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California Considering Regulation of Online Advertising of Unlicensed Cannabis Businesses

Earlier this month, the California legislature advanced a bill that would require website operators that primarily publish content about cannabis products to ensure advertisements include a license number, in addition to clear and conspicuous disclosure requirements.

The bill, AB 1417, would prohibit operators of “an internet website, online service, online application, or mobile application that is operated primarily for the purpose of promoting, or disseminating information about, the sale of cannabis products in the State of California from displaying an advertisement for the sale of cannabis products unless the advertisement displays the license number of the licensee to which the advertisement pertains.”

It would also require website operators to prominently “display a clear and reasonable statement” warning users that are shown cannabis-related products.

Penalties could be as much as $2,500 per day for each violation. Any “person in the public interest” would be able to initiate legal action.

Opponents of the bill believe that it seeks, impermissibly, to hold website operators liable for the content of third-party online advertisements. More specifically, that the bill is preempted by Section 230 of the Communications Decency Act, which provides that “no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

Query whether the state legislature will ultimately pass AB 1417. In order for the bill to become law, it will first have to pass a vote by at least two-thirds of both the Assembly and Senate under Proposition 64, the Adult Use Marijuana Act.

Congress Reintroduced the STATES Act

According to FTC attorney Richard B. Newman, at present, approximately forty-six states have permitted or decriminalized marijuana to some degree.

The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act was introduced in the last Congress to amend the Controlled Substances Act and give states control over the legalization and regulation of cannabis, and to limit federal authority to raid state licensed businesses. The STATES Act also sought to make it easier for banks to conduct transactions with cannabis-related companies.

Last month, the STATES Act was reintroduced in the U.S. Senate by Senators Corey Gardner (R-CO) and Elizabeth Warren (D-MA) and in the House by Representatives Earl Blumenauer (D-OR-03) and David Joyce (R-OH-14). The bill is similar to the prior version, with a couple of exceptions.

First, provisions legalizing hemp have been stricken as moot due to the 2018 Farm Bill. Additionally, the reintroduced version includes a provision requiring the federal government to provide data on traffic-related injuries in states which have legalized marijuana.

The next step for the STATES Act is for the Senate and House Judiciary Committees to hold hearings on the bill, which House Judiciary Committee Chairman Jerry Nadler (D-NY-10) is expected to convene in the coming weeks. Senate Judiciary Committee Chairman Lindsey Graham (R-SC) has no current plans to hold a hearing on S. 2093.

Those opposed to the bill believe it is a step in the direction of legalization. Others believe that the bill should include provisions that would expunge federal cannabis crimes and address social justice issues.

Proponents of the STATES Act believe that the bill is necessary in order to help alleviate the conflict between state and federal cannabis laws.

Connecticut Legislation

Earlier this year, Connecticut lawmakers introduced proposed legislation to legalize marijuana for recreational use and retail sales to adults over the age of twenty-one, as well as to expunge the criminal records of low-level drug offenders. On May 1, 2019, a component of the proposed legislation advanced past committee for consideration by the state legislature and the Governor.

The aforementioned committee approved a $35 per ounce levy on cannabis flower and a $13.50 per ounce levy on the excess leaves from buds of marijuana plants. In addition to state sales tax on marijuana-based transactions, a special local sales tax rate of may also be set. An amendment to the proposed legislation has seeks to utilize tax revenue to support mental health and substance abuse programs.

Supporters of the proposed legislation assert that regulation will positively impact Connecticut in a number of ways, not the least of which is financially. The co-director of the Connecticut Coalition to Regulate Marijuana states that the proposed legislation “thoughtfully proposes the state direct the revenue from legal cannabis sales to the communities that have long borne the brunt of marijuana prohibition.”

Those that oppose the forward-thinking legislation argue that recreational retail sales could impeded Connecticut’s medical marijuana program, and that the taxation structure could have the unintended consequence of encouraging black market prices.

Many believe that the measure is unlikely to be voted upon before the legislative session ends on June 5 2019.

Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP. Follow in on LinkedIn at FTC defense attorney.

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