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:

• A cannabis patent holder's bankruptcy filing
• A lawyer's financial playbook for marijuana businesses dealing with COVID-19.
• Feuerstein Kulick's addition of a cannabis investment specialist
• One marijuana-related business's success securing coronavirus aid.

I'm still here, welcoming your feedback, story ideas and thoughts during these strange times at [email protected]. You can call me, too ,at 916.448.2935. Follow me on Twitter @capitalaccounts.

    

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Patent Holder UCANN Files for Bankruptcy

A Colorado cannabis company that launched a landmark CBD patent lawsuit has filed for bankruptcy.

United Cannabis Corp., known as UCANN, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District Colorado on April 20. (Yes, that's 4/20). The initial filing estimated UCANN has fewer than 50 creditors and liabilities of somewhere between $1 million and $10 million.

One of those listed creditors is Cooley, the firm representing UCANN in its suit against Colorado-based Pure Hemp Collective. The legal challenge brought by Cooley's attorneys in Colorado federal court alleged that Pure Hemp infringed UCANN's patent on "liquid cannabinoid formulation, wherein at least 95 percent of the total cannabinoids is cannabidiol (CBD)." Pure Hemp filed a counterclaim challenging the validity of the patent.

U.S. District Judge William Martinez put that case on hold until UCANN's bankruptcy matters resolve. But Cooley's legal bills have added up. The firm has an unsecured claim of just under $780,000, according to a list of creditors provided in the filing. Messner Reeves; Neugeboren O'Dowd, and Saliwanchik Lloyd & Eisenschenk also have unsecured claims for payment.

A message left with UCANN CEO Earnest Blackmon was not returned.

Aside from the fate of the patent lawsuit, UCANN's bankruptcy filing raises another interesting question: Will it stick? U.S. Bankruptcy Judge Joseph Rosania Jr. on April 22 issued an order to show cause why he shouldn't dismiss the case given marijuana's illegal federal status.

Harris Bricken attorney Jesse Mondry, who first wrote about UCANN's bankruptcy filing on April 25, said in a Canna Law blog item that requests by state-legal marijuana operators for bankruptcy protection used to be a non-starter for courts. "But as cannabis acquires legal legitimacy—whether that's for getting high or for industrial hemp or the medicinal qualities of marijuana and CBD—bankruptcy courts have begun to take a look 'under the hood' of matters that have some connection to cannabis, rather than toss them outright," Mondry wrote.

As for UCANN's chances in bankruptcy court, Mondry called them doubtful given Rosania's order to show cause.

UCANN is represented by Wadsworth Garber Warner Conrardy attorneys Aaron Conrardy and Lindsay Riley.

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Recovery Playbook for the Cannabis Industry

As analysts scrutinize the tea leaves for clues about state-legal marijuana's post-COVID-19 future, Steve Schain, senior counsel to Hoban Law Group has drafted a roadmap to recovery–or reorganization.

"Learning how to access CARES Act benefits, invoke and dodge force majeure claims and deploy 'financial distress tools' will distinguish pandemic victors from the vanquished," Schain wrote this month in Law.com's The Legal Intelligencer.

Here are a few pages from his playbook:

>> The state of Pennsylvania, like other states, deemed medical marijuana "essential" during the pandemic and responded by suspending in-person qualification requirements, increasing marijuana purchasing limits and allowing curbside pickups. "Beyond dispelling lingering prejudice, and confirming its 'crucial' status, the state's 'essential business validation' raises legalized marijuana's stature, encourages further and deeper investment and signals receptivity to expanded medical and adult use programs," Schain writes.

>> Is force majeure a viable claim during COVID-19? "A party seeking to rely upon a force majeure provision must demonstrate that: it has taken reasonable steps to avoid or mitigate event and event's consequence; and there are no alternate means for performing under the contract," Schain says. " What constitutes a reasonable mitigation measure is fact-specific and depends upon both the contract's subject matter and language and force majeure event's context."

>> Bankruptcy protection isn't a likely option for marijuana businesses. Workouts, receiverships and creditors' assignments are more likely the paths for financially distressed cannabis companies, Schain writes.

 

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Who Got the Work

• Jeff Schultz (at left), former general counsel to Navy Capital, a New York firm with cannabis investments, has joined Feuerstein Kulick. Schultz will serve as a partner in the New York office and continue to advise Navy Capital as the company's external general counsel. Schultz specializes in fund structuring, SEC compliance, and day-to-day operational matters for investors.

"Feuerstein Kulick has a distinguished track record as one of the most highly respected legal advisers to cannabis industry operators and investors," Schultz said in a prepared statement. "While at Navy Capital, I have had the opportunity to work with a number of Feuerstein Kulick attorneys as a client, and when considering a return to private practice, I knew it would be a natural fit."

• Cannabis investment firm iAnthus Capital Holdings has been named in two securities class action complaints stemming from a disclosure that the firm defaulted on $4.4 million in interest payments to equity firm Gotham Green Partners. Pomerantz filed suit May 5 and Rigrodsky & Long and the Grabar Law Office.filed on April 20. Both suites were filed in New York's Southern District. Seth Levine, Katie Crane, and Chad Albert from Levine Lee have entered appearances for iAnthus in the April 20 lawsuit.

• Global cannabis supplier Tilray Inc. was hit with a securities class action May 4 in the U.S District Court for Southern New York. The suit, filed by Robbins LLP and the Law Office of Thomas G. Amon alleges that Tilray and its senior executives misled investors regarding the advantages of a marketing and revenue-sharing agreement with Authentic Brands Group. Counsel have not yet appeared for the defendants.

• Harris Bricken attorney Alison Malsbury entered an appearance for AAXLL Supply Co. in a trademark lawsuit filed by CBD company Charlotte's Web. The complaint, filed April 17 in The U.S. District Court for California's northern district by attorneys with Cooley, takes aim at the defendant over its use of the product name Charlotte's Web for CBD oil tinctures and vaping cartridges. The case is assigned to U.S. District Judge Yvonne Gonzalez Rogers.

 

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In the Weeds…

>> Vicente Sederberg partner Jeffrey Welsh: 'Overcoming generations of misinformation and propaganda." Forbes talked to the Frontera Law Group co-founder who joined Vicente Sederberg in October 2019. "My goal at Vicente Sederberg is to grow and develop the media and entertainment practice of the firm until we are the go-to firm for anything involving the intersection of cannabis/hemp and entertainment, and to play a key role in positioning VS as the preeminent cannabis and hemp law firm in the world." [Forbes]

>> FTC accuses California man of hawking CBD products as cancer treatment. Marc Ching's Whole Leaf Organics also sold an herbal supplement that he claimed could treat COVID-19, according to a complaint filed in federal court. "Let's be clear—companies making these claims can look forward to an FTC lawsuit like this one," Andrew Smith, director of the FTC's Bureau of Consumer Protection, said in a prepared statement. [Los Angeles Daily News]

>> Cannabis tech platform MassRoots says it got $50,000 in COVID-19 aid. Marijuana companies may not be able to obtain Small Business Administration help to deal with the pandemic's effects, but MassRoots announced that it secured the six-figure loan under the Paycheck Protection Program. "I'm pleased to report MassRoots has raised significant capital to fund our operations and, later this month, launch our rewards program–MassRoots Reward—aimed at driving cannabis demand from our community to client dispensaries," company CEO Isaac Dietrich said in a prepared statement. [Business Wire]

>> Three men sue a NJ law firm and a cannabis company over a deal dispute. "The lawsuit, filed by Josh Bauchner of Ansell Grimm & Aaron on behalf of Joseph Wolfe, Ronald Romano, Nicholas Campanella and their joint venture, Fresh Harvest Group, LLC, alleges the DeCotiis [Fitzpatrick & Cole] law firm, DeCotiis attorneys Joseph DeCotiis and Arlene Perez, and Verano and its principals Sam Dorf and George Archos reneged on a deal to obtain a medical cannabis license." The law firm called the lawsuit "a baseless shakedown attempting to get $14 million out of the firm and medical cannabis licensee, Verano Holdings." [NJ.com]

>> California issues draft regs for organic certification. "According to the proposed rules, 'cannabis operations are prohibited from selling, labeling, or referring to their products as organic.' But as long as the cannabis is grown according to the OCal requirements, only with approved fertilizers and pesticides, for example, they can include the OCal seal.." Public comments on the proposed rules are due by July 7. [Cannabis Wire]

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The Calendar Things

May 7 - The State of Cannabis hosts its Second Edition Zoom Conference. Panelists include Anthony Law Group principal James Anthony and Figueroa Law founder Omar Figueroa

May 11 - The National Cannabis Industry Association presents the webinar "Illinois Market – What's Happening and What's Next."

May 13 - NJ Cannabis Insider hosts the webinar "Cannabis and COVID-19: Where Does America Go From Here?" Speakers include Congressman Earl Blumenauer and Duane Morris litigator Paul Josephson.