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    The Business of Marijuana in Wisconsin

    Lawyers should prepare for the possible legalization of marijuana in Wisconsin. If clients are considering a marijuana-based business, advise them about potential sources of liability and the scope in which they may operate their business legally.

    Paloma Kennedy

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    marijuana plants

    Pot, weed, ganja – marijuana has approximately 1,200 associated slang words.1 Americans can come up with at least five alternative names for marijuana, but far fewer know the proper distinctions between the most commonly used terms: hemp, marijuana, and cannabis.

    Hemp and marijuana are both derived from the Cannabis Sativa L. plant (commonly referred to as cannabis), which is part of the cannabinoid family.2 The difference between hemp and marijuana depends not on the species, because both are derived from the same cannabis plant, but on whether the plant is bred to accentuate its fibrous qualities (for use in clothing, construction, and ointments (containing less than 0.3% tetrahydrocannabinols (THC)) or to accentuate its trichomes (the sticky glands that contain high levels of THC and produce mind-altering psychoactive affects associated with marijuana use).3

    Because widespread confusion persists, this article provides readers with a basic but comprehensive understanding of Wisconsin’s historical and current position on the legalization of marijuana. It also provides lawyers with a simple guide for advising business clients endeavoring to start and run a marijuana-based business in Wisconsin.

    Marijuana is the “most commonly used illicit drug in the United States” with 52 percent of Americans 18 years or older reporting they have tried it at least once in their life and, among those who have, 44 percent are currently using.4 Recreational marijuana is legal in Washington, D.C. and nine states – Maine, Vermont, Massachusetts, Colorado, Nevada, California, Oregon, Washington, and Alaska – for adults age 21 or over.5 These states, along with 18 others, have legalized the use of medical marijuana.6

    Status of Marijuana in Wisconsin

    Wisconsin’s history with cannabis dates to 1908 when hemp was first grown for twine and rope near what is now the Mendota Mental Health Institute.7 Between 1919 and 1931, Wisconsin became the leading hemp grower in the United States, with more land devoted to growing than in all other states combined.8 Shortly after World War II ended, the U.S. government stopped purchasing hemp and ended price support programs. This led to the end of commercial hemp crop production in Wisconsin in 1957.9 Representative Lloyd Barbee from Milwaukee attempted in 1969 to legalize marijuana, but this proposal was defeated 94-1, foreshadowing the shift in drug culture with the passage of the Controlled Substance Act in 1970 classifying marijuana as a Schedule I illegal drug.10

    Paloma Kennedycom pkennedy boardmanclark Paloma Kennedy, Washington Univ. 2016, is an associate at Boardman & Clark LLP, Madison. She assists business clients with contracts and negotiations, mergers and acquisitions, and licensing and regulatory matters. She is an avid scuba diver and traveler.

    Legalization Efforts. Marijuana legalization continues to trend across the country. In November 2018, nearly one million Wisconsinites voted on two nonbinding referenda in favor of legalizing medical and recreational use of marijuana.11 In February 2019, Gov. Tony Evers announced a proposal to decriminalize marijuana possession and to legalize the medical use of marijuana.

    Regardless of whether Wisconsin legalizes marijuana, the Supremacy Clause and the doctrine of preemption make the Controlled Substances Act a continuing concern.12 At the beginning of 2018, right after marijuana was legalized in California, then-U.S. Attorney General Jeff Sessions withdrew Obama-era policy that made cannabis possession and use a low priority, ultimately leaving federal enforcement decisions up to each state’s federal prosecutors.13 This change has caused confusion among business owners in states where marijuana is already legalized and has raised serious concerns about federal enforcement.

    Various Wisconsin politicians took steps toward the legalization of marijuana leading to the passage of City of Madison Ordinance 23.20 decriminalizing the possession of small amounts of marijuana in private places.14 Efforts emerged in 2017 with the introduction of the Compassionate Cannabis Care Act of Wisconsin, which ultimately failed in committee.15 More recently, Rep. Melissa Sargent introduced Assembly Bill 482 – modeled after the state’s alcohol legislation – to legalize both medical and recreational use of marijuana.16 In seeking support for her bill, Sargent said it would reduce racial arrest disparities, save taxpayer dollars associated with possession arrests, and increase potential state revenue.17

    CBD and Industrial Hemp. While the legalization of marijuana use in its full form has been hotly debated, the use and legality of cannabidiol (CBD), the second “most prevalent active ingredient in cannabis,” has received almost as much attention in the past year.18 CBD is often associated with alternative medicine advocates as a treatment for severe childhood epilepsy syndromes that fail to respond to antiseizure medications as well as anxiety, insomnia, and chronic pain.19

    In 2015, Lydia’s Law, a bill legalizing CBD extract in oil form, passed in Wisconsin. This law allowed the possession of CBD with a federally licensed physician’s prescription; however, due to a lack of qualifying physicians, individuals remained unable to legally obtain the product until 2017 when the law was amended to permit possession with what is essentially a doctor’s note.20 Lydia’s Law was born of the efforts of Sally Schaeffer and other individuals on behalf of their children who suffer from a severe and rare form of epilepsy.21

    In 2017, pursuant to the 2014 Farm Bill, then-Gov. Scott Walker signed into law a bill creating the Industrial Hemp Research Pilot Program permitting farmers around the state to grow industrial hemp.22 The Wisconsin Department of Justice, sending shockwaves through the farming industry, issued a warning that CBD was still illegal.23 In response to widespread confusion, then-Wisconsin Attorney General Brad Schimel released a statement clarifying that farmers in compliance with the Department of Agriculture, Trade and Consumer Protection (DATCP) rules may “1. Grow industrial hemp without fear of criminal prosecution; 2. Sell the entire industrial hemp plant or parts of the plant to anyone; [and] 3. Process the plant as permitted by the DATCP’s rules and regulation, which includes producing CBD.”24

    Confusion about CBD, however, remained for retailers and consumers. Schimel issued guidance again in 2018 explaining that individuals may only possess CBD if they hold a doctor’s certification (defined as a letter or official document from a physician licensed to practice surgery or medicine) under Wis. Stat. section 961.32 and only physicians and pharmacists may sell the product with 1) an FDA investigational drug permit and 2) approval from the Wisconsin Controlled Substances Board.25 Both possession and distribution are limited to CBD that has no psychoactive effect.26 The guidance reiterates that CBD, because it “is a ‘derivative’ of the cannabis plant,” is a controlled substance and, as such, Wis. Stat. section 94.55(2) “forbids the processing of it under Wisconsin state law.”27 In considering the confusion caused simply by CBD, it raises important questions as to what pitfalls may await Wisconsin in the event recreational use of marijuana is legalized. 

    Learn more about medical marijuana and Wisconsin’s stance on its use?

    Check out the CLE OnDemand program, The Times they are A-Changing: The Evolving Status of Cannabis

    By legalizing marijuana in very specific circumstances, Wisconsin has stepped into the rapidly changing world of legal, medicinal, and recreational cannabis use. Wondering

    what Wisconsin’s laws actually say about using weed in the Badger State? Want to know how even limited cannabis legalization can potentially impact issues in employment and criminal law? This is the session for you!

    Learn more

    Potential Hazards of Marijuana Legalization

    Organized Crime Involvement. After legalization, Denver experienced an uptick in organized criminal groups illegally growing marijuana “for transport and sale across the nation,” which the state nicknamed “pirate grows.”28 To combat these efforts, Denver increased law enforcement to specifically halt these types of operations.29 Less marijuana is being trafficked illegally from Mexico and authorities speculate it is because the cartel and other large organized groups are simply growing on home soil.30 Many Colorado residents find the 33 percent tax, included in one-eighth of marijuana purchased for $30,  “a blunt instrument of exclusion,” which has bolstered black markets.31

    Illegal Interstate Trade. The largest effect is felt in neighboring states where marijuana is still illegal. A 2017 impact report highlights the diversion of Colorado marijuana showing “highway interdiction seizures increased 43 percent in the four-year average since Colorado legalized recreational marijuana” compared to the period before legalization. 32 In 2016, there were 346 seizures destined to 36 different states including Wisconsin, Minnesota, Iowa, and Illinois.33 Although the statistics fail to parse out what proportion of marijuana being trafficked across state lines was legally purchased within Colorado, it is clear that legalization has only increased the amounts being trafficked.

    Lack of Regulation. To make matters even more complicated, as marijuana remains illegal under federal law, no federal regulatory bodies (for example, the Food and Drug Administration) are involved in setting standards or guidance for product safety. Kimberly Struck, the first marijuana-focused health specialist in Denver, said the new landscape of legalization is the “wild west.”34

    States across the country lack food safety regulations for edibles, which places consumers at risk for ingesting mold, chemical residues, and other harmful microbes from improper employee handling or pest infestations.35 Struck said that edibles used in medical marijuana applications are the most worrisome because many of the people who eat these edibles are immunocompromised and thus particularly susceptible to the health risks of ingesting pathogens and molds.36 State regulations that properly address these concerns, Struck said, should include “everything from employee food handling, to temperature control requirements, and all other steps of producing, packaging, holding and selling.”37

    In November 2018, nearly one million Wisconsinites voted on two nonbinding referenda in favor of legalizing medical and recreational use of marijuana.

    Accidental Consumption of Edibles. While food safety issues are cause for concern, they do not address the inadvertent ingestion of edibles by children. In Colorado, emergency-room visits of children for ingesting marijuana doubled after it was legalized. Colorado sought to address this issue by passing a law mandating a special symbol on edibles packaging and the ban of edibles made in the shape of kid-friendly forms such as gummy bears, but the standard does not address access in the form of child-resistant packaging.38

    Advising Wisconsin Businesses

    These issues bring to light many important topics lawyers should consider discussing with clients currently operating a CBD-based business or, in an unforeseen future, with clients in a post-legalized Wisconsin. Possession and distribution of products containing psychoactive THC remain illegal in Wisconsin. If marijuana is eventually legalized, attorneys should advise clients considering a marijuana-based business about potential sources of liability and the scope in which they may operate their business legally, including commerce considerations.

    In the short term, there is an opportunity to learn and apply best practices from the pharmacy industry, which, even after decades of evolution and extensive regulation, continues to pay personal injury claims. As already evidenced byincidents in Colorado of children consuming marijuana products, potential manufacturers should avoid child-friendly designs and seriously consider adopting child-resistant packaging as a preemptive move in preventing product liability. Further, proposed Assembly Bill 482 is modeled after Wisconsin’s liquor laws, and it is not a stretch to imagine an extrapolation of our dram shop law exceptions or a modified, curve ball application of the attractive-nuisance doctrine.

    States lack food safety regulations for edibles, which places consumers at risk for ingesting mold, chemical residues, and other harmful microbes from improper employee handling or pest infestations.

    Due to federal law, marijuana-based businesses will remain a complicated venture for everyone involved. For example, businesses cannot make typical tax deductions due to I.R.C. § 280E, under which a business trafficking controlled substances cannot make deductions or receive credits.39

    And attempting to pay taxes is downright self-incriminating. Most marijuana-based businesses in “green states” (where marijuana is legal) are cash only, because banks, governed by federal law, are required to file suspicious-activity reports for criminal activity and are prohibited from laundering money.40 As such, lawyers advising marijuana-based businesses might be considered to be aiding and abetting criminal activity under federal law.

    Conclusion

    Because numerous states have already forged ahead with legalizing the production, sale, and use of recreational marijuana, Wisconsin has a late-start advantage to learn from legislative and ordinance-drafting mistakes as well as foreshadowing issues in law enforcement. Likewise, business owners can learn from one another and ultimately reduce potential sources of liability. It is unknown when, if ever, Wisconsin will legalize medicinal or recreational-use marijuana, but this does not mean lawyers should take a passive approach to keeping informed of the law. Businesses in Wisconsin are already selling CBD products in advance of any laws that provide for comprehensive retail regulations. Although the effects are yet to be realized, a complicated legal landscape will continue to develop for the future of Wisconsin and the future of cannabis production and distribution.

    Meet Our Contributors

    Describe your most enjoyable vacation.

    Paloma KennedySky blue waters, white sandy beaches, and a single main road that circles the entire island – St. Maarten has been my home away from home since 2012 when I first started visiting the island. Located in the Caribbean, it has a dual personality with one side Dutch (Sint Maarten) and the other French (Saint Martin). If you check the island’s weather forecast you will wonder if they even bother to update it. Every day has a forecast for 80 degrees with sun and a 20 percent chance of rain.

    My last trip occurred in 2017, just before Hurricane Irma rocked the tiny 37-square-mile island with 180-mile-per-hour winds. It was one of the most memorable and relaxing vacations. With two weeks on the island, split by a few days spent just a short boat ride away in Saba, there were only two items on the itinerary – scuba diving and relaxing on the beach. We had the good fortune to see large ocean animals – an 8-foot-wide stingray, Caribbean reef sharks, and a school of yellowtail tuna. Between dive days, we would snorkel the shallow reefs to spend time with tropical-colored fish and barracudas. Each excursion provided just enough activity to feel like we had earned the beachside pizza and pina coladas. St. Maarten has countless activities like the butterfly farm, boutique shopping, and sailing. It’s a wonderful destination, with a foodie community, that I recommend to everyone.

    com pkennedy boardmanclark Paloma Kennedy, Boardman & Clark LLP, Madison.

    Become a contributor! Are you working on an interesting case? Have a practice tip to share? There are several ways to contribute to Wisconsin Lawyer. To discuss a topic idea, contact Managing Editor Karlé Lester at (800) 444-9404, ext. 6127, or email org klester wisbar wisbar klester org. Check out our writing and submission guidelines.

    Endnotes

    1 Katy Steinmetz, 420 Day: Why There are So Many Different Names for Weed, Time, Apr. 20, 2017.

    2 Laurie Caron, Beyond THC – Cannabis sativa (L.) the plant, May 11, 2015.

    3 Eqova, Understanding the Difference Between Hemp and Cannabis (Part 1).

    4 National Institute on Drug Abuse, Drug Facts: Marijuana (June 2018); Yahoo News & Marist Poll, Weed & The American Family, April 17, 2017.

    5 Robinson, Berke & Gould, This Map Shows Every State that has Legalized Marijuana (June 28, 2018).

    6 New Hampshire, New York, Connecticut, Pennsylvania, Maryland, West Virginia, Ohio, Michigan, Illinois, Florida, Arkansas, Oklahoma, Minnesota, North Dakota, Montana, New Mexico, Arizona, and Hawaii. Id.

    7 Joel Patenaude, Timeline: Wisconsin’s Cannabis Story, Channel3000 (Jan. 18, 2018).

    8 Id.

    9 Id.

    10 Id.

    11 Chris Hubbuch, Wisconsin Voters Embrace Pot; Nearly 1 Million Vote Yes on Medical, Recreational Use (Nov. 8, 2018).

    12 Supremacy Clause, U.S. Const. art. VI, ¶ 2; 21 U.S.C. §§ 801-971.

    13 Sadie Gurman, Sessions Terminates US Policy That Let Legal Pot Flourish (Jan. 4, 2018).

    14 Code of Ordinance 23.20 Regulations Concerning Marijuana and Cannabis.

    15 2017 S.B. 38.

    16 2017 A.B. 482.

    17 Eoin Cottrell, State Rep. Melissa Sargent Introduces Bill to Legalize Marijuana in Wisconsin (Jan. 23, 2018).

    18 Peter Grinspoon, Cannabidiol (CBD) – What We Know and What We Don’t Know (Aug. 24, 2018).

    19 Id.

    20 Supra note 7; 2013 Wis. Act 267 (Lydia’s Law).

    21 Mark Shaaf, ‘Lydia’s Law’ Passes, But Treatment Still Elusive (April 20, 2015).

    22 2017 Wis. Act 100; Wisconsin Dep’t of Agric., Trade & Consumer Protection, Industrial Hemp Research and Pilot Program.

    23 Matthew DeFour, DOJ Issues Warning on Sale and Possession of CBD Oil, Upsetting Hemp Farmers (May 5, 2018).

    24 Wisconsin Dep’t of Justice, AG Schimel and Stakeholders Resolve Questions Surrounding DATCP Industrial Hemp Research Pilot Program (May 10, 2018).

    25 Wisconsin Dep’t of Justice, AG Schimel Issues Guidance to Wisconsin Law Enforcement on CBD Oil and Industrial Hemp Production (May 4, 2018); Wis. Stat. §§ 961.32(2m), 448.04(1)(a).

    26 Id.

    27 Id.

    28 Jesse Paul, More Illicit Pot Being Grown in Colorado Homes, Shipped Out of State (April 15, 2016).

    29 Id.

    30 Trevor Hughes, Marjuana’s Legalization Fuels Black Market in Other States (July 31, 2017).

    31 Tina Greigo, Inside Colorado’s Flourishing, Segregated Black Market for Pot (July 30, 2014).

    32 Rocky Mountain High Intensity Drug Trafficking Area, The Legalization of Marijuana in Colorado: The Impact, Oct. 2017, at 93, 99.

    33 Id.

    34 Kate Bernot, The Country’s First Marijuana Food-safety Official Has Concerns (May 4, 2018).

    35 Id.

    36 Cookson Beecher, Marijuana Edibles on a Rocky Road to Food Safety Assurance (May 4, 2018).

    37 Id.

    38 John Ingold, Kids’ Emergency Room Visits for Marijuana Increased in Colorado after Legalization, Study Finds (July 25, 2016); Associated Press, Ban on Pot Gummy Bears Signed Into Colorado Law, June 10, 2016.

    39 I.R.C. § 280E.

    40 Aaron Klein, Banking Regulations Create Mess for Marijuana Industry, Banks, and Law Enforcement (April 23, 2018).




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