New Regulations in the Cannabis Industry: What Israeli Companies Need to Know?

Israel is a Cannabis-Tech powerhouse and is at the forefront of medical cannabis research. It is home to Prof. Raphael Mechoulam, a scientist at the Hebrew University of Jerusalem, who among others, decades ago first isolated and identified the cannabis compound tetrahydrocannabinol (THC), a psychotropic cannabinoid best known for its mind-altering effects. The results of the decades-long clinical trials conducted in Israel have a tremendous global impact and contribution. For Israeli Cannabis-Tech companies eyeing the U.S. market, the evolving regulatory framework may be quite confusing.  While marijuana has been approved for medical usage in 33 U.S. states in the U.S. and in 10 states for recreational as well, pursuant to federal law, it is still an illegal drug.  Hemp, on the other hand, was legalized on a federal level pursuant to the 2018 Farm Bill.

Banking on Marijuana

One of the challenges of the cannabis industry in the U.S. is the inability to use mainstream banking services.  Many cannabis businesses are currently operating largely in cash, positioning them as targets for robberies and other crimes. In September of this year, the Democratic-controlled House of Representatives voted to pass a bill protecting banks that work with the marijuana industry.  However, the chances of this bill becoming a law in 2019 in the Republican-controlled Senate, or signed into law by President Trump, are unclear. The bill, known as the Secure And Fair Enforcement (SAFE) Banking Act, has already led to big banks showing more interest in serving cannabis clients. And, along with other financial institutions such banks are gearing up for potential steep involvement with the marijuana industry.

If enacted, the SAFE Act could subsequently free up capital access for marijuana companies and may even allow for possible trading in cannabis stocks on major U.S. exchanges. Even if not in 2019, many cannabis industry players say banking-related legislation will become law at some point in the next few years.

Legalizing Marijuana on a Federal Level

Other interesting bill to watch is the STATES Act —Strengthening the Tenth Amendment through Entrusting States Act — that, if passes, would create protections for U.S. states that have legalized cannabis for medical or recreational use. Another measure, the Marijuana Justice Act, would go further if enacted, ending the federal prohibition of the drug and expunging the records of people who have served time for marijuana use and possession. And the MORE Act – The Marijuana Opportunity Reinvestment and Expungement – that if enacted, would expunge convictions and authorize a 5% sales tax on marijuana to help minority communities enter the cannabis business.

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For Israeli companies with tech solutions applicable to the hemp industry, there are some interesting new developments to follow as well.  The U.S. Department of Agriculture (USDA) released in October of this year, the much anticipated Interim Final Rule for Industrial Hemp Production. The Interim Rule was published right in time for the 2020 growing season for hemp, providing a measure of certainty and clarity to farmers, processors and other stakeholders. The hemp industry is driven not only by the potential for high returns from sales of hemp processed into CBD oil, but by various other uses, including textiles, bioplastics, paper and more. The Interim Rule will remain in effect till November 1, 2021.

While just the first step in kicking off the development of safe and regulated domestic hemp and hemp-derived cannabis market, the Interim Rule is clearly an important one.  It proposes for example, solutions for states and tribes to mitigate concerns over varying climates, growing seasons and THC testing.  And, it establishes timeframes for both states and hemp producers: states can start submitting their own plans as soon as the Interim Rule was published in the Federal Register, USDA in response, will approve or disapprove the plan within 60 days. Hemp producers may submit applications to USDA 30 days after the Interim Rule is published.

Under the 2018 Farm Bill that legalized hemp, industrial hemp is defined as crop containing less than 0.3 percent THC.  Among the items highlighted in the Interim Rule is the issue of farmers unintentionally crossing the 0.3 percent THC threshold. Stakeholders’ primary fear is the risk that differences in climate between growing regions, the uncertain length of the growing season in those regions, and that the lack of precision in testing for THC would force the destruction of non-compliant crops or hemp products, unless USDA provided for remediation of those products. While the Interim Rule is silent on remediation options, the USDA has proposed bifurcated regulations that are positive steps forward to help moderate such risks.

For states and Indian tribes that submit their own plans to USDA for approval, testing would be required at U.S. Drug Enforcement Administration (DEA)-registered laboratories, using standardized testing methods, and report the “measurement of uncertainty” in evaluating the accuracy of the test results – functionally acting as a margin of error. Test results for THC concentration will be reported as a percentage plus or minus the margin of error. USDA allows for states to impose a corrective action plan to “correct the negligent violation” rather than forcing the farmer to destroy the crop. Among other solutions, and depending on the state plan, this could include remediation of non-compliant products.

What’s next?

It is anticipated that new regulations and guidance will be issued in the coming weeks by the FDA, U.S. Food and Drug Administration and potentially other federal agencies regarding the regulation of cannabis products, including in connection with the usage of CBD oil as a food additive. Israeli Cannabis-Tech companies will have to keep carefully monitoring the regulatory developments in the U.S.  And, make sure they are well strategically positioned to be ready to market as soon as more regulatory clarity is in place.

About the Author
Meital Stavinsky is a Miami and Washington D.C. attorney, member of Holland & Knight's Public Policy & Regulation Group and Co-Chair of the firm's Israel Practice. Meital focuses her practice on business, public policy and regulation, with a particular emphasis on Israeli emerging and advanced technologies companies in the areas of AgriTech, FoodTech, CleanTech and Advanced Transpiration Technologies. Meital assists Israeli companies seeking to enter the U.S. market and expand their operations in the U.S. She has successfully advocated on behalf of leading innovative Israeli AgriTech companies in raising their profile and advancing their goals before the U.S. Congress and key U.S. federal agencies, most recently in connection with the 2018 Farm Bill.
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