– 16 Oz Resealable Cans Designed for Multiple Servings Come in 4 Top Jones Soda Flavors –

SEATTLE, Oct. 21, 2022 /PRNewswire/ — In a buzzy new product introduction slated for California this month, Jones Soda Co. (CSE: JSDA, OTCQB: JSDA) is set to expand its Mary Jones brand of cannabis-infused sodas with a new 100mg THC product that will come in the same four Jones fan-favorite flavors as the popular 10mg THC sodas that launched the line this summer. The new cannabis beverage will be packaged in 16 oz resealable, child-resistant, multi-serve cans designed for consumers to pace their consumption as they wish and to share with friends.

These boldly packaged ‘tallboy’ cans will deliver THC-infused versions of Jones’ Root Beer, Berry Lemonade, Green Apple and Orange & Cream sodas that have been among the company’s top sellers for 25 years. Each flavor tastes exactly like its mainline Jones Soda counterpart, thanks to award-winning Jones flavor scientists who have customized Jones’ signature craft soda recipes to accommodate the addition of THC emulsions.

This new 100mg product introduction follows the successful California launch of the Mary Jones brand with 10mg cannabis-infused sodas in June. The line has surpassed market forecasts with rapid placement in more than 150 dispensaries, including MedMen locations scheduled to begin carrying Mary Jones 10mg and 100mg products this month.

“The launch of Mary Jones 10mg bottles was one of the most successful brand launches we’ve seen at KSS, with deliveries to more than 120 retailers in the first 60 days,” said Brooks Jorgensen, President at Kiva Sales & Service. “We’re excited to build on this success with the upcoming launch of Mary Jones 100mg cans, which will meet the demand from consumers looking for higher-dose sodas that taste great.”

“Our strong Mary Jones launch validates the strategic decision we made to enter the cannabis industry in order to leverage our brand equity, diversify our portfolio, and move into a profitable high-growth category to drive the company’s future,” said Mark Murray, President and CEO of Jones Soda Company. “Building on our initial success, this new higher-potency 100 mg product unlocks a valuable category with a higher value product aimed at a more mature cannabis consumer. With our ambitious product roadmap and new partnerships enabling us to expand to other states, I’m confident that our Cannabis Division will be instrumental in our growth in 2023 and beyond.”

About Jones Soda Co. 

Jones Soda Co.® (CSE: JSDA, OTCQB: JSDA) is a leading craft soda manufacturer with a subsidiary dedicated to cannabis products. The company markets and distributes premium craft sodas under the Jones® Soda and Lemoncocco® brands, and a variety of cannabis products under the Mary Jones brand.  Jones’ mainstream soda line is sold across North America in glass bottles, cans and on fountain through traditional beverage outlets, restaurants and alternative accounts. The company is headquartered in Seattle, Washington. For more information, visit www.jonessoda.com, www.myjones.com, www.drinklemoncocco.com or https://gomaryjones.com

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.

One of our Washington cannabis clients recently learned that its employee was the target of a cybersecurity attack. The employee, who was following instructions via a messaging app, wired money to an individual at the request of who he believed to be an owner of the company. That was not the case! The employee had fallen victim to a cybersecurity attack. Our client has asked us to publish this post as a public service announcement to other cannabis businesses.

These attacks are becoming more and more prevalent as we continue to communicate online. In this case, the employee was a victim of “phishing,” which is a scheme where a fraudster impersonates another person to induce individuals to reveal information or, in this case, send money. Other cybercrimes include data breaches, where hackers obtain sensitive information by breaching a company’s secured files and then use that information for identiy theft, blackmail, or to commit other crimes.  Cybercriminals can operate across the globe meaning that anyone online can quickly become a target. Marijuana businesses in Washington State (and elsewhere) need to be aware of the risk of cyber attacks as we enter a new decade.

No industry is safe from the threat of a cyber-attack or other security incidents relating to technology. However, nefarious online fraudsters may see a unique opportunity in the marijuana industry. Marijuana businesses generally have a lack of access to traditional financial services and therefore deal with a lot of cash. By way of example, compare a restaurant to a marijuana business. A restaurant is inevitably going to deal with cash. Diners may pay an entire bill using cash or may leave a cash tip after charging their meal. But, it’s unlikely that a restaurant’s owner will pay its employees and vendors in cash. Most restaurants also don’t require that their customers pay only in cash.

Now consider a standard marijuana business. Washington’s recreational marijuana market is one of the oldest in the country and many marijuana businesses in Washington can obtain a checking account. However, marijuana retailers are generally operating on a “cash-only” business model as credit card companies like Visa and Mastercard will not process transactions that involve the sale of federally illegal substance. That means retailers often have large amounts of cash to deal with each day. Some of that cash may go directly to pay producers and processors for products on the retailer’s shelves. Regardless of the type of license, many marijuana businesses often have large amounts of cash at hand.  It is therefore not unheard of for an employee of a marijuana business to field requests that involve wiring cash to a given account or otherwise undertake a transaction that might seem odd in any other industry. Lack of access to financial services has made the unusual normal in the marijuana industry.

Cybercriminals may also be drawn to marijuana businesses due to the illicit nature of marijuana under federal law. As we’ve written probably a million times, marijuana is illegal under federal law. That makes reporting cybersecurity events more challenging due to the risk of self-incrimination. A marijuana business may not want to “make waves” by reporting to federal agencies like the Department of Justice (DOJ) or the Federal Bureau of Investigation (FBI). However, it’s worth noting that the FBI has sought out tips relating to corruption in the cannabis industry. Nevertheless, federal prohibition does, at the very least, complicate the ability of marijuana businesses to report cybercrime. Those concerns are not as pronounced if reporting to local law enforcement in states that have legalized marijuana.

If you’re concerned about scams, here is a nonexhaustive list of steps that you can take to mitigate cybersecurity risks before they happen:

Internal policies

Adopt or update a policy where employees are to obtain confirmation by phone before sending money to any person outside of the usual course of business. This doesn’t mean that a person needs to check in before paying a known vendor, but would prevent an employee from wiring money based solely on messages or email.

Check usernames and email addresses

If I email someone, my name will show up as “Daniel Shortt” and my email will read “daniel@harrisbricken.com.” Someone who was impersonating me could list their name as “Daniel Shortt” even if their email address was “ScammyMcScammerson@fraud.net.” The same concept is true with usernames. On twitter, my name is “Daniel Shortt” and my handle is @dshortt90. A fraudster could change his or her name to Daniel Shortt with a handle of @dshort90. This is even trickier as my handle is very close to the fraudster’s (my name has two t’s at the end). Employees should be on the lookout for these fake emails and usernames.

Implement a protocol for reporting security events

If you’ve been targeted once chances are you’ll be targeted again, perhaps in a more sophisticated manner. You want to be able to get the news out without exposing your others to security threats. Forwarding an email to another worker just increases the risk of that person clicking on a link to install malware or engaging with a fraudster. Establishing protocols to send screenshots of suspicious messages or forward them to a designated fraud account are some examples of dealing with this issue.

Audit your existing security procedures

This can be done in house or by hiring a consultant or attorney. If you don’t have a security protocol in place, that’s an even bigger reason to audit your company’s operations. That way you can identify risks before they happen.

Protect your passwords and other sensitive information

You may want to require that your employees use multi-step authentication software when signing into company accounts. This usually requires that a person confirm their login on a separate device such as a smartphone app or link sent via text. Make sure your employees are not sending passwords through email or messaging services. Passwords should also be complex and changed regularly.

If you do fall victim to a cybersecurity attack make sure to respond quickly and notify others in your organization about the threat. You should also reach out to your organization’s lawyer or in-house counsel to discuss next steps, which may include reporting to law enforcement.

Last month, two pieces of legislation were introduced to the legislature that could substantially alter Washington State’s advertising laws: HB 2350 and HB 2321. Each bill would tighten advertising restrictions for cannabis businesses, particularly with regard to advertising that could appeal to youth. Both bills were filed pre-session, and both already have moved into the Committee on Commerce and Gaming. The bills are summarized below.

HB 2350

This bill, “[r]elating to preventing youth marijuana consumption by updating marijuana advertising requirements,” sets forth new advertising requirements intended to reduce youth exposure to marijuana by prohibiting billboards for advertising marijuana. The legislation also seeks to “provide more flexibility for the use of signs and advertisements by marijuana licensees at their licensed premises.”

Existing regulations already prohibit licensees from placing any sign or advertisement for marijuana or marijuana products within 1,000 feet of the perimeter of a school grounds, playground, recreation center or facility, child care center, public park, library, or game arcade that does not restrict admission to persons twenty-one years or older. However, existing regulations also allow for the placement of billboards, which are currently limited to displaying text that “identifies the retail outlet by the licensee’s business or trade name, states the location of the business, and identifies the type or nature of the business.” These billboards cannot depict marijuana or any marijuana products. The purpose of these restrictions is to limit retailers to placing billboard advertisements that provide the public with directional information to the licensed retail store. However, HB 2350 would prohibit all billboards placed by marijuana licensees, regardless of content.

The one concession made in HB 2350 is that the Liquor and Cannabis Board (“Board”) would no longer be able to limit the number or size of on-premises signs or advertisements used by a marijuana licensee at their licensed location.

HB 2321

The second pending piece of legislation, HB 2321, also aims at reducing youth access to all products intended for consumption by adults over the age of 21. Although retailers would no longer be limited to two signs of limited size outside the licensed premises, the Board would be tasked with ensuring that signs are not appealing to youth or those under twenty-one, and sets forth penalty minimums for violations.

This piece of legislation also specifically targets vapor-product retailers, with vapor products not including “any product that meets the definition of marijuana, useable marijuana, marijuana concentrates, marijuana-infused products, cigarette, or tobacco products.”

Regulations around advertising have been constantly evolving since the passage of I-502. The last major regulatory changes surrounding billboard and outdoor advertising went into effect in 2017, when the following restrictions took effect:

• Licensees are limited to two signs, at a maximum of 1,600 square inches, that are permanently affixed to a structure or building on the licensed premises;
• Sign spinners, sandwich boards, inflatables, toys, cartoons, movie characters, people in costumes – all prohibited;
• Signs are limited to identifying the licensee, location, and nature of the licensed business;
• Signs and logos cannot contain images of plants or marijuana products, including images that indicate “the presence of a product, such as smoke, etc.”

But billboards in particular have long been a source of contention, since meeting the perimeter restrictions is often difficult, especially in densely populated, urban areas. We will continue following the progress of both of these bills, and will update readers if and when a rule change takes place.

In Part 1  of this two-part series we discussed the Washington State Liquor and Cannabis Board’s (“LCB”) new rules stemming from SB 5318, which passed last year and forced the LCB to transition from an enforcement-first policy to a compliance-first policy when handling violations. We covered how the LCB will handle Notices of Correction (“NOC”) and Administrative Violation Notice (“AVN”). Today we’ll look at the LCB’s revamped structure for penalties.

The new section at issue is WAC 314-55-509 (“Penalty Structure”).  This replaces WAC 314-55-515, the previous penalties section, and establishes the categories outlined below. I’ll summarize each category and offer some analysis as needed.

Category I.  Violations of a severity that would make a license eligible for cancellation on the first offence.

These violations include purchasing or selling marijuana outside of the licensed marketplace, failing to follow a suspension restriction while a license is suspended, transporting or storing marijuana to or from an unlicensed source, diverting products outside of Washington, allowing a person to become a true party of interest (“TPI”) or receiving funds from a person who would not qualify to hold a marijuana based on affiliation with criminal enterprises or criminal history. These violations are all pretty straightforward.

Category II. Violations that create a direct or immediate threat to public health, safety, or both.

These penalties do not allow the LCB to cancel a license on a first offense but do threaten public safety. Penalties include: selling to minors, engaging in criminal or disorderly conduct, operating an unapproved CO2 or hydrocarbon extraction system, intentional use of unauthorized pesticides, soil amendments, fertilizers, or other crop production aids, adulterated usable marijuana, transportation of marijuana without a manifest, obstruction, failure to use and maintain traceability, pickup, unload, or delivery at an unauthorized location. Some of these penalties can end in license cancellation even without four offenses. This is likely to face scrutiny under SB 5138.

Category III. Violations that create a potential threat to public health, safety, or both.

Unlike the previous two sections, all of these penalties do not result in license cancellation at the first offense. These violations include transporting marijuana while the driver does not hold a valid driver’s license, exceeding the maximum serving requirements for a marijuana-infused product, exceeding transaction limits, failure to follow and maintain food processing safety requirements, failure to maintain required surveillance system, retail sale of unauthorized marijuana-infused products, TPI violations, Financier violations, obstruction, failure to furnish records, failure to use or maintain traceability, and noncompliance with marijuana processor extraction requirements.

Category IV. Significant regulatory violations.

These violations include failure to keep records, marijuana being given away or sold below cost of acquisition, use of an unauthorized money transmitter for retail sales, misuse or unauthorized use of license, selling or purchasing marijuana on credit, engaging in nonretail conditional sales or prohibited sales, unapproved operating or floor plan, failure to maintain insurance, unauthorized sale by a processor to a retailer, packaging and labeling violations, and unauthorized storage or transportation of marijuana.

Category V. Procedural and operational violations.

These violations include operating outside of the approved hours of service (8:00 AM-12:00 AM), general advertising violations, engaging in conditional sales, failing to display identification badge, failure to post requires signage, unauthorized change of business name, transporting marijuana in an unauthorized vehicle, exceeding delivery timeframe, failure to maintain standard scale requirements, unauthorized driver or passenger in transport vehicle, load exceeding maximum delivery amount, violations relating to the return of marijuana at retail, failure to use or maintain traceability,  true party of interest or financier violations. Again, it’s hard to overstate the significance of the inclusion of true party of interest and financier violations here as in the past these offenses would carry a recommended penalty of license cancellation.

Category VI. Statutory violations.

These violations include allowing a minor to frequent a retail store or licensed premises, employee under legal age, opening or consuming marijuana at a retail premises, and retail outlet selling unauthorized product. Unlike the other sections, Category VI does not provide for escalating penalties. Each violation carries a $1,000 fine. This leads me to infer that these penalties do not increase over time.

Stay tuned for more coverage of Washington marijuana as we continue to track the LCB’s moves in implementing SB 5318. Also, don’t forget to check Cannabis Observer, a great resource for documentation of each and every LCB meeting.

Last year brought significant changes to Washington cannabis via the legislative session. Today I’ll outline some of the ways the Washington State Liquor and Cannabis Board (“LCB”) plans to regulate marijuana in 2020. Before I get into the details, let me please encourage you to check out Cannabis Observer, who goes to every LCB meeting and provides details free of charge each week online.

This is part one in a two-part series. Today we’ll outline changes related to how the LCB is going to handle potential violations. Next, we’ll dive into penalties related to marijuana violations. In both cases, I’ll be analyzing proposed rules so things are subject to change.

Senate Bill 5318 went into effect last year and requires that the LCB move over from an enforcement-based approach to marijuana regulation to a compliance-based approach. In light of SB 5318, the LCB is retooling its rules, codified at WAC 314-55 et seq. In November 2019, LCB Policy and Rules coordinator Kathy Hoffman issued a paper (link provided by Cannabis Observer) on enforcement of marijuana regulations. Hoffman’s paper outlined the directives of SB 5318:

• Specified when the Board may issue a notice of correction under a technical assistance program. This rule proposal establishes and frames the notice of correction; a separate rule project is underway to establish the technical assistance program in alignment with the directives of ESSB 5318;
• Expanded on existing programs for compliance education;
• Required rule making regarding penalties, with limits, such as the effect of cumulative violations;
• Specified the types of violations that may result in license cancellation;
• Required consideration of aggravating and mitigating circumstances;
• Provides that the terms of a settlement agreement entered into by a licensee and hearing officer or designee of the Board be given substantial weight by the Board;
• Allowed a licensee to correct violations unrelated to public health and safety within a reasonable amount of time.

The LCB has proposed or amended several sections of WAC 314-55 following these directives. Yesterday (January 22, 2020) the LCB adopted rules relating to marijuana penalties. The following are some highlights of the substantial changes and the new rules can be found here (thanks again to Cannabis Observer):

• New Section: WAC 314-55-502 – Notice of Correction – This will  create a process for the LCB to issue notices of correction (“NOC”) to marijuana licensees in lieu of civil penalties. The NOC would state the noncompliant condition in detail, including the regulation at issue, a statement of what is required to achieve compliance and a date when compliance must be met, a contact for technical assistance from the LCB, notice of when, where, and to whom a request to extend the time to achieve compliance for good cause should be filed. The rule states that a NOC is not an enforcement action, but if a licensee doesn’t comply with a notice, the LCB may issue an administrative violation notice (“AVN”).
• Amended Section: WAC 314-55-505 – Administrative Violation Notice – This rule outlines when the LCB may forego a NOC and issue an AVN, under three specific scenarios:
  • When a licensee has previously been given notice of or been subject to, an enforcement action for the same or similar violation of the same statute or rule;
  • When compliance is not achieved by the date established by the Board in a previous notice of correction and if the Board has responded to a request for review of the date by reaffirming the original date or establishing a new date; or
  • When the Board can prove beyond a preponderance of the evidence that any of the following violations have occurred;
    •  Diversion of marijuana product to the illicit market or sales across state lines;
    • Furnishing marijuana product to minors;
    • Diversion of revenue from the sale of a marijuana product to criminal enterprises, gangs, cartels, or parties not qualified to hold a marijuana license based on criminal history requirements (it’s significant that this is based on criminal history meaning that NOC would still need to be issued for revenues diverted to parties not qualified to hold a marijuana license for other reasons, such as residency);
    • The commission of nonmarijuana-related crimes; or
    • Knowingly making a misrepresentation of fact related to conduct or an action that is, or is alleged to be, any of the preceding four violations.
• New Section: WAC 314-55-5055 – Resolution Options – This rule will replace WAC 314-55-510, which currently governs a licensee’s options after an AVN is issued. The rule describes a licensee’s options for responding to an AVN including timelines (20 days to respond) and penalties for failing to pay monetary fines. The rule states that the LCB will not renew a license if there are two or more outstanding monetary fines in a two-year period, which may not comply with SB 5318 which states that LCB rules “[m]ay include cancellation of a license for cumulative violations only if a marijuana licensee commits at least four violations within a two-year period of time;” which is now codified at RCW 69.50.562 (1)(c). It seems likely that a court will eventually rule on whether the LCB’s decision not renew is a license cancellation. The rules also outlines how to request a settlement conference, what’s included in a settlement agreement, and how to defer a penalty.

It’s reassuring to see the LCB implementing a policy that favors compliance over enforcement. Stay tuned next week for part two in the series!

This is the second in a three-part series explaining why companies making and sell hemp-derived CBD products ought to be concerned about state consumer protection laws. Last week we looked at Oregon and an article on California is in the works. It probably comes as no surprise that companies selling hemp-derived CBD in the State of Washington ought to be very careful in how they market and advertise their CBD products.

Overview of Washington’s Consumer Protection Act—Damages, Attorneys’ Fees, and Treble Damages

The principle consumer protection law in Washington is the Consumer Protection Act (CPA). Enacted in 1961, the CPA was modeled after Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, and its purpose is to protect the public and foster fair and honest competition. The CPA prohibits “unfair or deceptive acts or practices in the conduct of any trade or commerce.” “Unfair or deceptive acts or practices” is not defined and its meaning evolves via reasoned judicial decisionmaking.

Actions under the CPA may be brought by Washington’s Attorney General or by “any person” who is injured in her business or property. A private litigant may bring suit for injunctive relief, damages, attorneys’ fees and costs, and treble damages. Washington courts generally affirm awards of attorneys’ fees whenever there is an “injury” cognizable under the CPA and a trial court may award treble damages based on “actual” damages awarded by a jury up to a maximum of $25,000.

Washington does not require a consumer transaction between the parties, under the guise of a separate standing requirement. In other words, an actionable violation may occur without any consumer or business relationship between the plaintiff and the defendant. For hemp-CBD companies, this means an increase in the number of potential plaintiffs and a corresponding increase in the risk of being sued.

Elements of a Claim under Washington’s Consumer Protection Act—Intent to Deceive Not Required  

A claim under the CPA may be predicated upon (1) a per se violation of statute, (2) an act or practice that has the capacity to deceive substantial portions of the public, or (3) an unfair or deceptive act or practice not regulated by statute but in violation of public interest.

The plaintiff in a private CPA claim must prove (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) affecting the public interest, (4) injury to a person’s business or property, and (5) causation. An act is “deceptive” if it is likely to mislead a reasonable consumer.

Notably, a plaintiff need not show that the act in question was intended to deceive the public, only that the alleged act “had the capacity to deceive a substantial portion of the public.” Hangman Ridge Training Stables, Inc. v. Safeco Title Insurance Company, 105 Wash.2d 778, 785, 719 P.2d 531 (1986). The means that a plaintiff suing your CBD company does not have to prove that your marketing and advertising was “intended” to deceive the public. Indeed, even a truthful statement may be found deceptive based on the “net impression” it conveys.

A case study establishes the importance of carefully crafting advertisements for CBD products

A recent decision by the Washington Court of Appeals, State v. Living Essentials, LLC, 8 Wash. App. 2d 1, 436 P.3d 857 (2019), highlights the risks to hemp-CBD companies in making advertising claims about their products. We have written quite a bit about these risks over the past year, including the rise in consumer class actions against hemp-CBD companies. Worth noting here is that the appellate court affirmed the trials court’s imposition of a $2,183,747 civil penalty on Living Essentials, who also was required to pay $1,886,866.71 in attorneys’ fees and $209,125.92 in costs.

The State of Washington sued Living Essentials under the CPA alleging Living Essentials made deceptive advertising claims about its product, 5-Hour ENERGY®. After an 11-day bench trial involving testimony from over witnesses and the admission of some 500 exhibits, the trial court agreed that Living Essentials’ advertising campaigns violated the CPA. (The costs of defending this lawsuit must have been enormous).

The trial involved three claims by Living Essentials, each found deceptive and in violation of the CPA:

1. “the key vitamins and nutrients [in 5-Hour ENERGY®] work synergistically with caffeine to make the biochemical or physiological effects last longer than caffeine alone.”

The trial court found this deceptive because the studies presented by Living Essentials did not “clearly establish” that 5-Hour ENERGY®’s vitamins and nutrients would work synergistically with caffeine to make these benefits last longer than with caffeine alone. This claim was “plausible . . . but it remain[ed] a hypothesis, not an established scientific fact.”

2. that the decaf variety of 5-Hour ENERGY® providing energy, alertness, and focus “for hours”;

The trial court found that Living Essentials lacked competent and reliable scientific evidence to make this claim.

3. that 73% of doctors would recommend 5-Hour ENERGY® in a national television ad proclaiming:

We asked over 3,000 doctors to review 5-hour Energy®, and what they said is amazing. Over 73% who reviewed 5-hour Energy® said they would recommend a low calorie energy supplement to their healthy patients who use energy supplements. 73%. 5-hour Energy has 4 calories and is used over nine million times a week. Is 5-hour Energy right for you? Ask your doctor. We already asked 3,000.

The trial court found this advertisement deceptive because the “impression” left by the ad—that a majority of doctors would recommend 5-Hour ENERGY® to their patients—was not true.

For the sake of brevity, this post does not address every ground of reversal urged by Living Essentials. Instead this post focuses on the overlap between the CPA and the Federal Trade Commission Act (FTCA).

Court of Appeals does not adopt the FTCA’s “prior substantiation” doctrine wholesale, but permits its use in evaluating deceptive advertising claims under the CPA

On appeal, Living Essentials challenged the trial court’s use of the Federal Trade Commission’s “prior substantiation doctrine.” Under the “prior substantiation doctrine,” an advertiser must have a “reasonable basis” for any claim that the product successfully performs an advertised function or yields an advertised benefit. And the advertiser must have some recognizable substantiation for the representation prior to making it. Where the advertiser lacks adequate substantiation, the advertisement is deceptive as a matter of law under Section 5 of the FTCA.

The Court of Appeals held that the trial court did not err in considering this doctrine because it specifically declined to rely only on prior substantiation. Instead the trial court carefully reviewed Living Essentials’ claims of prior substantiation, post-claim studies, and expert testimony. In doing so the trial court reasonably concluded Living Essentials’ claims superior-to-coffee and decaf claims were materially misleading.

The court’s reasoning likely means CBD companies need competent and reliable accepted scientific evidence of the benefits of their products. Although there are numerous studies regarding the benefits of CBD, it is an altogether different question whether such studies would satisfy a court. (E.g. see this recent “what we know what we don’t” post on CBD by the Harvard Health Blog). Notably, Living Essentials challenged the use of a “competent and reliable” standard with respect to prior substantiation and was quickly rebutted by the Court of Appeals which reasoned that standard has been a “benchmark” since at least 1984.

The Court of Appeals distinguished between levels of substantiation required for claims that “relate to consumer health” and claims that do not

“Under the FTC’s prior substantiation doctrine, the court must determine the appropriate level of substantiation required for a claim to have a reasonable basis.” Living Essentials argued the trial court erred by using standard for claims that “relate to consumer health”— for which the FTCA requires a high level of substantiation. In such cases the representation must be non-misleading and be backed by backed by competent and reliable scientific evidence that is sufficient in quality and quantity to substantiate that the representation is true.

Although Living Essentials marketed 5-Hour ENERGY® as a dietary supplement, this did not necessarily mean Living Essentials’ representations were also health claims. And indeed they were not because Living Essentials did not make any claims that 5-Hour ENERGY® had “any direct impact on a disease or health related condition.” Accordingly, held the Court of Appeals, the trial court erred in using that standard for assessing substantiation.  (Note: the FDA does not allow marketing CBD products as dietary supplements).

Nonetheless, Living Essentials did not secure reversal. The CPA requires an advertiser have some “recognizable” substantiation for the representation prior to making it. Here, Living Essentials failed to present evidence that “anyone with any science training” had ever assessed the advertising claims and the science backing up those claims. (Asking an advertising director to conduct internet research was not adequate). Consequently, the trial court’s error in applying the higher standard did not require reversal.

Conclusion

The implications of this discussion for any company advertising CBD in Washington ought to be clear: be very very careful or you may find yourself defending an action that may subject you to injunctive relief, damages, attorneys’ fees and costs, and treble damages. We recommend that operators in Washington talk to their attorneys about labeling, marketing, and advertising practices before becoming a target.

On November 20th, the Washington State Department of Agriculture (“WSDA”) released the hemp cultivation plan (the “Plan”) that it intends to submit to the US Department of Agriculture (“USDA”) along with a corresponding set of hemp regulations (“Hemp Rules”). This post will provide an overview of Washington’s hemp plan.

Recordkeeping, Violations, and Inspections

The Plan appears to be in-line with the USDA’s interim hemp rules, released last month. The Plan outlines recordkeeping requirements, including how the WSDA will track land where hemp is grown. The Plan also covers some requirements necessary to obtain USDA approval, including the following:

• The treatment of violations, both negligent and those with a higher culpability;
• The WSDA’s annual inspections for (a) unauthorized plant growth, (b) hemp in any form on the registered land area, (c) rogue, volunteer, or off-type hemp plants; (d) audits of existing business data and reports related to hemp; (e) compliance with required signage; and (f) assessing compliance with other applicable license terms and conditions;
• The WSDA’s ability to report information on producers to the USDA; and
• Certifying that the WSDA has resources to undertake the Plan.

THC Testing

The Plan lays out the WSDA’s procedure for testing hemp:

WSDA tests hemp for Total THC using High-Performance Liquid Chromatography (HPLC) for the determination of Δ9-Tetrahydrocannabinol (THC) and Δ9-Tetrahydrocannabinolic Acid (THC-A). Additionally, if necessary, WSDA will conduct moisture testing to determine total moisture.

The Hemp Rules, specifically  WAC 16-306-090, require testing by a WSDA-run or approved laboratory using post-decarboxylation or other testing methods approved by the WSDA. WSDA will apply the measurement of uncertainty (+/- 0.06%) outlined in the USDA’s interim hemp rules to the reported THC concentration to determine if hemp material is in compliance with the 2018 Farm Bill. The Plan also includes a detailed sampling protocol for testing hemp. As we’ve written before, these testing requirements are likely to hurt the hemp industry.

Destruction and Disposal

The Plan outlines how the WSDA will dispose of hemp that tests “hot” (too much THC). If that happens, the entire lot must be destroyed. There is a caveat as a hemp producer may request a resampling or retesting within 30 days.

Producers must document the destruction or disposal of all noncompliant hemp and provide corresponding documentation to the WSDA. Producers may subject noncompliant hemp to the following disposal or destruction methods:

• Incineration;
• Tilled under the soil;
• Made into compost;
• Collected for destruction by a person authorized to handle marijuana; and
• Other manner approved by the department that would render the hemp non-retrievable.

In some cases, the WSDA also “may give notice of noncompliance to the appropriate law enforcement agency and the Washington State Liquor and Cannabis Board which regulates marijuana, with a summary of the actions taken to destroy the noncompliant hemp.”

Transportation

The WSDA also will require that producers obtain a THC certification form from WSDA, showing the results of THC testing, for any hemp that leaves the producer’s premises. Producers must ensure that this form accompanies hemp traveling through the state, along with a copy of the producer’s license. For hemp plant material that was grown elsewhere, the WSDA requires a bill of lading or other documentation demonstrating that the hemp was legally imported into Washington and is legally present in the state.

Hemp as food

Washington’s Hemp Plan incorporates some provisions that deviate from the 2018 Farm Bill. Remember, that states and Indian Tribes are free to venture outside of the confines of the 2018 Farm Bill, so long as all the requirements relating to hemp production are met. In other words, the 2018 Farm Bill sets the floor for hemp regulation and states and tribes can expand on that. That’s what Washington has done with hemp cultivated for food.

As a reminder, Washington recently passed Senate Bill 5719, which overhauled hemp production in Washington state. SB 5719 provided that hemp could be used in food. That section of the bill is now codified at RCW 15.140.040 (5), which reads as follows:

The whole hemp plant may be used as food. The [WSDA] shall regulate the processing of hemp for food products, that are allowable under federal law, in the same manner as other food processing under chapters 15.130 [(Washington’s Food Safety and Security Act)] and 69.07 RCW [(Washington Food Processing Act)] and may adopt rules as necessary to properly regulate the processing of hemp for food products including, but not limited to, establishing standards for creating hemp extracts used for food.

The Hemp Rules (WAC 16-306-100) establish a hemp food certification program where hemp producers can voluntarily certify hemp grown for human consumption. The WSDA will provide certification if a producer tests for the following:

• Nonapproved pesticide or herbicide use. A list of approved pesticides and herbicides will be maintained on the WSDA’s website;
• Mycotoxins; and
• Heavy metals, including inorganic arsenic, cadmium, lead, and mercury.

In order to participate in the certification program, the producer must inform the WSDA of their desire to participate in the program and also must reimburse the WSDA the costs of testing.

While WSDA has legal authority over hemp and for manufactured products derived from hemp that fall within the definition of food, WSDA does not have legal authority over all manufactured products. The Hemp Rules (WAC 16-306-020) outline activities outside the scope of the hemp program:

The following activities are not subject to regulatory sanctions or penalties under this chapter, except for the limitation of THC content under chapter 15.140 RCW:
(1) Possessing, transporting, marketing or exchanging legally obtained hemp and hemp products;
(2) Growing, producing, possessing, processing, marketing or ex- changing marijuana as defined in RCW 69.50.101.

The WSDA issued a memo in August indicating that hemp-derived CBD (“Hemp-CBD”) is not an approved ingredient in food. It will be interesting to see how WSDA handles hemp in food going forward. On the one hand, Washington law allows the whole hemp plant, including flower, to be used in food, in accordance with federal law. However, the Food and Drug Administration (“FDA”) has only determined that a few hemp-seed or hemp-stalk ingredients are generally regarded as safe for use in foods. The FDA has also indicated that Hemp-CBD cannot be added to food. CBD is likely to be present in hemp flower, which can be used in food. The WSDA will need to determine how it will treat food that may contain Hemp-CBD from Washington-grown hemp flower.

Conclusion 

We’ll continue to monitor the WSDA’s rollout, including whether or not the Plan is altered in light of feedback from the USDA. The USDA has 60 days to approve or deny the plan, so the earliest it could be implemented would be January 2020.

On October 9, 2019, the Washington State Board of Health (“BOH”) voted to adopt emergency rules banning flavored vapor products, including marijuana products, in Washington State. The ban is effective as of October 10 and will run for 120 days.

It’s not as if we didn’t see this coming. On Monday, Hilary Bricken wrote on this blog that cannabis businesses should expect these types of vapor bans.  Previously, on September 27, Governor Jay Inslee issued an executive order requesting the BOH adopt rules banning flavored vapor products. This executive action is very similar to what we saw in Oregon related to flavored vaping products last Friday.

The Washington emergency rules define a “Flavored vapor product” as “any vapor product that imparts a characterizing flavor.” A characterizing flavor is “a distinguishable taste or aroma, or both, other than the taste or aroma of tobacco or marijuana or a taste or aroma derived from compounds or derivatives such as terpenes or terpenoids derived directly and solely from marijuana[,] or hemp plants that have been grown and tested as required by state law, imparted by a vapor product.”

This definition of a characterizing flavor does not include cannabis-derived terpenes. Terpenes are organic compounds found in a wide range of plants that produce flavor and aromas. Terpenes that come from cannabis, either hemp or marijuana, are allowed in marijuana vapor products but the presence of terpenes derived from any other source is prohibited under the ban.

The BOH’s definition of characterizing flavors includes some concrete examples including, “tastes or aromas relating to any fruit, chocolate, vanilla, honey, candy, cocoa, dessert, alcoholic beverage, menthol, mint, wintergreen, herb, or spice.” The definition also includes this unbelievably vague catch-all provision:

A vapor product does not have a characterizing flavor solely because of the use of additives or flavorings or the provision of ingredient information. It is the presence of a distinguishable taste or aroma, or both, that constitutes a characterizing flavor.

In other words, it may not matter what is added to a vapor product if there is the presence of taste or aroma. It remains to be seen how BOH and the LCB will determine what products have the presence of a distinguishable taste or aroma.

Marijuana licensees should expect the LCB to swiftly enforce this ban. Hours after the BOH issued the emergency rules, the LCB emailed licensees to confirm that processors and retailers are to immediately stop selling flavored vapor products. The LCB also indicated that it would follow up with options for returning or destroying products. In addition, the LCB indicated four action items that it is taking while health officials investigate vaping illnesses:

1. Signage. Prominently post this warning sign in retail locations. This required sign is co-branded with the Washington State Department of Health. A Spanish version, also available, may be posted as an additional sign.
2. Clarify rule regarding additives on packaging and labeling. There is some confusion among industry members that certain additives, like terpenes, imported CBD, and other cannabinoids do not need to be disclosed on packaging. Current rules require all product components on packaging (WAC 314-55-105).
3. Disclose to LCB all compounds (including ingredients, solvents, additives, etc.) used in the production and processing of products that are vaped and vaping devices themselves. Public health officials have requested assistance in gathering additional information about ingredients in vapor products.
4.  Cooperate with the ongoing epidemiological investigation. Local, state and federal health agencies are looking into which products have been involved with Washington cases of disease. We ask for your cooperation if you are contacted by someone from a state or federal epidemiology team and/or a representative from your local health jurisdiction.

It’s fair to say that there is a vaping crisis. It’s also fair for regulators to act in response to said crisis. However, given that there is really no evidence that flavored vapor products are causing these widespread illnesses, it’s also fair to say that this ban feels arbitrary and likely to cause great damage to an already struggling industry. Processors who rely on the sale of vapor products are likely not in a position to make this massive shift away from flavored products. Retailers, in turn, may try to return these flavored products to processors to recoup their losses or eat the cost of these now worthless products. Remember, these businesses cannot take out loans (not that banks would offer them) without going through a lengthy application process with the LCB; for many businesses, there are no funds available for a rapid change like this.

A few weeks ago I wrote critically about Donald Trump’s decision to ban vapor products at the federal level, saying that it would likely harm the regulated vapor market and help the illicit market. I was surprised to see Jay Inslee blindly follow Trump’s thinking here, especially when he has so frequently opposed this administration.

Washington State has long been a pioneer in the cannabis industry. Medical marijuana has been legal since 1998 and the state was the first in the U.S. to approve recreational marijuana, doing so on December 6, 2012. The market continues to grow, including retail sales reaching $972 million in 2018 from $851 million in 2017.

Using a unique business model, GreenStar Biosciences Corp. (CSE: GSTR) is capturing its share of the Washington market. Through a subsidiary, GreenStar’s assets include the property leases, brands and intellectual property of Cowlitz County Cannabis Cultivation Inc. (“Cowlitz”). Located about 140 miles south of Seattle, Cowlitz, a Tier 2 licensed cannabis producer and processor, has turned a small, family-run business into three popular brands, Dab Dudes, Hi Guys and Cowlitz Gold, and millions of dollars in annual sales, resulting in it being one of the top cannabis processors in the state.

Get to Know GreenStar

From its headquarters in Vancouver,BC, GreenStar is a technology and services company that provides real estate, financial, management, IP and branding support to licensed U.S. cannabis businesses. That’s the official definition. More succinctly, GreenStar is a team of experts in capital markets, finance, technology and cannabis, who will leverage decades of experience to execute on partnerships and acquisitions in the explosive cannabis markets, starting in Washington. This is demonstrated through not only the Cowlitz assets, but also with exclusive licensing and JV arrangements for proprietary technologies that support product development and operational efficiencies.

Public for only a few months, GreenStar remains a blue sky opportunity with a market capitalization of only C$9.7 million (US$7.28 million).

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Since going public in June 2019, the company has refined the leadership team, including appointing Rahim Rajwani as CEO and director. Mr. Rajwani has an impressive C.V. as a seasoned capital markets veteran, including serving as an executive member of Peninsula Merchant Banking Syndications group where he provided advisory services, amongst other things, to Ventana Gold that led to Ventana being acquired by Brazil’s EBX Group for $1.43 billion.

Other leadership changes included adding Leighton Bocking to the board of directors which is rounded out with Faizaan Lalani, CPA, CA as the third board member

Cowlitz: A Washington State leader

While it works on other parts of the business, Cowlitz is the flagship revenue generator for GreenStar. A cornerstone of Cowlitz’s reputation is selling high-quality cannabis products at affordable prices to a growing consumer base that finds Cowlitz’s products at about 20 percent (>150 stores) of Washington’s cannabis retailers.

Cowlitz’s products are primarily focused on patients using cannabis for its medical and health-related purposes. The company is a true Washington heavyweight as one of the five largest cannabis processors in the state and largest independent buyer of dried flower and producer of more than 200,000 pre-rolls every month.

Cowlitz’s Product Lines

Cowlitz’s Dab Dudes is a brand known for its BHO (butane hash oil) waxes, vaporizer cartridges and crystallines. Through its proprietary gas mix, Cowlitz leaves terpenes in its final products, which is known to improve flavor profiles that cannabis connoisseurs crave.

The Hi Guys brand includes flower, joints and BHO that dovetails perfectly with Cowlitz’s mantra of selling quality products at reasonable prices.

As the name implies, Cowlitz Gold is the premium product of the company. Elegant, yet still affordable, Cowlitz Gold products include pre-rolls, flower, BHO and vape cartridges.

Cowlitz Gold Premium Products

Cowlitz doesn’t grow all its cannabis plants; it has supply agreements to make sure it keeps up with demand. Measuring by a deal struck in June, 2019, demand is expected to remain robust. Cowlitz inked a long-term supply agreement with Pat Dullanty, the owner and operator of an 18-acre, Tier 3 grow facility in Cheney, Washington.

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Per the deal, Dullanty will supply Cowlitz up to 25,000 pounds of dry weight, high-quality cannabis flower per annum.

Cowlitz topped $14 million in revenue during 2018 and is on pace to handily beat that in 2019. According to seed-to-sale information reported to the Washington State Liquor and Cannabis Board, revenue from Cowlitz was approximately $10.3 million during the first six months of 2019.

Beyond Washington

The value of Cowlitz to GreenStar in Washington is plain to recognize, but there is more to consider. Cowlitz has proven operational and branding expertise across critical components of the cannabis value chain. The processing and distribution models are the blueprint for replication in other states in addition to potential synergistic opportunities with other GreenStar partners.

GreenStar has a JV with Fisher, Indiana-based Progressive Herbs, Inc. which provides an exclusive worldwide right and sub-license to use and commercialize Progressive’s proprietary Micro-Grow Pod cultivation technology. A small-scale proof-of-concept pilot operation with Cowlitz validated the potential of the technology with scale-up operations now being evaluated. This technology is being trumpeted for being able to reduce operating and capital costs for manufacturing cannabis compared to current greenhouse technologies, in addition to producing a high total cannabinoid content product produced without pesticides with no detected heavy metal content.

GreenStar also signed a Joint Venture agreement with PharmaStrip Corp., where the two will work together to produce cannabis-infused mouth strips called “Cannabis Oral Thin Film Strips” exclusively for sale in Washington state. A relatively new method of drug delivery, fast-dissolving oral films have been growing in popularity versus other oral methods, such as pills or tablets. The cannabis strips will deliver exact dosage of cannabinoids in a manner that is more reliable and faster-acting than traditional forms of ingestion, like edibles or inhalation.

GreenStar is further pursuing opportunities in other states where medical cannabis is legal, including Michigan, West Virginia, California, Oregon and Nevada. While planning to have operations going in two or three of these states by the end of the year, the company looks intent on Michigan first, a state with a vibrant market expected to rival the size of Colorado’s.

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For Additional Information on GreenStar Biosciences Corp please click here to visit the website

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About Ash Stringer

If you’ve been following the hemp scene in Washington state, you know it’s been a bit of a roller coaster. The latest “drop” comes in the form of an August 1 memo from the Washington State Department of Agriculture (“WSDA”) titled Restrictions on the use of hemp CBD as a food ingredient. According to the memo, Washington is following the lead of many other states, most notably California,  in prohibiting the use of hemp-derived CBD (“Hemp-CBD”) in foods and beverages.

Washington is essentially implementing the Food and Drug Administration’s (“FDA”) policy on Hemp-CBD as a food ingredient. Last year, the FDA approved the drug Epidiolex. Epidiolex contains CBD. The Food, Drug and Cosmetics Act (“FDCA”) and FDA regulations generally prohibit an article that is approved or investigated as a drug from being an ingredient in food or dietary supplements, unless that article was marketed as a food or dietary supplement prior to being investigated as a drug. The FDA has concluded that Hemp-CBD was not marketed as a food or dietary supplement before the investigation of Epidiolex and therefore the FDA’s position is that Hemp-CBD cannot be added to food or dietary supplements.

According to the WSDA, Hemp-CBD is not approved as a food ingredient. Note that the WSDA’s memo does not apply to Washington’s regulated marijuana market. Licensed retailers are still free to sell CBD-infused edibles derived from marijuana, so long as those products were manufactured by a licensed processor. Washington processors are allowed to add Hemp-CBD to marijuana products so consumers, over the age of twenty-one, can still access Hemp-CBD by going to marijuana retailers. Additionally, the WSDA has stated that some parts of the hemp plant, specifically hulled hemp seeds, hemp seed protein powder and hemp seed oil are allowed for use in food. Why? Because the FDA has determined that these components are Generally Recognized as Safe (“GRAS”) for use in food. Notwithstanding these marijuana-food products containing CBD and food items containing these GRAS components, the WSDA is prohibiting all hemp in food:

Other parts of the hemp plant, including CBD, cannot be used as a food ingredient under a Washington State Food Processor License. Foods containing unapproved parts of the hemp plant may not be distributed in Washington State under a Washington State Food Storage Warehouse License.

This development from the WSDA was somewhat unexpected in light of Senate Bill 5276, which went into effect in April and overhauled Washington’s hemp program in light of the 2018 Farm Bill.  Section 4 of SB 5276 provides:

“[t]he whole hemp plant may be used as food. The [WSDA] shall regulate the processing of hemp for food products, that are allowable under federal law, [and] may adopt rules as necessary to properly regulate the processing of hemp for food products including, but not limited to, establishing standards for creating hemp extracts used for food.”

In addition, SB 5276 Section 14 struck RCW 15.120.020’s language which previously prohibited processing hemp, except for hemp seeds, into any consumable good.  This is not to say that the WSDA doesn’t have authority to follow the FDA’s position on hemp, it just seemed as if the legislature had set the WSDA up to allow for Hemp-CBD in a whole host of products, including food.

In terms of enforcement, it does appear that the WSDA is going to ramp out any aggressive efforts against Hemp-CBD right away:

Recognizing that these recent changes in law may have caused some confusion in the manufactured-food industry, WSDA has been reaching out to the industry so they can take appropriate actions, such as removing CBD ingredients from their products or discontinuing distribution of CBD-containing food products in the state. WSDA is committed to working with our food industry partners during this transition.