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Growing Cannabis Industry Attracts Increased Government Enforcement

Cannabis Law Blog

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Growing Cannabis Industry Attracts Increased Government Enforcement

In the past few years, recreational marijuana legalization has increased, with New York becoming the most recent state to enact legislation. The growth has created substantial revenue opportunities for companies that have invested in preparing to participate in these new regulatory frameworks. Along with that nationwide expansion, though, comes greater government scrutiny. All current and future marijuana industry participants must stay aware of specific areas where the government is focusing its enforcement efforts and develop appropriate compliance procedures.

One area where law enforcement has shown interest is the process for obtaining state licenses. It was recently reported that Green Thumb Industries, a major marijuana company based in Chicago, is under federal investigation for potential “pay-to-play” violations to obtain its licenses. Although the exact conduct at issue is not yet clear, the investigation has looked at campaign donations Green Thumb made to politicians that led legalization efforts. Even before recreational marijuana was legalized in Michigan, there was already scrutiny on the medical marijuana license procurement process, including three defendants sent to prison for bribing city officials to obtain licenses. With the scarcity of licenses incentivizing companies to push the boundaries to obtain one, we expect federal authorities to keep the marijuana license procurement process on their radar.

The FDA has also shown recent interest in enforcing its advertising and drug application requirements against new CBD products. Just last month, it issued two warning letters to companies selling over-the-counter CBD products for pain relief. The FDA particularly took issue with how the companies’ marketing suggested their products were more effective because they contained CBD when the CBD was actually listed as an inactive ingredient. The FDA also targeted one of the companies for improperly implying its product had been approved by the FDA. Earlier in the COVID-19 pandemic, it even ordered a company to stop selling CBD products it claimed would help prevent contracting COVID-19. As the industry continues to experiment with new products, we anticipate that the FDA will carefully monitor how companies advertise their products’ medical benefits.

This increased enforcement scrutiny on the cannabis industry makes it now more important than ever for industry participants to ensure robust compliance policies are in place and monitor the effectiveness of those policies. Companies must properly account for all expenses, understand where the limits are on appropriate lobbying of government officials, and carefully scrutinize all potential marketing programs.