Member Article

The changes in the cannabis industry in Southeastern United States represent some of the most surprising and remarkable changes in the history of the industry.

The South is well positioned to be a leader in the cannabis industry, and in some ways, it should be expected. The region has been instrumental in highly regulated industries, such as alcohol and tobacco, and the only federally sanctioned cannabis grow program has operated at the University of Mississippi since the 1960s. Although several Southern states have enacted medical cannabis programs, no states have embraced recreational use of cannabis.

This article reviews cannabis laws in effect in Southern states, cannabis laws that will go into effect in the future, and examines states that haven't passed legislation legalizing cannabis.

Existing Cannabis Regimes

Cannabis is not new to the South. By way of quick background, here are a few of the Southern states who have implemented cannabis legislation.

Florida

Florida was the bellwether for Southern cannabis. Its medical cannabis program is grounded in a 2017 voter-approved amendment to Florida's Constitution, which was implemented through a 2018 statute. Fla. Stat. 381.986. The program is a “limited license” regime, under which a set number of vertically integrated “Medical Marijuana Treatment Centers” are licensed to cultivate, process, and dispense cannabis to qualified patients. There are currently 22 licensed medical marijuana treatment centers (17 are operational), which serve approximately 650,000 patients. In 2021, more than $1.2 billion in cannabis products were sold in Florida.

Arkansas

Arkansas also began its medical cannabis journey through a voter-approved amendment to the state constitution. The Arkansas Medical Marijuana Amendment of 2016 created the Medical Marijuana Commission to regulate Arkansas's medical cannabis program. Like Florida, Arkansas is a limited license regime. Unlike Florida, Arkansas opted against vertical integration, instead authorizing separate dispensary licenses (up to 40) and cultivation facility licenses (up to eight). Arkansas dispensaries began serving qualified patients in 2019. Since then, patients have purchased more than $500 million in medical cannabis.

Louisiana

Louisiana's medical cannabis program was enacted through the legislature and began in 2020. It is unique in many respects. The program only authorizes two state universities to cultivate medical cannabis: Louisiana State University and Southern University. As for dispensing, Louisiana divides the state into nine regions, and authorizes one “medical marijuana pharmacy” to operate in each. The law authorizes doctors to prescribe cannabis for a long list of specific qualifying conditions, as well as any condition the doctor “considers debilitating to an individual patient” that the doctor “is qualified through [their] medical education and training to treat.” La. Rev. Stat. § 1046. Despite the expansive qualifying conditions, the limited number of cultivation and dispensing licenses have led to high prices and a limited patient count. But Louisiana's medical cannabis sales are still projected to exceed $90 million in 2022.

Upcoming State Cannabis Programs

Georgia

Georgia's Hope Act, which was signed into law in April 2019, authorized qualified patients to obtain medical cannabis oil with up to 5% THC. Ga. Code § 16-12-191. The act created the Georgia Access to Medical Cannabis Commission to regulate the program, and the commission began accepting applications for medical cannabis “producers” in 2020. Six licensees were chosen through a competitive application process, but unsuccessful applicants have filed administrative appeals and litigation to challenge the application process. As a result, no production licenses have been issued, and the application process for dispensing licenses has not yet begun.

A note of caution: Attorneys in Georgia who are interested in starting a cannabis law practice should tread carefully. While the opportunities for lawyers in this space are plenty, the Georgia Supreme Court placed quite the speed bump in the road for aspiring Georgia cannabis lawyers.

In June 2021, the court denied a motion to amend Rule 1.2 of the Georgia Rules of Professional Conduct to allow Georgia lawyers to “counsel clients to engage in conduct that the lawyer knows is criminal or fraudulent, and to assist clients in such conduct, so long as the conduct is not a crime under Georgia law.” The court concluded that allowing Georgia lawyers to advise clients operating under a Georgia law “purporting to permit and regulate conduct that constitutes a federal crime” would be inconsistent with the court's long-standing prohibition of Georgia lawyers counseling and assisting clients in the commission of criminal acts.

Georgia lawyers should, therefore, proceed at their own risk in this space—at least for the time being.

Mississippi

In November 2020, more than 70% of Mississippians voted to allow medical cannabis in a ballot initiative. This was a shocking development. While Mississippi polls, like many national polls, indicated that most Americans supported the liberalization of medical cannabis, few expected this wave of pro-cannabis support. Unfortunately for those supporters, the Mississippi Supreme Court later ruled that the ballot initiative process was unconstitutional and nullified the vote.

At the next opportunity, the Mississippi Legislature voted to adopt a medical cannabis program. Unlike the programs of most other states including those in the South, there is not a formal cap on the number of licenses available in Mississippi. While this lessens the competition for licenses themselves, it has nonetheless resulted in fierce competition for initial license approval, specifically with dispensary applicants.

Per the Mississippi State Department of Health's and Mississippi Department of Revenue's last official releases on August 26, 2022, the state has issued licenses to 14 cultivators, four micro-cultivators, five processing entities, three disposal entities, one testing facility, three transportation entities, and 104 dispensaries.

Unlike in Georgia, members of the Mississippi bar have received approval from the state's bar association to assist businesses or individuals seeking to participate in the state's medical cannabis program. Following the majority of other states on this issue, the bar association issued Ethics Opinion No. 265 on June 9, 2022, finding that Mississippi attorneys could ethically provide legal services assisting a client to comply with the Mississippi Medical Cannabis Act.

The opinion recognized the “need for clients to have assistance of Mississippi lawyers to assure compliance with complex state regulatory requirements in the medical cannabis industry” and that the program will “function more expeditiously and with closer adherence to state law if Mississippi lawyers can assist clients in complying with state law.” This opinion, however, noted that any attorney who provides such services must also advise the client about the relevant federal law, including the federal Controlled Substances Act.

Businesses seeking to participate in Mississippi's medical cannabis program need a variety of legal assistance. In addition to helping them navigate the dense medical cannabis act, pertinent regulations, and a quite cumbersome application process, businesses need legal assistance forming entities and helping with capital raises, acquiring real estate, negotiating various agreements, handling local government and zoning matters, advising on intellectual property and trade secrets matters, and providing advice pertinent to the challenging interplay of banking and financial services and cannabis.

And, because Mississippi's program is not designed to be a competitive and limited license program, lawyers in Mississippi have fewer concerns from a conflict-of-interest perspective than attorneys in competitive, limited license states.

Alabama

Mississippi's ballot initiative was a key driver in influencing the Alabama Legislature to pass the Darren Wesley ‘Ato’ Hall Compassion Act in May 2021. The act created the Alabama Medical Cannabis Commission to oversee a statewide “seed-to-sale” tracking and licensing system that permits the medical use of smokeless cannabis products for patients with qualifying conditions. Ala. Code §§ 20-2A-1.

Alabama's medical cannabis program will have a limited number of licenses. There will be no more than 12 cultivator licenses, four processing licenses, four dispensing licenses (each allowing three dispensaries), and five “integrated facility” licenses that allow the licensee to cultivate, process, and dispense cannabis. There will also be licenses for secure transporters and laboratory testing facilities.

The Alabama Medical Cannabis Commission intends to issue licenses on July 10, 2023.

Patients are expected to have access to product in late 2023 or early 2024.

Looging Ahead: Potential State Cannabis Programs

North Carolina

While North Carolina does not currently have a medical cannabis program, many expected that to change. But, after the North Carolina Senate voted 35-10 to pass North Carolina's Compassionate Care Act on June 2, 2022, the bill did not even reach the floor of the North Carolina House of Representatives, as the House GOP leadership decided not to let the bill advance.

In its current form, the act would set up a limited license, vertical integration regime, under which 10 licenses would be issued to medical cannabis suppliers to cultivate and process cannabis. Those 10 medical cannabis suppliers could then obtain licenses for “medical cannabis centers”—the act's term for dispensaries. Only licensed suppliers would be able to obtain these dispensary licenses, and no supplier could hold more than four such dispensing licenses. It remains to be seen whether future bills will retain this proposed licensing structure.

South Carolina

South Carolina's formerly high and currently dashed expectations for medical cannabis match its sister state's. While there was momentum behind passage of South Carolina's Compassionate Care Act, it died on the South Carolina House of Representatives’ floor on May 4, 2022, following a procedural challenge from Rep. John McCravy (R). The act would have coupled an extremely narrow list of qualifying conditions with a licensing regime most akin to Alabama's, with separate license types for each part of the cannabis supply chain. It would allow 15 “cultivation center” licenses, 30 “processing facility” licenses, and one “therapeutic cannabis pharmacy” (i.e., a dispensary) for every 20 traditional pharmacies in the state, in addition to four transportation and five testing lab licenses.

Tennessee

When it comes to Southern cannabis, Tennessee has taken a more leisurely pace. While no proposed medical cannabis legislation appears to be on the cusp of passage, there are reasons to be optimistic that this will change sooner rather than later.

Legislation passed in May 2021 created a Medical Cannabis Commission, whose purpose is to “serve as a resource for the study of federal and state laws regarding medical cannabis and the preparation of legislation to establish an effective, patient-focused medical cannabis program[.]” T.C.A. § 68-7-101(a).

The statute requires that the commission prepare recommendations for “how best to establish an effective, patient-focused medical cannabis program,” along with proposed legislation for the state legislature.

However, the statute does not yet “authorize a medical cannabis program to operate” in Tennessee, and “licenses for such a program shall not be issued … until marijuana is removed from Schedule I of the federal Controlled Substances Act.” How long the Tennessee Legislature will keep this restriction in place is unknown. But it is not difficult to imagine the tax revenue in neighboring states will incentivize the legislature to expedite the path towards state-level legalization if real cannabis reform remains stalled at the federal level.

Conclusion

Since Florida's implementation of its medical cannabis program in 2018, the Southern cannabis industry has progressed at a rate rivaled only by the early years of the cannabis industry. Several Southern states have approved medical cannabis legislation with several more showing willingness to pass their own in the coming years.

Republished with permission. This article, "Cannabis Laws & the Southern States," was originally published by Bloomberg Law.

 

Link to article