Welcome back to Higher Law, our weekly briefing on all things cannabis. I'm Cheryl Miller, reporting for Law.com from Sacramento.

This week we're looking at: • What's behind the securities litigation wave hitting cannabis companies • A Chicago IP firm's new cannabis practice • Cannabis on Connecticut's doorstep.

Thanks as always for reading. Please keep sending those tips and story ideas to [email protected]. Or call me at 916.448.2935. Follow me on Twitter @capitalaccounts.

New Cannabis Crop: Securities Litigation

The last year in the cannabis industry has been a rollercoaster of mergers and acquisitions, corporate management churn and stock drops. And waiting at the end of that wild ride have been the inevitable shareholder lawsuits.

An annual report issued by NERA Economic Consulting last month tallied six lawsuits alleging securities fraud filed against cannabis companies in 2019. The Securities Class Action Clearinghouse at Stanford Law School counted 11 shareholder actions targeting cannabis and cannabis-related companies last year.

I recently asked Reed Kathrein, an investors attorney at Hagens Berman Sobol Shapiro, just what's generating this flurry of litigation.

"What we're seeing is the industry crashing and burning to some extent," Kathrein said. " What we're also seeing is everyone is trying to grow as fast as they can, and I mean literally grow: growing marijuana, getting it out there before they've got the proper licenses, before the quality of the product is" known, he said. " It's just growing way too fast and the controls aren't there and you're seeing the industry begin to shake out."

Since November, Hagens Berman has filed separate shareholder complaints against Aurora Cannabis Inc. and Hexo Corp. in the Southern District of New York, alleging the companies failed to disclose information that, when revealed, caused stock prices to plummet. The firm also publicly sought investors who lost money in CannTrust Holdings Inc. after the company was accused by Canadian regulators of growing marijuana without a license at an Ontario facility.

"This is basically just a fringe industry where the executives, management, they don't have a lot of, let's say, financial background and history, legitimate business history," said Kathrein. "And it's easy money right now because every investor is just throwing money at them because they think it's the biggest, newest thing."

I asked Kathrein if securities litigation targeting cannabis companies poses any different challenges because of the nature of the business.

"The biggest difference is the products aren't legal everywhere and also there are licensing requirements by the government that you don't always have in some of the other industries," he said. "That makes it a little more tricky, and because it's an agricultural product, there are quality issues … You can't just go out there and sell marijuana like you would sell any product. You have a lot of regulations that they have to meet. And they're not all meeting them."

Frank Segall, co-chair of Burns & Levinson's cannabis business & law advisory practice, told me in December that there's nothing particularly novel about this spate of marijuana investor class actions.

"These trolls exist on a very abundant appetite of different products, and the product today is cannabis," Segall said. "And unfortunately you're going to see more of these. It's only the tip of the iceberg."

>> Kevin LaCroix, an attorney and executive liability expert, has an interesting rundown on cannabis-related securities action on his blog, The D&O Diary.

Who Got the Work

>> Chicago-based intellectual property law firm McDonnell Boehnen Hulbert & Berghoff has launched a cannabis practice group. Partners Nicole Grimm and George "Trey" Lyons III will lead the group. "It's been incredible to watch this industry expand and mature over the past few years," Lyons said in a statement released by the firm.. "The growth has been meteoric and, as the industry continues to normalize, we've seen so many clients increase their focus on protecting their IP—foundational assets for any company looking to protect their innovation and brand."

>> Dentons Bingham Greenebaum partners Jason Ams and V. Brandon McGrath represent Agtech Scientific and Color Point in a breach-of-contract suit filed Feb. 6 in the U.S. District Court for Eastern Kentucky. The suit accuses Centrex Technical Sales and Jeff Wade Designs of failing to design and deliver a hemp stripping machine. Counsel for the defendants have not yet entered an appearance.

>> Mark R. Brown of Capital University Law School is counsel of record on a petition at the U.S. Supreme Court for Ohio residents who unsuccessfully submitted ballot initiatives that would abolish certain penalties for marijuana possession. A team from Sidley Austin, including Jeffrey Green, was on the petition with Brown. The Ohio attorney general's office has until April 6 to respond to the petition.

>> The Marijuana Policy Project has hired DeVaughn Ward to serve as its senior legislative counsel. The managing attorney at Ward Law Office in Hartford, Ward will coordinate the organization's efforts to pass marijuana legalization legislation this year.

>> Pamela Epstein, general counsel to Eden Enterprises, has been named to the 2020 freshman class of the California Cannabis Industry Association's board of directors. The former CEO of Greenwise Consulting, joined Oakland-based cannabis company Eden Enterprises last September.

In the Weeds…

>> California labor schools marijuana lobby. The California Cannabis Industry Association recently sent members a list of "tips" for negotiating labor peace agreements, as required by law. The memo warned that unionization could mean "decreased flexibility and increased costs." California Labor Federation leader Art Pulaski called the letter "a piece of anti-union literature" and urged legislative Democrats, a big organized labor ally, "to refrain from engaging with the association for the time being." The cannabis association told CalMatters that it didn't intend the letter to be anti-union "and we retract any statements that may have been misleading." [CalMatters]

>> 'Cannabis is on our doorsteps' in Connecticut. That's what Pullman & Comley litigator Steven Stafstrom Jr., chair of the House Judiciary Committee, told the Connecticut Law Tribune as state leaders consider recreational-use legalization. A state analyst says a regulated recreational market could generate $30 million in taxes. [Connecticut Law Tribune]

>> Cannabis is off the table in New Mexico. A state committee shelved a legalization bill late Wednesday. Critics said the bill was over-reaching and gave unions too much power to decide who would get commercial licenses. "I am disappointed but not deterred by tonight's committee motion," said New Mexico Gov. Michelle Lujan Grisham. "The door remains open." [Albuquerque Journal]

>> Legal marijuana use and child custody: It's complicated. Michael Bertin, a partner at the law firm of Obermayer Rebmann Maxwell & Hippel, looked at a recent custody ruling by the Pennsylvania Superior Court. The court, Bertin says, held that hat just because a parent has a medical marijuana card, that alone doesn't block a trial court from reviewing that parent's drug use and the reasons behind the marijuana prescription. "Further, the Medical Marijuana Act does not preclude the trial court from doing its full historic analysis and consideration of all the custody factors in the case," Bertin writes. [The Legal Intelligencer]

>> Trump's budget offers mixed news on marijuana. The president's spending proposal would ax a budget rider barring the U.S. Department of Justice from clamping down on state-legal medical marijuana operations. It also allocates money to the U.S. Food and Drug Administration to regulate CBD. Will either of these provisions make it into the final, congressionally approved budget? And given the turbulent relationship between the Trump administration and Congress, will there even be a federal budget any time soon? Nobody's panicking, yet. .[Marijuana Moment]

>> Move over pot. Here come magic mushrooms. Companies developing medical treatments from LSD and psilocybin are preparing to list on Canadian stock exchanges. "Mind Medicine Inc., which is undertaking clinic trials of psychedelic-based drugs, intends to list on Toronto's NEO exchange by the first week of March, said JR Rahn, the company's founder and co-director." [Bloomberg News]

The Calendar Things

Feb. 19 - The International Cannabis Bar Association hosts an IP roundtable at Wilson Elser Moskowitz Edelman & Dicker in San Francisco.

Feb. 19-20 - The National Cannabis Industry Association hosts the Northeast Cannabis Business Conference in Boston. Scheduled speakers include Britte McBride, member of the Massachusetts Cannabis Control Commission; Vicente Sederberg counsel Jennifer Cabrera; and Scottie Gordon, vice president of licensing and regulatory affairs at Curaleaf.

Feb. 20 - Duane Morris presents the latest in its cannabis webinar series, Cannabis 301: Cannabis Crisis Communications. Presenters are Karen Kessler, CEO of Evergreen Partners, Jennifer Briggs Fisher, team lead of Duane Morris' cannabis industry group; and Duane Morris partner Paul Josephson.

Feb. 20 - Public comments are due on the State Bar of California's proposed opinion on advising cannabis clients.