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Morgan Davis: Strategic Advisor to the Cannabis Industry

Raleigh cannabis business attorney Morgan Davis peered into the display case at Elevation Hemp Company in Raleigh and asked store manager how the CBD flowers were selling.

“The hottest thing in the market is THCA flower,” said Davis. Element is one of her clients and she had recommended the product.

“Everybody wants to sell THCA flower,” said Davis. “You smoke it, just like you would hemp flower or anything else, but it has a high degree of THCA in it. When it decarboxylates, it changes from THCA to Delta-9, which makes it a much more intoxicating product.”

Davis and (the store manager) have an encyclopedic knowledge of cannabis. They speak jargon with terms like CB1 and CB2 receptors, homeostasis, THCV and sativa.

It was lunchtime, and Elevation had a steady stream of customers. Some were regulars and knew what they wanted. There were two first-timers with questions about what might work for attention deficit disorder and which CBD pet product to use for a suddenly unruly cat.

The Wild West

Davis is the founder of Davis Legal PLLC, a boutique law firm servicing the hemp/cannabis business industry. Her clients include medium-sized businesses that are regional, co-manufactured brands doing distribution and retail and large multi-state operators who own everything from their own manufacturing and distribution to dedicated retail locations.

In large part, the hemp industry is the Wild West, where there are no rules and regulations for selling products from edibles to oils, vaporizers, creams and lotions.

There are no guidelines from the grower to the manufacturer to the distributor to the wholesaler to the retail store to the store employee. The label on the package that a consumer buys at a CBD store may not be what’s inside the package. And in this unregulated universe, no one has any legal recourse.

“Retailers will call me to just determine who they want to buy from, what they want to carry, what’s a hot product, and what are the risks and rewards around carrying that type of product,” Davis said. “Manufacturers generally call me because they want to know how to label their product, how to package their product, how to test it, and how to formulate it.”

A Different Path

Davis was a criminal defense attorney at a top Raleigh firm when she started having anxiety attacks. “I tried therapy. I tried all the traditional stuff, and nothing was really helping me. So, I started trying some other pathways – Reiki, meditation, and other alternative practices. It opened up the whole world for me and really changed my life. My gift is that I’m aware of the benefit of alternative therapies, and I can help people navigate a gray area.”

Davis launched her firm in 2018. It was a seminal year. Congress has just passed a Farm Bill that kicked the door open for the cannabis industry. It established legal hemp as having no more than 0.3% THC, the psychoactive component of marijuana.

CBD stores became ubiquitous, popping up in retail locations everywhere. Element is in a Raleigh suburban shopping center anchored by a Lowes Foods and next door to Tony’s Pizza.

“It’s a very desired product by consumers. I think the latest report is something like over 60% of the population has tried or regularly uses intoxicating hemp products or hemp products of some kind,” said Davis, who is frequently quoted in Rolling Stone magazine as an authority on cannabis law.

It’s a very desired product by consumers. I think the latest report is something like over 60% of the population has tried or regularly uses intoxicating hemp products or hemp products of some kind.

Strategic Advisor

Davis at TED Talk in Raleigh, November 2021

Davis serves as a counselor and strategic advisor for her clients. She assists them with business formation, corporate governance, contracts, and employment agreements.

“Some of that stuff, especially in established industries, can be very plug-and-play. Now [with the cannabis industry] you take a longer view,” explained Davis.

“Because of the constant changes and the newness [of the cannabis industry], we spend a lot of time talking about creating our own best practices, self-regulation, helping companies figure out what standards are, but also what to do when there aren’t any standards to follow,” said Davis. “We decide their business model, what they’re looking to do in the next five years, and what kind of resources they have available to them.”

Davis has a crow’s nest view of the cannabis industry. “When a law changes or guidance is issued, or there’s a new legislative trend I see coming across the country, I reach out to my clients and have a conversation about any changes,” said Davis.

And so, you find that a lot of business owners get fatigued. They simply can’t handle the constant threat that the business won’t exist in 12 months.”

Massive Raids

The cannabis business is not for the faint of heart. Someone who is too fiscally conservative to buy Powerball tickets would not fare well in the industry.

“Imagine this. Like any business owner, especially in a startup or mid-sized company, the more time goes on, the more skin you’ve got in the game – the more money invested, the more people you’ve hired, you’re renting property and buying inventory. And if every six months or even every 12 months, somebody comes along and says, ‘This isn’t legal, or this might not be legal next year,’ it makes it very difficult for you to plan long term for your business.

“And so, you find that a lot of business owners get fatigued,” said Davis. “They simply can’t handle the constant threat that the business won’t exist in 12 months. They’re waiting for the other shoe to drop all the time.”

That shoe can come in the form of local law enforcement kicking in doors, conducting massive raids and controlled buys at cannabis businesses looking for illegal products.

“If [law enforcement] finds that some of those products aren’t legal or they believe them not to be legal, they will conduct massive raids and take all of a company’s products,” said Davis, who has handled some of these cases when they’ve gone to criminal court.

“If that product comes back above the 0.3% Delta 9 THC limitation, they’ll come back with a search warrant and take everything on the retailer’s shelves,” she said.

“They may not even charge the retailer criminally, but the retailer is now out thousands and thousands of dollars with no recourse. But they often hear from the North Carolina Department of Revenue, which will send them a bill for an unauthorized substance tax, which can be thousands of dollars, and the retailer is fighting the North Carolina Department of Revenue.”

NC’s Robust Market

“In North Carolina, we have a very robust hemp market in that we have no regulation, so almost any product you could find in the market can be found here. And lots of people agree, both inside and outside of the hemp industry in North Carolina, that it needs to be regulated,” said Davis.

“[The retailers are saying] we want somebody to come in and tell us what we can and cannot do so we don’t have to worry about you coming in raiding and arresting us.”

The federal government establishes standards for what constitutes legal cannabis products. Then, it is up to the individual states to establish their own regulations.

Some suggested regulations would cap the amount of delta-9-tetrahydrocannabinol (THC) in all products, institute sales limits, tax cannabis based on the potency of THC, and implement seed-to-sale tracking systems.

Various CBD products

The latest bill to attempt to regulate hemp in North Carolina failed to pass before the end of the session in July. Many believe it failed to pass because another bill was shoehorned into it at the last minute. That bill was the 2024 Compassionate Care Act, which would have legalized medical marijuana in North Carolina. The Compassionate Care Act failed to pass the General Assembly in July. It also failed in 2022 and 2023.

The sticking point was who would regulate the sale and distribution of medical marijuana products in NC. There were also concerns that it would be a gateway to the legalization of recreational pot in the state.

So, Davis’ advice to her NC clients is this, “Don’t count your eggs before they’ve hatched or something along those lines. Don’t ever count on anything until it actually passes in the state.”

$28.8 Billion Business

Legal cannabis is a $28.8 billion-a-year business on a nationwide basis. Medical marijuana is legal in 38 states and DC. Of those, recreational marijuana is legal in 24 states.

Cannabis exists in a highly charged political hothouse. Right now, the industry has its eye on the 2024 Congressional Farm Bill that could replace the 2018 bill with much stricter guidelines.

“There are some people who believe that the intoxicating hemp market needs to be banned entirely, which is not a popular opinion, but there are those who believe that it should be regulated the way that cannabis is regulated,” said Davis. Illinois Republican Congresswoman Mary Miller has proposed an amendment to change the definition of hemp and ban synthetic, intoxicating hemp-derived cannabinoids.

Industry experts warn that the legislation would wipe out a huge segment of the legal cannabis market.

Risk vs. Reward

So, with all this risk, is there enough reward? “Yes,” said Davis. “Because if you think about the size of this market, and it’s only been around for six years, it’s also trending up. And the reason for that is alcohol is dying. I mean, not dying, but people want an alternative. And that has come along at the same time as this hemp market.”

“If you’re not in a state where recreational cannabis is available, hemp is the equivalent at this point. When they’ve done polls, the majority of the country wants access to recreational cannabis. And now they have it in terms of intoxicating hemp.”

 

Be Proactive

In the absence of regulation, Davis urges clients to be proactive about self-regulation.

“I advise my clients to look at states that are more stringent, that have a more well-defined regulatory system like Kentucky, Minnesota and Florida, and self-impose those regulations,” said Davis.

“You cannot rely on your distributors or your manufacturers’ representation that your products are legal. You need to verify that what you have in your possession is legal. You need to spot-test your products on your own.

“You need to make sure that you are maintaining your products in a temperature-controlled environment if that’s what they require,” explained Davis. “You need to make sure that the products you are buying are labeled and packaged properly. Because the COA (certificate of analysis) from your manufacturer is not going to do you any good when a law enforcement officer comes knocking on your door.”

You need to verify that what you have in your possession is legal.

Legal Interpretations

“I love to work with the alternative wellness businesses and individual practitioners that operate in uncertain regulatory structures – this includes hemp and cannabis and medical spas, psychedelics practitioners and spiritual healers of many different modalities,” said Davis.

 “All these types of businesses need legal interpretation. But in the absence of black letter law, which is often the case, they need someone who can provide them with risk analysis. That takes understanding not just the law but also the current market, enforcement events, and political leanings.”

Davis Legal PLLC

555 Fayetteville St
c/o Industrious, #300,
Raleigh, NC 27601
(919) 756-6437
morgandavislegal.com

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