrum of issues arising from real estate transactions, zoning and regulatory approval, landowner and lessee liability, water rights, and borrower and lender financing.  As different jurisdictions look to bolster newly legalized cannabis markets, our attorneys have significant experience with myriad public financial incentives utilized for real estate development projects, including public-private partnerships, state and federal tax credits, industrial development agency incentives, Excelsior Jobs Program and Start-Up NY benefits, and other similar state and local financial incentives.

Environmental and Land Use Law and Regulations

Cannabis cultivators and processors face all of the challenges of the agricultural and food industries, with the additional regulatory hurdles imposed specifically on cannabis.  With an expanding cultivation or processing operation comes applicable environmental law and regulation.  Hodgson Russ attorneys have broad experience with environmental due diligence and transaction services, regulatory compliance and risk management counseling, enforcement defense (administrative, civil, and criminal), and environmental impact review. 

Labor and Employment

As your cannabis business grows, so do the obligations imposed by state and federal employment laws.  Employers are already facing questions arising from the conflict between state and federal cannabis law.  If an employee tests positive for cannabis use, can he or she be terminated for cause?  The answer varies among jurisdictions.  How do federal wage and hour protections apply to employees of a federally illegal business?  That issue is currently being litigated.  The professionals at Hodgson Russ have broad experience helping employers answer difficult questions concerning overtime, minimum wage, misclassification, off-the-clock, and independent contractor-related wage and hour issues.  They also counsel management on every aspect of the employment relationship, including litigation when necessary.  As state and local jurisdictions continue to develop and refine their cannabis-specific employment laws, Hodgson Russ is prepared to help its clients anticipate and adapt.

Banking and Finance

The financial services industry, particularly federally regulated banks, have been sidelined from the cannabis industry because of existing federal laws.  Banks doing business with the industry could run afoul of money laundering statutes and other laws concerning transactions with criminal enterprises.  But the landscape is changing, and reform may be on the horizon.  The U.S. Department of Treasury has called for congressional action to guide the financial services industry.  When that change comes, banks and financial services firms looking to do business with the cannabis industry will need to be ready with experienced counsel.  Hodgson Russ has a wealth of experience servicing the banking and finance industry, from multistate banks to small community banks.  Our professionals counsel banks and financial institutions in regulatory compliance, transactions, enforcement proceedings, and litigation.

Intellectual Property & Technology

How can a cannabis business protect its brand, when federal trademark registration for cannabis-related services is impermissible?  What other brand-related protections exist for an emerging or existing cannabis company?  Apart from trademark protection, is any of the technology used to develop and manufacture cannabis products patentable? 

Hodgson Russ attorneys have broad experience solving these types of problems for Fortune 500 companies, middle-market companies, and major research and educational institutions, as well as small businesses and individuals.  Our intellectual property practice is focused not only on immediate intellectual property needs (copyright, trademark, patent, and trade secrets), but can also work with you to devise a long-term portfolio-building strategy.  In addition, Hodgson Russ professionals assist our clients with enforcement and litigation of intellectual property rights.

HIPAA & Privacy Regulations

Participants in the medical cannabis industry may be covered providers under the federal Health Insurance Portability and Accountability Act (HIPAA), and therefore they must secure access to health data in their possession in a manner that is compliant with privacy rules.  Our attorneys advise and represent covered entities and business associates on privacy matters under HIPAA and New York State confidentiality laws. We assist providers in negotiating contractual relationships and managing privacy breaches and breach notifications.

Disclaimer

Please remember that the possession, use, distribution, and sale of cannabis and cannabis-based products is illegal under federal law despite certain state laws that decriminalize such activity.  While federal enforcement policy may defer to a state’s laws and not enforce conflicting federal laws, the fact remains that compliance with state law in no way assures compliance with federal law, and there is a risk that conflicting federal laws may be enforced in the future.  No legal advice we give is intended to provide any guidance or assistance in violating federal law.

If you would like to be added to our Cannabis & Hemp Practice mailing list or any other of our mailing lists in order to receive important updates and event notices in this area, please visit us at: https://contact.hodgsonruss.net/signup/BrandedFormNew.aspx.