An Arizona federal district court judge entered judgment against Walmart Inc. for terminating the employment of a woman who had been prescribed medical marijuana because it had not established through expert evidence that the employee was impaired by marijuana at work despite high levels of marijuana in the results of her drug test.  Therefore, the court held plaintiff’s termination was contrary to the Arizona Medical Marijuana Act, A.R.S. § 36-2813(B) (“AMMA”).

Case Background

In Whitmire v. Walmart Inc., the plaintiff Carol Whitmire had worked at Walmart since 2008, initially as a Cashier and thereafter as a Customer Service Supervisor.  During her employment Walmart had a drug testing policy which expressly stated that employees were prohibited from “[r]eporting to work under the influence of drugs or alcohol, including medical marijuana.”  Walmart’s policy also required employees to submit to a drug or alcohol test if they suffered a workplace injury that required medical treatment.  Plaintiff was aware of Walmart’s drug testing policy and acknowledged her understanding of the policy.

On May 21, 2016, plaintiff reported to Walmart that a bag of ice fell on her wrist while at work, and two days later, she notified Walmart that she experienced continued swelling and pain in her wrist.  On May 24, 2018, around approximately 2 a.m., plaintiff smoked medical marijuana for an alleged non-work related condition prior to going to sleep.  Later that same day at 2 p.m., plaintiff began her scheduled shift at Walmart and reported to human resources that her wrist still hurt.  Plaintiff left her shift because Walmart directed plaintiff to urgent care pursuant to its policy.  Plaintiff received an x-ray of her arm, submitted a urine sample for a post-accident drug test, and then returned to work.  After returning to work, plaintiff advised Walmart for the first time that she possessed a medical marijuana card and provided a copy.

Plaintiff’s drug screen tested positive for marijuana metabolites, and Walmart concluded that upon reasonable belief, the high levels of marijuana metabolites recorded in her positive test indicated that she was impaired by marijuana during her shift earlier that same day.  Walmart suspended and eventually terminated plaintiff citing the positive drug test as the reason.

Plaintiff filed a lawsuit in the United States District Court for the District of Arizona asserting that she was terminated and discriminated against in violation of the AMMA and other state laws.  Walmart denied that it wrongfully terminated or discriminated against plaintiff and asserted an affirmative defense that it had “established a policy and implemented a drug testing program” in compliance with the Arizona Drug Testing of Employees Act, A.R.S. § 23-493.06 (“DTEA”).

Walmart moved for summary judgment, arguing, among other arguments, that the AMMA did not provide plaintiff with a private cause of action against Walmart.  Additionally, Walmart argued that it was entitled to judgment as a matter of law because it terminated plaintiff based on the results of a drug test taken during her shift, which showed that plaintiff had marijuana metabolites at the highest level the test could record, and which gave Walmart a good faith basis to belief plaintiff was impaired by marijuana during her work shift.  The State of Arizona filed an appearance and an amicus curiae brief.

The District Court of Arizona’s Ruling

After considering decisions from numerous other courts that considered whether their respective state medical marijuana laws created an implied cause of action against employers, the District Court held that the AMMA implied a private cause of action because no other remedy for violation of the statute was available.

The District Court next decided whether a genuine issue of material fact existed as to plaintiff’s discrimination claims.  The District Court agreed with Walmart that an employer was allowed to establish a policy and drug testing program under the DTEA, which shields an employer from liability for “actions based on the employer’s good faith belief” that an employee was working while under the influence of drugs.  Additionally, the court held that, reading the AMMA and the DTEA in conjunction, a registered user of medical marijuana may be considered to be “under the influence of marijuana based solely on the presence of ‘metabolites or components of marijuana’ that appear in sufficient concentration to cause impairment.”

Walmart argued that the level of marijuana metabolites present in plaintiff’s drug screen results led Walmart to believe she was impaired at work. Walmart produced a declaration from its Personnel Coordinator in which the coordinator stated that the level of marijuana metabolites found was the “maximum reading the test can measure for marijuana.”  However, the court determined that proving impairment based on the results of a drug test was a “scientific matter” which required expert testimony and the Personnel Coordinator did not have the “requisite ‘knowledge, skill, experience, training or education’ to render opinions regarding the results of the Plaintiff’s drug test.”  Furthermore, the court held that Walmart was unable to prove that plaintiff’s drug test results were “so positive” that it had sufficient reason to believe that plaintiff was impaired while at work without expert testimony to establish impairment.  Therefore, the District Court sua sponte entered judgment in favor of the plaintiff because it determined there was no evidence that plaintiff was impaired at work.

Finally, the court held that plaintiff’s disability discrimination claim failed because she was not disabled.  Plaintiff’s claim that she was disabled or regarded as disabled because she qualified for a medical marijuana card was insufficient evidence of a disability.  Furthermore, the court followed precedent in the Third and Seventh Circuits and held that the side effects from smoking medical marijuana do not constitute a disability.

Takeaways for Employers

More than 30 states have legalized medical marijuana, and 10 states and Washington D.C. have legalized recreational use.  Yet, marijuana remains a Schedule I controlled substance under federal law, and the legal implications of marijuana medical and recreational marijuana use are ever-evolving.  If you have any questions regarding this area or need assistance evaluating personnel decisions relating to employees and marijuana use, please contact the author, your Seyfarth Attorney, or any member of Seyfarth Shaw’s Cannabis Law Practice.

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

Let’s start with politics, with the latest in the “Where The Candidates Stand on Marijuana” series.  Senator Cory Booker (D – NJ)  has introduced the Marijuana Justice Act of 2019 that would legalize cannabis at the federal level, remove it from the schedule of controlled substances and expunge federal marijuana-related criminal records.

The biggest news from the states came from Florida, where legislation has been introduced to legalize recreational marijuana.  Obviously, introducing a bill is a long way from opening stores, but it is a step in that direction.

Other states moving to legalize include New Hampshire, where the bill is progressing in the House before it moves to the Senate, but may have problems in the Governor’s office and Vermont, where recreational use is already legal, but buying and selling is not.  This legislation would set up a retail marketplace.

Legalizing cannabis doesn’t necessarily mean smooth sailing, as the state of Michigan is finding out.  The governor has abolished the board that approves or denies applications for licenses for medical marijuana businesses and a new agency will take its place.

The Food and Drug Administration will convene a public meeting to discussion CBD regulation in April.  Of course, the FDA’s chief, Scott Gottlieb, is resigning in April, so the exact date of the meeting is now up in the air.

In international news, the Caribbean nation of St. Kitts and Nevis has announced changes in their cannabis laws: medical marijuana will now be legal and recreational use will be decriminalized.  Meanwhile, Switzerland has announced that it will begin a 10-year study of recreational marijuana; we’ll check back in with them towards the end of the next decade.

And if you were wondering what Martha Stewart’s latest business venture is, wonder no longer.  She is forming a CBD partnership with Canopy Growth.  Their first products will be pet remedies.  Who brought these two together?  Snoop Dogg, of course.

See you next week!

It is well known that the U.S. Patent and Trademark Office (USPTO) does not allow federal registration for cannabis-related trademarks (discussed by this blog here and here). Some commenters have speculated that, because courts have been chipping away at the bans on immoral, scandalous, and disparaging trademarks, the ban on federal trademark registrations related to illegal activity may be next. Continue Reading Likely to be Dazed and Confused: the Hazy Future of Cannabis-related Trademarks

Seyfarth Shaw LLP has released the results of its fourth annual Real Estate Market Sentiment Survey, which polled commercial real estate executives around the country from all sectors. Of interest to our readers, this year’s survey revealed that, despite the dramatic increase in the number of states legalizing marijuana, 85% of respondents are putting the brakes on investing in cannabis use real estate or leasing space to the cannabis industry. This is not surprising, given the current state of federal law, lack of credit availability from financial institutions, and lack of title insurance.

What about the other 15% who do plan on investing in CRE for marijuana use? Most (70%) do not plan to invest anytime soon, indicating an investment horizon of at least 2-5 years. Notably, however, 20% of those respondents planning to participate in the industry already have their hands in the pot business.

View the full survey results

 


Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

Alaska was one of the first states to legalize cannabis, so it tends not to appear in the news very often.  However, the governor has put forward a proposal to disband the Cannabis Control Board, and this is not delighting those in the industry.

You may have read about the shipment of industrial hemp that was seized in Idaho recently.  After losing their case in federal district court, Big Sky Scientific has appealed to the Ninth Circuit.  Further bulletins as events warrant.

The last we heard from North Dakota, it had voted down legal recreational cannabis in last November’s election.  Just recently, however, the first medical marijuana dispensary opened in the state.

In other state news, the New Mexico House will be considering legislation to legalize recreational cannabis.  You will doubtless recall that we reported on the New Mexico Senate’s actions in this regard just last week.  Will New Mexico beat New York and Illinois to become the next state to legalize?

One of the difficulties in traveling while using medical marijuana is that dispensaries don’t generally accept out of state registrations.  Lawmakers in Florida have just introduced legislation to allow patients and caregivers from other states to obtain medical cannabis in the state.

Proposition 64, the law that brought legal marijuana to California, provided for the expungement of marijuana cases.  San Francisco is going to wipe out over 9,000 cases going back to 1975.

Finally, you might not think of the Oscars as being a source of cannabis news, but you’d be wrong.  First, an ad for marijuana was rejected by ABC.  But, cannabis infused products were included in the nominees swag bags.  #alwaysacannabisangle

See you next week!

 

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

Starting off in the international sphere, the European Parliament has passed a resolution recommending the descheduling of cannabis.  The hope is that this could lead to the establishment of bloc-wide medical marijuana laws.

In South Korea, medical marijuana will be legalized in March.

Among the states moving towards legalization of cannabis or medical cannabis are: Kentucky, Georgia, North Carolina, Wisconsin and Vermont (which currently has a “DC-style” system: you can grow it and you can use it, but you can’t buy it or sell it).

New Jersey’s move to legalize had been held up by tax considerations.  Now that those have been worked out, look for a bill to be introduced in the legislature in the near future.

The New Mexico Senate has approved a bill allowing the use of medical marijuana in schools.  The legislation now moves to the House.

Lawmakers from Maryland have formed a bipartisan group to study legalizing recreational cannabis in 2020.  The state currently allows the use of medical marijuana, which has generated $100 million in sales in its first year.

And speaking of sales, Pennsylvania’s medical cannabis program brought in $132 million in its first year.

One of the difficulties facing cannabis businesses  is the lack of access to financial services.  Alaska’s Credit Union 1 seeks to change that next month.

The United Parcel Service is less than happy over the logo used by United Pot Smokers.  The first UPS is suing the second UPS in federal court for trademark infringement.  If High Times suggests it’s time to drop the “sassy parody brands,” it probably is…

Finally, from the “I Could Have Told You That” files, researches have discovered a correlation between recreational marijuana laws and junk food sales.

Cannabidiol (CBD) competed with Vitamin C as a top ingredient in new cosmetic products this past year, with promises of having anti-inflammatory effects and other healing properties. Amid the hype, at the end of 2018, the Agriculture Improvement Act of 2018, P.L. 115-334 (the “2018 Farm Bill”) was signed into law, changing the marketing of hemp and derivatives of cannabis and further removing hemp from the Controlled Substances Act thereby making it no longer an illegal substance under federal law. See Section 297A. The 2018 Farm Bill amended the definition of “hemp” to specifically include “all derivatives, extracts, cannabinoids,” which has been construed as an attempt to include hemp-based CBD under the definition of industrial hemp. The 2018 Farm Bill allows, subject to certain restrictions, hemp cultivation, along with the sale, transport (including via interstate commerce), and possession of hemp-derived products. Continue Reading “C” is for…

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

Possibly the biggest news this week was the first ever Congressional hearing on cannabis banking.  From the hearing’s webpage, you can watch the hearing, read the committee’s memorandum and read the witnesses’ prepared statements.   The committee memorandum has a great graphic of state marijuana laws – only three states allow no marijuana consumption in any form.

And speaking of state laws, several jurisdictions are moving forward with some form of legalization.  A full legalization bill was introduced in the Illinois legislature; a full legalization bill was passed out of a Senate committee in Hawaii; a House committee in New Mexico has passed another such bill, but more committees will need to weigh in before the full chamber votes.

In New Yorkthose in favor of legalization are pushing for changes to Gov. Cuomo’s bill introduced last month.   And the City of Baltimore has decriminalized marijuana possession, even though recreational cannabis is not legal in the state of Maryland.

Although no bill has yet been introduced, the Lt. Governor of Pennsylvania meanwhile has embarked on a listening tour to gather input on whether that state should legalize.

And the federal bill with the easy-to-remember number has now been introduced in the Senate.  S. 420 is a companion bill to H.R. 420 introduced last month.

One of the arguments used in favor of legalization is the amount of sales (and sales tax) generated by legal cannabis.  Colorado is looking at $6 billion in sales in 2018, and Oklahoma‘s medical marijuana program saw over $4 million in January 2019.

Since people are starting to throw their hats in the ring for the 2020 Presidential election, here’s the first in what will doubtless become a series: “Where the Candidates Stand on Marijuana.”  Kamala Harris (D-CA) has indicated that she is in favor of legalization.

And finally, the Massachusetts marijuana industry may be getting some publicity from an unlikely source: billboards in Connecticut.

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

Let’s start off this week’s post with some international news.  The World Health Organization is recommending that cannabis should be removed as a controlled substance under international treaties.  The recommendations will come up for a vote in March of this year.

Banking for the cannabis industry is a subject we watch closely.  In California, it’s been revealed that a credit union has surreptitiously (until now) been providing financial services to several marijuana businesses for the past year.

Turning our attention to the Midwest, which does seem to be the latest hotbed of cannabis activity, we find that Ohio medical marijuana sales have been very strong.  Illinois is now allowing those prescribed opioids to obtain temporary certification for medical cannabis.  Yet another indication that full legalization is in the cards?

Following up on our Tennessee coverage, the legislature is now considering validating out-of-state medical marijuana cards for use in the Volunteer State.  And Arkansas has now licensed 32 medical cannabis dispensaries, with sales possible by April.

New York looked as if it was on the verge of full legalization, but that may have changed.  Governor Cuomo’s budget does not include any additional money for law enforcement dealing with a new set of circumstances after legalization.  We’ll keep our eye on this situation, obviously.

And finally, if you had to pick a stock ticker symbol for a cannabis company, could you do any better than POT?

 

Cannabis and CBD-driven business format franchising is coming.

Franchising in the United States has deep historical roots in a nearly endless array of industries, from Benjamin Franklin’s Franchise-esque Printing Business to the Singer Sewing Machine’s profit-share model (1851) to Martha Matilda Harper’s Creation of the Modern Franchise with the Harper Method – all sixty-plus years before Ray Kroc created the World’s best-known franchise.

Where business innovation has happened in the U.S., franchising has soon followed: the early automobile industry was promptly followed by the first franchised car dealerships (General Motors, 1898), with the first drive-in restaurant franchises right on their back bumper. Innovative franchise giants like Coca-Cola (1899), A&W Root Beer Stands (1925), Kentucky Fried Chicken (1930), and Howard Johnson Restaurants (1932) paved the way for new industries to grow through franchising, like retail automotive parts (Western Auto, 1909), car rentals (Hertz, 1925), dance studios (Arthur Murray, 1938), carpet cleaning (Duraclean, 1940s), and tax preparation (H&R Block, 1956). The most popular industries for franchising today include childcare, senior care, business opportunities (think ATMs and vending machines), cleaning, recruiting, and tutoring services.

And so naturally, with the dawn of a new $150 billion global industry, more than a few cannabis entrepreneurs are likely to test out franchising as a business growth model. At least one Cannabis company is already trying it out in the U.S., and franchise opportunities are available in Canada as well. Cannabis dispensaries are where it will start, but we expect to see cannabis roll out in a number of other franchised businesses as well, whether in retail (accessories, core products, ancillary products such as cosmetics and body rubs), or in restaurants, home health care, and pet care, for starters. Given the landscape where these franchisors will plant their seeds, success will depend not only on the quality of the system, branding and thought leadership, quality and integrity of products, but just as much upon franchise experience and savvy, and a creative and knowledgeable legal team.

The cannabis industry is fertile ground for franchising. It’s a fresh open market, and so the competition for growing brand recognition and market share is wide open. New emerging brands with pipe dreams of being “the Starbucks of weed” will compete to accelerate growth, and there’s no faster way to grow your own (brand) than a nationwide business format franchising program. Proprietary products (think custom strains of plant, proprietary edible products, and the like) will provide valuable intellectual property ripe for national distribution. And entrepreneurs who are jonesing to get into the field will be lining up for turnkey systems and consumer-loyal brands to get them started, without the time investment, equipment and property overhead, or expertise necessary for a full farm-to-pipe grow operation.

But the legal landscape is very complex for the would-be cannabis franchisor or franchisee.

First and foremost, cannabis, including for medical use, is still categorized as a Schedule I drug under the federal Controlled Substances Act (21 U.S.C. § 811). And while the Department of Justice has not prioritized prosecuting cases involving use that is legal under conflicting state laws, that could change virtually overnight, leaving the franchisor and franchisee not only in danger of losing their business, but their freedom as well. A budding franchisor may be willing to take that chance in hopes that the federal government will legalize, but it’s a big gamble for franchisor and franchisee alike, and perhaps not worth it to a prospective franchisee with safer options.

Even where the franchisor is willing to take a chance within its own state, federal law enforcement would not likely be willing to look past the (rather public) transportation of cannabis and many related products across state lines, even between two contiguous legalized states. Thus a franchisor who sought to franchise outside of its home state would face a dilemma: maintain consistency of product through interstate distribution but at tremendous legal peril, or risk brand inconsistency by not distributing from a central grow facility.

Perhaps the biggest challenge to any cannabis business is the reluctance of most banks to serve the cannabis industry. Because of the federal prohibition, banks that accept cannabis industry money risk violation of federal money laundering and other laws. While individual businesses may be able to work around this challenge by using local banks, running cash-only businesses, and perhaps the eventual institution of state-backed banks or the establishment of private cannabis banking, interstate transactions (such as payment of a franchise royalty) would necessarily risk implicating federal law, opening the franchisor and franchisee to potential criminal liability and even seizure of funds.

Additional questions and challenges await the franchisor, such as the application of federal franchise disclosure laws to the federally prohibited business, and how to properly disclose business and legal risks under state and federal disclosure laws. Under these laws, franchisors are required to provide prospective franchisees with a prescribed franchise disclosure document (“FDD”), in which the franchisor must provide information about a variety of aspects of the business, including risks and laws that will apply to the franchised business. The franchisor will need to rely upon experienced and creative franchise attorneys to artfully craft the document in a manner that satisfies the legal requirements, adequately informs the prospective franchisee, and mitigates against potential legal risks.

And there are dozens of other industry-unique questions that will arise: franchisors and their attorneys will have to start from scratch in designing the franchise system, training and operations manuals, advertising materials, and supply channels. Risk will be shared between franchisors and franchisees, and only a carefully crafted franchise agreement will prevent the parties from throwing each other under the bus if the law comes knocking. And with legalization will come regulation, perhaps including strain-specific and branding intellectual property battles (who “owns” the trademarks to names of strains? are new hybrid strains patentable?), product safety regulations, and labeling restrictions.

Given the expected growth of the cannabis industry and the entrepreneurial hunger surrounding the “Green Rush”, it’s just a matter of time before pioneering brands emerge as the franchise leaders in the industry. We’re probably just a few years from knowing who had the right combination of risk acceptance, creativity, system quality, creative legal support, and luck to become the household names in the industry.