Sean Hocking, Author at Green Market Report

Sean HockingSean HockingJanuary 22, 2019
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2min20

Portland, Oregon (January 22, 2019) — Lane Powell attorney Ben Pirie has been elected to the Executive Committee of Oregon State Bar’s Cannabis Law Section. Pirie counsels cannabis businesses on a wide range of corporate and regulatory legal issues, including mergers and acquisitions, negotiating complex contracts, and corporate governance, as well as regulatory compliance in the emerging cannabis and hemp industries.

The Cannabis Law Section seeks to educate and promote cannabis law among Oregon lawyers and judges, and serves as a resource for lawyers that monitor federal enforcement activities and defend against federal government interference in state lawful cannabis activities.

Lane Powell’s Cannabis Team monitors developments in the law and shares updates on The Pipeline: Cannabis Law Advisor, maintains close ties with regulators and anticipates the impact of proposed rule changes to their clients’ businesses. The interdisciplinary team provides a myriad of legal services such as compliance strategies, business transactions and solutions, real estate, plant and process patents, dispute resolution, sophisticated state and federal tax counseling, and more.

Lane Powell offers a broad range of legal services providing insightful counsel to individuals and organizations on a local, national and international basis. The firm’s corporate, litigation and regulatory professionals collaborate across our locations to deliver practical solutions tailored to our clients’ unique business needs.


Sean HockingSean HockingJanuary 22, 2019
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6min80

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AUTHOR: LAUREN ESTEVEZ Esq
PUBLISHER:  CANNABIS LAW REPORT

Cannabis companies have gone global, and with that expansion comes additional legal considerations. Canadian cannabis company Aurora cannabis just announced that they will now be operating in Germany, Italy, and Australia, expanding their current international portfolio. Tilray distributes its products globally across Canada, Europe, Australia and Latin America. This post will explore some of the key legal provisions to include in an international cannabis (or hemp) contract — whether it be for supply, consulting services, or a joint venture.

Due Diligence

Due diligence is an essential step in any cannabis agreement — a brand new industry and a rapidly expanding market mean that opportunities abound. That being said, it’s essential to conduct thorough due diligence of any potential business partner, and if anything, international deals should be subject to even further review since you will often be dealing with legal regimes that differ from your own. As a start, make sure you have visited the facility, met with the business owners in person, thoroughly reviewed all company documents produced, and communicated with local regulatory agencies.

Choice of Law & Dispute Resolution

When you are pursuing a joint venture or supply agreement across borders, you will need to choose which country’s laws will govern the contract. Perhaps most important, you need to decide on a forum where any potential disputes arising out of the agreement will be resolved. You can take a blended approach and have the laws of both states govern and allow for resolution in either state. Consider this carefully as you are in the beginning stages of negotiation and make sure the clause is clearly drafted.

Conflict of Law

Given that operations will be held in different states, conflict of law provisions should clarify which laws govern which operations. If for example, you are one of the seven licensed Canadian producers setting up shop in Colombia, you will want the greenhouse operations to be governed by Colombian law first and foremost and perhaps additionally you will require certain regulatory standards that comply with Canada’s laws as well.

Waiver of Sovereign Immunity

Sovereign immunity is a legal doctrine which varies between countries but which as a general principle states that nations are protected from lawsuits, unless they have waived their immunity. The difficulty here arises when you have a company that acts like a private one, but which when a lawsuit is presented after a breach of contract, claims to be a state actor that cannot be sued. This is a simple clause to include in your international agreements and can become especially important in cases of breach or insolvency.

When negotiating or drafting international agreements for cannabis corporations, as with any contract, you should ensure that the agreement is valid, enforceable, and clear. Ultimately the negotiation of many of these terms will come down to the bargaining power of the parties, but some of the international considerations should be given additional attention so that the contract does end up in fact being enforceable in a practicable way.

Lauren Estevez is a Los Angeles based attorney advising cannabis and CBD companies, investors, and brands.

Lauren Estevez, Esq.
Attorney & Founder

(c) 617-945-8032 
4470 W. Sunset Blvd., Los Angeles, CA 90027

Sean HockingSean HockingJanuary 22, 2019
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12min370
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AUTHOR: By Jordan S. Zoot, CPA, aBIZinaBOX Inc.
PUBLISHER:  CANNABIS LAW REPORT

 

We were prompted to write this Post by the publication of an article explaining some of the reasons California’s cannabis tax collections fell so far behind projections. The article suggests other states should study California’s experience in planning legislation and regulation. We agree. Other states should carefully study California’s foray into the regulation of its cannabis industry. Other states may profit from those actions California took that were prudent and take heed of the several grievous errors California made.

Other states should recognize the unique circumstances of California’s cannabis industry when regulation arrived. Cannabis regulation came to California through a unique route that does not apply to other states. Other states will begin cannabis legalization and regulation with a relatively clean slate compared to California. Other states also have the advantage of far fewer self-proclaimed cannabis experts.

We generally agree with the article. The analysis in the article, however, fails to discuss some of the reasons California’s regulation of its cannabis industry has proved a disaster on so many fronts, particularly with respect to cannabis tax revenue and administrative costs.

The article is: https://www.zerohedge.com/news/2019-01-16/california-expected-1-billion-tax-sale-recreational-marijuana-what-actually.

California’s cannabis tax shortfall and its administrative cost overruns were predictable. The numerous other issues that have arisen in connection with California’s implementation of cannabis regulation were also predictable. These problems are the product of the application of sound concepts by talented individuals who failed to carefully examine the premises for their regulatory decisions. The cautionary remarks in the Report of the Blue Ribbon Commission led by now Governor Gavin Newsom were largely ignored in the rush to regulate California’s cannabis industry.

California had a mature cannabis industry when regulation first appeared on the scene.   California’s cannabis industry has been growing and maturing since the late ‘60s when many California hippies fled to Northern California and other remote locations to drop-out. Growers in Humboldt County skirmished with United States marines in the ‘80s. In the ‘90s California enacted Proposition 215. California has had a quasi-legal, semi-organized medical cannabis industry for over 20 years. It is noteworthy that the Harborside and the Alternative Care cases that generated so much attention in December of 2018 involved solely medical cannabis sales. The tax years at issue in these years preceded all California regulation. A substantial portion of the reasoning in these two cases was rendered moot by the regulatory regime California established effective January 1, 2018. Until 2015 all cannabis regulation in California was local except for the decision of the California Board of Equalization to impose Sales Tax on medical cannabis sales.

California’s missing cannabis tax revenues are not missing because California’s underground commercial cannabis industry did not pay cannabis taxes. Those individuals who conduct business in California’s underground commercial cannabis industry pay little, if any, taxes of any sort. A substantial number of these potential taxpayers have continued to conduct business in California’s underground cannabis industry because California made it so difficult for these potential taxpayers to migrate into the legal commercial cannabis market. The failure of California to make it easy for those individuals who were already involved in California’s cannabis industry to transition into a regulated commercial cannabis industry was a costly error.

California focused on developing regulations to control and track cannabis from seed to sale, to make this regulated industry to pay the costs of regulation, and to generate tax revenue. California’s focus on these points has gone a long way toward killing the goose that was laying golden eggs. California did not devote enough attention to enticing its established underground industry into joining in a regulated cannabis industry. California’s underground cannabis industry has divided into three groups of unknown proportions: those who have given up and moved on; those who will remain underground; and those who are trying to determine how to survive in a regulated environment.

While California’s existing cannabis industry has struggled with coming in from the cold, carpet-baggers and business sharks have descended on California’s cannabis industry like a plague of locusts. The tax revenue shortfalls and shifting legal cannabis sales projections evidence the abysmal failure of California to bring its underground cannabis industry into a regulated commercial market. Cannabis tax collections fell far short of projections. The number of licensed cannabis businesses is even farther behind projections.

For the foreseeable future California will have a substantial underground cannabis industry. As a consequence of Proposition 215, and the preservation of Proposition 215 in the passage of Proposition 64, a substantial underground cannabis economy will exist in California for the foreseeable future. The right of Californians to enjoy cannabis is enshrined in the California Constitution. Backyard grows that distribute to friends and family will exist in California for the foreseeable future. The California Constitution and a failed thirty-year war of drugs guarantee California will have a substantial underground cannabis industry for the foreseeable future.

We believe California may be able to get 70%-80% of the total cannabis production in California into the legal medical and recreational cannabis marketplace. California’s regulators need to wake up and smell the roses. California must concentrate on making it easy and profitable for cultivators to sell cannabis into the commercial cannabis market, including cannabis that flows from backyard grows into the commercial market. It must be easy for enterprising retirees to supplement Social Security with a few pounds from the back yard. California should consider it has established a model regime for regulated medical and recreational cannabis commerce if all significant cultivation sites by size are licensed, and all commercial medical and recreational cannabis is processed, packaged, transported, and delivered by licensed cannabis businesses.

California can accomplish far more within the existing legal framework than it has accomplished to date. California will never wholly eliminate outlaw cannabis cultivation. As long as there remains a substantial differential between cultivation costs for cannabis and street value of cannabis in the underground market, some will take the risk of breaking the law. Lower taxes and more enforcement are partial solutions. The reason lower taxes and more enforcement are only partial solutions provides a guide for more effective regulation.

Marketplace pressures will ultimately determine the size and shape of California’s underground cannabis market. The street price of cannabis will generally be in the range of 40%-60% of the dispensary price for the same product. California cannot significantly shrink its underground cannabis market unless it directs its efforts toward keeping the street price as close as possible to 60% of the dispensary price. Lower taxes and judicious enforcement will contribute. Far more can be accomplished, however, by making it easier for the underground cannabis industry to become part of the regulated industry.

One step California can take to reduce regulatory costs is to butt out of matters that should have been left to local control – land use and health and safety. California has regulated in areas in which it should have limited its involvement to principles and left the details relating to land use and health and safety to local jurisdictions.

Another step California can take is to encourage the distribution of medical cannabis. A significant differential will exist for the foreseeable future between the retail price of medical cannabis as compared to the retail price of adult-use cannabis as a consequence of California’s tax laws. This differential may increase when the federal tax laws relating to cannabis change. California has erroneously failed to encourage the distribution of medical cannabis. California should encourage the distribution medical cannabis. Reduced retail prices in the open market are the most effective way of shrinking the underground market. If the retail street price is less twice the bulk price demanded by cultivators, the potential profit will not justify the risk for many underground distributors.

Another step California can take is to encourage Cannabis Cooperative Associations (“CCAs”). CCAs provide a more financially efficient structure for the distribution of medical and adult-use cannabis in California. We will discuss CCAs more extensively in subsequent Posts.


Sean HockingSean HockingJanuary 21, 2019
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113min510

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AUTHOR: JORDAN ZOOT
PUBLISHER:  CANNABIS LAW REPORT

Tax practitioners often are accused of speaking a language that only they to understand…which may be an exaggeration, but in this case the accusation is ABSOLUTELY TRUE. Let’s begin with an old joke…how many sets of books does a business need to keep? The smart assed answer is two…”one set for the tax collector and one set that is accurate”. We all know how that story ends. The new reality is that a California cannabis business needs to maintain FOUR sets of books in order to comply with the requirements of the agencies that regulate California’s cannabis industry.

Now that we have your attention [and we assume that you are reading this material from the perspective of having a financial interest in the success of a “touch the plant” cannabis business in California], we will explain why this old joke is no longer funny. We will start with the IRS requirements for maintaining books and records for any business.

The U.S Dept. of the Treasury – Internal Revenue Service [the “IRS”] provides taxpayers with detailed guidance regarding the types of records a business is required to keep[1]. The IRS also describes how records should be maintained and how long these records must be maintained[2]. The IRS provides guidance about the purposes of records, uses of records, and outlines their expectations about the types of records that they expect taxpayers to maintain. California is still one of the 50 states. As a consequence, the requirements of the IRS trump the laws and regulations of California relating to books and records.

The California Franchise Tax Board has promulgated rules which track the statutes enacted by the California Legislature with respect to the conformity[3] of California’s tax rules to those enacted by the Federal Government and enforced by the IRS. Therefore, a taxpayer that is subject to the California income and franchise tax statutes is required to maintain a separate set of books for California income and franchise tax purposes. All California cannabis businesses are either owned by individuals or entities and are therefore subject to California income tax or franchise tax.

The California Dept. of Tax and Fee Administration [“CDTFA”] is the administrative agency for business entities that are subject both to Sales Tax, and to Cannabis Cultivation TAX [“CCT”] and Cannabis Excise Tax [“CET”]. The predecessor to CDTFA, the Board of Equalization [“BOE”] was the agency that administered Sales Tax before CCT and CET. The BOE has been promulgating regulations and enforcing its Sales Tax administration for decades. The rules and regulations relating to the books and records promulgated by the BOE, which have carried over to the CDTFA which now administers Sales Tax, are far more detailed than the guidelines of the IRS and FTB[4]. The Sales and Use Tax Law requirements with respect to books and records[5] are:

 

“Sellers and consumers must keep complete records of all business transactions, including sales, receipts, purchases and other expenditures and must retain the records for examination by the state.”

 

The Sales Tax laws continues with rules relating to the examination of those records[6]. The Sales Tax laws arms CDTFA with the power to impose personal liability on corporate officers and other “responsible persons” for failures to collect and pay-over Sales Tax[7].

The statute that imposes the Cannabis Cultivation Tax [“CCT”] and the Cannabis Excise Tax [“CET”] uses the same definition as Sales Tax for its definitions of “gross receipts” as well as for its definitions of “retail sale”, “purchase” and “transfer”. However, the Cannabis Tax law provides its own definition of “arm’s length transaction”[8] and a description of any individual as a “responsible person” is wholly absent. Finally, the Cannabis Tax laws create the need for yet another set of books and records as a consequence of the decision to tie CCT and CET into the so called “California Cannabis Track-and-Trace” pursuant to 18 CCR Sec. 3702[9].

The agencies within the State of California with primary responsibility for oversight of the cannabis industry for regulatory compliance are: the Bureau of Cannabis Control [“BCC”] for Retail [Dispensaries, Offsite Event and Distribution licensees; the California Department of Food and Agriculture’s [“CDFA”] CalCannabis Unit for Cultivation licensees; and the California Department of Public Health’s [“CDPH”] Manufactured Cannabis Safety Bureau [“MCSB”] for Manufacturing, Extraction and Testing Laboratories.

BCC has provided guidance with respect to the retention of required accounting records in Sec. 5037[10], track-and-trace records[11], and track-and-trace reporting requirements[12] for Retail Dispensaries. The     recordkeeping requirements are further augmented for Distributors[13].

CDPH-MCSB has added provisions which are substantially similar to the provisions created by BCC and CalCannabis in Subchapter 6, Article 1, Section 40500 – Record Keeping Requirements, Section 40505 – Sales Invoices and Receipts, Section 40510 Track-and-Trace System General Requirements, Section 40512. Track-and-Trace System Reporting Requirements, Section 40513 Track-and-Trace – Loss of Access, Section 40515 Track-and-Trace Temporary Licenses, and Section 40517 Track-and-Trace System – UID Tag Order.

 

We have spent 9,000-words and seventeen pages seeking to answer the question “how many sets of books must be maintained”. Perhaps the better approach, assuming the licensee has maintained all of the required records diligently is this. When an agency auditor shows up and says we are here to examine your books…just ask the auditor “which set of books would you like to review?”.

 

The recordkeeping requirements are mandated by CalCannabis for Cultivators include records[14], sales receipt and invoice requirements[15], track-and-trace requirements[16], track-and-track unique identifier requirements[17]. We are going to treat Section 8404 Track-and-Trace User Requirements, Section 8405 Track-and-Trace System Reporting Requirements, Section 8406 Track-and-Trace System Inventory Requirements, Section 8407 Track-and-Trace Cannabis and Non-Manufactured Cannabis Products in Temporary Licensee Possession at the Time of Annual License Issuance, Section 8408 – Inventory Audits, and Section 8409 Notification of Diversion, Theft, Losss or Criminal Activitiy are outside the scope of this article.

 

CalCannabis has provided specific guidelines for inspections and audits of licensees[18].

 

[1] The IRS provides guidance about the purposes of records, uses of records, and outlines their expectations about the

types of records that they expect taxpayers to maintain. We have provided an overview:

 

Monitor the progress of your business – You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.

 

Prepare your financial statements – You need good records to prepare accurate financial statements. These include income (profit and loss) statements and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business. An income statement shows the income and expenses of the business for a given period of time. A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Identify source of receipts. You will receive money or property from many sources. Your records can identify the source of your receipts. You need this information to separate business from nonbusiness receipts and taxable from nontaxable income.

 

Keep track of deductible expenses – You may forget expenses when you prepare your tax return unless you record them when they occur.

 

Prepare your tax returns – You need good records to prepare your tax returns. These records must support the income, expenses, and credits you report. These are the same records you use to monitor your business and prepare your financial statements.

 

Support items reported on tax returns – You must keep your business records available at all times for inspection by the IRS. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.

 

Electronic records – All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law.

 

An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. The electronic storage system must index, store, preserve, retrieve, and reproduce the electronically stored books and records in legible format. All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS.

 

Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures

are established to ensure continued compliance with all applicable rules and regulations. You still have the responsibility of retaining any other books and records that are required to be retained.

 

The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. This test is not considered an examination and the results must be shared with you. If your electronic storage system meets the requirements mentioned earlier, you will comply. If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. For details on electronic storage system requirements, See Revenue Procedure 97-22.

 

Specific Records to Keep – Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return. Keep them in an orderly fashion and in a safe place.

 

Gross Receipts – Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents that show gross receipts include the following. Cash register tapes. Bank deposit slips. Receipt books. Invoices. Credit card charge slips. Forms 1099-MISC.

 

Inventory – Inventory is any item you buy and resell to customers. If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Your supporting documents should show the amount paid and that the amount was for inventory. Documents reporting the cost of inventory include the following. Canceled checks. Cash register tape receipts. Credit card sales slips. Invoices. These records will help you determine the value of your inventory at the end of the year.

 

Expenses – Expenses are the costs you incur (other than the cost of inventory) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense. Documents for expenses include the following. Canceled checks. Cash register tapes. Account statements. Credit card sales slips. Invoices. Petty cash slips for small cash payments.

 

[2] Recording Business Transactions – A good recordkeeping system includes a summary of your business transactions. (Your business transactions are shown on the supporting documents just discussed.) Business transactions are ordinarily summarized in books called journals and ledgers. You can buy them at your local stationery or office supply store. A journal is a book where you record each business transaction shown on your supporting documents. You may have to keep separate journals for transactions that occur frequently. A ledger is a book that contains the totals from all of your journals. It is organized into different accounts.

Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. For example, a recordkeeping system for a small business might include the following items. Business checkbook. Daily summary of cash receipts. Monthly summary of cash receipts. Check disbursements journal. Depreciation worksheet. Employee compensation record.

 

[3] On September 30, 2015, AB 154, the Conformity Act of 2015 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2009, to January 1, 2015. California’s conformity results in numerous substantive changes to both personal and corporation tax law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2009. However, there are continuing differences between California and federal law. When California conforms to federal tax law changes, we do not always adopt all of the changes made at the federal level. An analysis of the Conformity Act of 2015 can be found here.

 

The detailed history of California’s conformity to Federal law continues with:

 

2012 Conformity

Rollover of Airline Payments to Traditional IRAs

On February 14, 2012, the president signed the FAA Modernization and Reform Act into law. The Act allows qualified airline employees who participated in pension plans that were terminated as a result of airline bankruptcies during 2001-2007 to transfer an airline payment amount received by the employee to a traditional IRA. Under the provisions of the Act, qualified airline employees can roll over up to 90% of such payments to a traditional IRA. The new law also allows a qualified airline employee who previously rolled over an airline payment amount to a Roth IRA to transfer up to 90% of the payment to a traditional IRA. The airline payment amount rolled over to a traditional IRA may be excluded from gross income in the taxable year such payment was initially received by the employee. The IRA contribution must be made within 180 days from the date the payment was received or before August 14, 2012, whichever is later.

The California treatment of pension income is generally the same as federal treatment. The FAA Modernization and Reform Act provides for an extended period of limitations, if needed, to file an amended federal tax return for the year in which an airline payment amount was received. California taxpayers who file an amended federal tax return excluding airline payment amounts from gross income will need to file Form 540X, Amended Individual Income Tax Return, in order to report the changes for California income tax purposes. For more information, see Rollover of Airline Payments to Traditional IRAs.

 

Taxable Year 2011 – California Conformity to Federal Law

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010. California’s conformity results in numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2005. The Act would also conform to the February 17, 2009, federal legislation providing an exclusion from gross income in any taxable year for energy grants provided in lieu of federal energy credits.

Yearly Summary of Federal Income Tax Changes

On or before January 10 of each year (unless federal changes are enacted late in the year), we provide an annual report (Summary of Federal Income Tax Changes) to the Legislature concerning changes to federal tax law occurring during the previous calendar year and the effect of those changes on California law.

 

Taxable Year 2010 – California Conformity to Federal Law

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010. California’s conformity results in numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2005. The Act would also conform to the February 17, 2009, federal legislation providing an exclusion from gross income in any taxable year for energy grants provided in lieu of federal energy credits.

Summary of Federal Health Care Acts — 2010

The following are provisions of the new law affecting taxable years beginning prior to January 1, 2010. In addition, we will also provide updates about changes to the law for taxable years beginning on or after January 1, 2010.

Mortgage Forgiveness Debt Relief Extended

The Act allows taxpayers that had all or part of the loan balance on their principal residence forgiven by their lender to exclude the forgiven debt from gross income. The new law applies to discharges of qualified principal residence indebtedness on or after January 1, 2009, and before January 1, 2013. Go to Mortgage Forgiveness Debt Relief for additional information.

Income Exclusion of Federal Energy Grants

The Act provides that federal energy grants provided in lieu of federal energy credits are excluded from California gross income and alternative minimum taxable income of individuals and business. The income exclusion is applicable for any taxable year and is thus retroactive in its application.

Hokie Spirit Memorial Fund Exclusion

The Act allows a California taxpayer to exclude from gross income any amount received from the Virginia Polytechnic Institute and State University, out of amounts transferred from the Hokie Spirit Memorial Fund established by the Virginia Tech Foundation. The income is excluded from gross income for any taxable year and is thus retroactive in its application.

 

Taxable Year 2009 – California Conformity to Federal Law

On April 12, 2010, SB 401, the Conformity Act of 2010 was enacted. The Act changes California’s conformity date to the Internal Revenue Code from January 1, 2005, to January 1, 2009, for taxable years beginning on or after January 1, 2010. California’s conformity results in numerous substantive changes to both the Personal Income Tax Law and the Corporation Tax Law with respect to those areas of preexisting conformity that are subject to changes under federal laws enacted after January 1, 2005. The Act would also conform to the February 17, 2009, federal legislation providing an exclusion from gross income in any taxable year for energy grants provided in lieu of federal energy credits.

Federal Law Changes

American Recovery and Reinvestment Act of 2009 (PL 111-5, H.R. 1) enacted January 6, 2009. This provides supplemental appropriations for job preservation and creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and State and local fiscal stabilization, for the fiscal year ending September 30, 2009 and for other purposes.

 

Taxable Year 2008 – California Conformity to Federal Law

In general, California income tax law is based on federal income tax law. Usually, this is accomplished by conforming to specific provisions of the Internal Revenue Code (IRC) by reference as of a “specified date”, which is currently January 1, 2005. However, not all provisions of the IRC are applicable for California purposes. In addition, not all federal changes to a particular provision are applicable for California purposes for the same period and to the same extent the change is applicable for federal purposes.

Economic Stimulus Act of 2008 (PL 110-185, H.R. 5140) enacted February 13, 2008. This provides economic stimulus through recovery rebates to individuals, incentives for business investment, and an increase in the maximum amounts of mortgage loans issued by Fannie Mae and Freddie Mac.

Food, Conservation, and Energy Act of 2008 (PL 110-234, H.R. 2419 and reenacted by PL 110-246, HR 6124) enacted May 22, 2008. This act runs from 2008 through 2012 and reauthorizes most programs of the 2002 farm bill.

Heroes Earnings Assistance and Relief Tax Act of 2008 (PL 110-245, H.R. 6081) enacted June 17, 2008. This amends the IRC to provide tax benefits and incentives for military personnel.

Housing and Economic Recovery Act of 2008 (PL 110-289, H.R. 3221) enacted July 30, 2008. This provides four important tax law changes that impact individuals and small businesses. The changes are (1) tax credit of up to $7,500 for first-time homebuyers, to be repaid over 15 years; (2) property tax deduction for people who don’t itemize; (3) reporting of credit card and merchant payments to the IRS; and (4) prorated capital gains exclusion for real estate for periods of nonprimary use.

Emergency Economic Stabilization Act of 2008 (PL 110-343 H.R. 1424) enacted October 3, 2008. This act is intended to restore liquidity and stability to the financial system of the United States.

The Worker, Retiree, and Employer Recovery Act of 2008 ( H.R. 7327) enacted December 23, 2008. The act suspends the requirement to make annual minimum distributions from retirement plan accounts in 2009. The act provides pension funding relief for both single employer and multiple employer plans.

We provide an annual report (Summary of Federal Income Tax Changes) to the legislature on or before January 10th of each year (unless federal changes are enacted late in the year) concerning changes to federal tax law. See below for the Summary of Federal Income Tax Changes.

 

Taxable Year 2007 – California Conformity to Federal Law

In general, California income tax law is based on federal income tax law. Usually, this is accomplished by conforming to specific provisions of the Internal Revenue Code (IRC) by reference as of a “specified date”, which is currently January 1, 2005. However, not all provisions of the IRC are applicable for California purposes. In addition, not all federal changes to a particular provision are applicable for California purposes for the same period and to the same extent the change is applicable for federal purposes.

Small Business and Work Opportunity Tax Act of 2007 – (Subtitle B of TITLE VIII of Federal P.L. 110-28) – Enacted into law on May 25, 2007 and is generally effective for taxable years after the date of enactment. This act affects provisions from the Gulf Opportunity Zone Tax Incentives, Subchapter S provisions, other general and revenue provisions.

FTB Analysis of Small Business and Work Opportunity Tax Act of 2007 – (Subtitle B of TITLE VIII of Federal P.L. 110-28)

We provide an annual report (Summary of Federal Income Tax Changes) to the legislature on or before January 10th of each year (unless federal changes are enacted late in the year) concerning changes to federal tax law. See below for the Summary of Federal Income Tax Changes.

 

Taxable Year 2006 – California Conformity to Federal Law

In general, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2005. However, there are differences between California and federal law. Also, please note that California does not always conform to all of the provisions of a federal public law. For example, California does not conform to certain provisions of the American Jobs Creation Act (AJCA) of 2004 (P.L. 108-357). Also, California in general does not conform to the provisions of the Katrina Emergency Tax Relief Act of 2005 (P.L. 109-73).

The Heroes Earned Retirement Opportunities Act (P.L. 109-227) is applicable for California purposes. Some provisions of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) and the Pension Protection Act of 2006 (P.L. 109-280) are also applicable for California purposes. California conforms to the federal Pension Protection Act change, applicable for taxable year 2006, that allows tax-free distribution from traditional and Roth IRAs from taxpayers who are age 70 ½ or older of up to $100,000 for charitable contribution purposes. (This change is for tax years 2006 and 2007 only.)

We provide an annual report (Summary of Federal Income Tax Changes) to the legislature on or before January 10th of each year (unless federal changes are enacted late in the year) concerning changes to federal tax law. See below for the Summary of Federal Income Tax Changes.

 

Taxable Year 2005 – California Conformity to Federal Law

In general, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2005. However, there are continuing differences between California and federal law. It should be noted that California does not always conform to the entire provisions of a public law. For example, California does not conform to certain provisions of the American Jobs Creation Act (AJCA) of 2004 (P.L. 108-357). Also, California in general does not conform to the provisions of the Katrina Emergency Tax Relief Act of 2005 (P. L. 109-73). Also see: Conformity-related impacts of Assembly Bill 115 (Stats. 2005, Ch. 691).

 

Taxable Year 2004 – California Conformity to Federal Law

In general, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2001. However, there are continuing differences between California and federal law. It should be noted that California does not always conform to the entire provisions of a public law. California has conformed to some of the changes made to the IRC after January 1, 2001, including some provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16), the Victims of Terrorism Tax Relief Act of 2001 (Public Law 107-134), and the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147). In addition, California has now conformed to the Military Family Tax Relief Act of 2003 (Public Law 108-121). California has not conformed to any of the provisions of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (Public Law 108-27), the Working Families Tax Relief Act of 2004 (Public Law 108-311) and the American Jobs Creation Act (Public Law 108-357). However, pursuant to Revenue and Taxation Code Section 23801 any federal S corporation is a California S corporation and any shareholder of a federal S corporation is a shareholder of a California S corporation. Thus the expansion of eligibility for S corporation status contained in the American Jobs Creation Act (Public Law 108-357), is applicable under California law. California has not conformed to the new federal Health Savings Accounts contained in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173).

The original changes to the conformity between Federal and California law date back to 1981 and for the period 1981 – 2000 are beyond the scope of this memorandum.

[4] See several important examples of that authority –

 

Determination based on estimate.—The board does not exceed its authority in establishing taxable receipts on the basis of cost of goods sold plus appropriate markups, since the Sales and Use Tax Law clearly contemplates an examination of the documents of original entry to ascertain whether the books and the sales tax returns reflect accurately the taxable transactions made by the taxpayer. Maganini v. Quinn (1950) 99 Cal.App.2d

 

Consistency of Taxpayer’s Books and Records Not Conclusive.—Even though a taxpayer’s books and records are comprehensive and in agreement with each other, the Board is not required to accept such evidence as conclusive and may use recognized and standard accounting procedures to establish tax liability. Where the Board establishes a deficiency, the burden of proof is upon the taxpayer to explain any disparity between his books and records and the results of the Board’s audit. Riley B’s, Inc. v. State Board of Equalization (1976) 61 Cal.App.3d 610.

 

[5] Chapter 8, Section 7053 provides

Records. Every seller, every retailer as defined in subdivision (b) of Section 6015, and every person storing, using, or otherwise consuming in this State tangible personal property purchased from a retailer shall keep such records, receipts, invoices, and other pertinent papers in such form as the board may require.

Evidence.—The state is not bound to accept the statements of the taxpayer, unsupported by any record, which are contrary to entries in his books of transactions pointing to a larger sum as the true total. People v. Schwartz (1947) 31 Cal.2d 59.

Adequate records must support all claimed exemptions.—Taxpayer did not maintain records adequate to support claimed exempt sales of animal feed, because sales invoices were not correlated to exemption certificates. Paine v. State Board of Equalization (1982) 137 Cal.App.3d 438.

 

[6] Chapter 8, Section 7054 provides:

“Examination of records. The board or any person authorized in writing by it may examine the books, papers, records, and equipment of any person selling tangible personal property and any person liable for the use tax and may investigate the character of the business of the person in order to verify the accuracy of any return made, or, if no return is made by the person, to ascertain and determine the amount required to be paid.

Post-audit test as admissible evidence.—Board’s test period results were properly admitted as evidence where sales during test period were representative of sales during audit period and where taxpayer’s business remained similar in both periods. Paine v. State Board of Equalization (1982) 137 Cal.App.3d 438.”

 

[7] Personal liability of corporate officer.

Sec. 6829

  • Upon the termination, dissolution, or abandonment of the business of a corporation, partnership, limited partnership, limited liability partnership or limited liability company, any officer, member, manager, partner, or other person having control or supervision of, or who is charged with the responsibility for the filing of returns or the payment of tax, or who is under a duty to act for the corporation, partnership, limited partnership, limited liability partnership, or limited liability company in complying with any requirement of this part, shall, notwithstanding any provision in the Corporations Code to the contrary, be personally liable for any unpaid taxes and interest and penalties on those taxes, if the officer, member, manager, partner, or other person willfully fails to pay or to cause to be paid any taxes due from the corporation, partnership, limited partnership, limited liability partnership, or limited liability company pursuant to this part.

 

  • The officer, member, manager, partner, or other person shall be liable only for taxes that became due during the period he or she had the control, supervision, responsibility, or duty to act for the corporation, partnership, limited partnership, limited liability partnership, or limited liability company described in subdivision (a), plus interest and penalties on those taxes.

 

  • Personal liability may be imposed pursuant to this section, only if the board can establish that the corporation, partnership, limited partnership, limited liability partnership, or limited liability company had included tax reimbursement in the selling price of, or added tax reimbursement to the selling price of, tangible personal property sold in the conduct of its business, or when it can be established that the corporation, partnership, limited partnership, limited liability partnership, or limited liability company consumed tangible personal property and failed to pay the tax to the seller or has included use tax on the billing and collected the use tax or has issued a receipt for the use tax and failed to report and pay use tax.

 

  • For purposes of this section “willfully fails to pay or to cause to be paid” means that the failure was the result of an intentional, conscious, and voluntary course of action.

 

  • Except as provided in subdivision (f), the sum due for the liability under this section may be collected by determination and collection in the manner provided in Chapter 5 (commencing with Section 6451) and Chapter 6 (commencing with Section 6701).

 

(f) A notice of deficiency determination under this section shall be mailed within three years after the last day of the calendar month following the quarterly period in which the board obtains actual knowledge, through its audit or compliance activities, or by written communication by the business or its representative, of the termination, dissolution, or abandonment of the business of the corporation, partnership, limited partnership, limited liability partnership, or limited liability company, or, within eight years after the last day of the calendar month following the quarterly period in which the corporation, partnership, limited partnership, limited liability partnership, or limited liability company business was terminated, dissolved, or abandoned, whichever period expires earlier. If a business or its representative files a notice of termination, dissolution, or abandonment of its business with a state or local agency other than the board, this filing shall not constitute actual knowledge by the board under this section.”

 

[8] Section 34010(a) which provides

“Arm’s length transaction” shall mean a sale entered into in good faith and for valuable consideration that reflects the fair market value in the open market between two informed and willing parties, neither under any compulsion to participate in the transaction.”

 

[9] 18 CCR Sec. 3702 provides

“A distributor or cannabis retailer that is required to record commercial cannabis activity in the California Cannabis Track-and-Trace system pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (commencing with Section 26000 of the Business and Professions Code), shall enter into the California Cannabis Track-and-Trace system specified information as follows:

 

  • Wholesale Cost. When cannabis or cannabis products are sold or transferred to a cannabis retailer in an arm’s length transaction, the distributor and cannabis retailer shall enter the cannabis retailer’s wholesale cost of the cannabis or cannabis products.

 

(2) Retail Selling Price. When cannabis or cannabis products are sold in a retail sale, the cannabis retailer shall enter the retail selling price of the cannabis or cannabis products.”

 

[10] 5037. Record Retention.

(a)Each licensee shall keep and maintain the following records related to commercial cannabis activity for at least seven years:

(1)Financial records including, but not limited to, bank statements, sales invoices, receipts, tax records, and all records required by the California Department of Tax and Fee Administration (formerly Board of Equalization)under title 18, California Code of Regulations, Sections 1698 and 4901.

(2)Personnel records, including each employee’s full name, social security or individual tax payer identification number, date employment begins, and date of termination of employment if applicable.

(3)Training records including, but not limited to, the content of the training provided and the names of the employees that received the training.

(4)Contracts with other licensees regarding commercial cannabis activity.

(5)Permits, licenses, and other local authorizations to conduct the licensee’s commercial cannabis activity.

(6)Security records, except for surveillance recordings required pursuant to section 5044 of this division.

 (7)Records relating to the composting or destruction of cannabis goods.

(8)Documentation for data or information entered into the track and trace system.

(9)All other documents prepared or executed by an owner or their employees or assignees in connection with the licensed commercial cannabis business.

(b) All required records shall be prepared and retained in accordance with the following conditions:

  • Records shall be legible; and

 

(2) Records shall be stored in a secured area where the records are protected from debris, moisture, contamination, hazardous waste, fire, and theft.

(c) The Bureau may make any examination of the books and records of any licensee as it deems necessary to perform its duties under the Act.

(d) All records are subject to review by the Bureau any time the licensee is exercising the privileges of the license or at any other time as mutually agreed to by the Bureau and the licensee. Prior notice by the Bureau to review records is not necessary. The Bureau may review records outside of the licensee’s standard daily business hours.

(e) Records shall be kept in a manner that allows records to be produced for the Bureau immediately upon request at the licensed premises in either hard copy or electronic form, whichever the Bureau requests.”

 

[11] 5048. Track and Trace System.

“(a) A licensee shall create and maintain an active and functional account within the track and trace system prior to engaging in any commercial cannabis activity, including the purchase, sale, test, packaging, transfer, transport, return, destruction, or disposal, of any cannabis goods.

(b)A licensee shall designate one individual owner as the track and trace system account manager. The account manager may authorize additional owners or employees as track and trace system users and shall ensure that each user is trained on the track and trace system prior to its access or use.

(1)The account manager shall attend and successfully complete all required track and trace system training, including any orientation and continuing education.

(2)If the account manager did not complete the required track and trace system training prior to receiving their annual license, the account manager shall sign up for and complete state mandated training, as prescribed by the Bureau, within five calendar days of license issuance.

(c) The account manager and each user shall be assigned a unique log-on, consisting of a username and password. The account manager or each user accessing the track and trace system shall only do so under his or her assigned log-on, and shall not use or access a log-on of any other individual. No account manager or user shall share or transfer his orher log-on, username, or password, to be used by any other individual for any reason.

(d) The account manager shall maintain a complete, accurate, and up-to-date list of all track and trace system users, consisting of their full names and usernames.

 

  • A licensee shall monitor all compliance notifications from the track and trace system, and timely resolve the issues detailed in the compliance notification.
  • A licensee shall keep a record, independent of the track and trace system, of all compliance notifications received from the track and trace system, and how and when compliance was achieved.
  • If a licensee is unable to resolve a compliance notification within three business days of receiving the notification, the licensee shall notify the Bureau immediately, by submitting the Notification and Request Form, BCC-LIC-027 (New 10/18), which is incorporated herein by reference.

 

(f)A licensee is accountable for all actions its owners or employees take while logged into or using the track and trace system, or otherwise while conducting track and trace activities.”

 

[12] 5049. Track and Trace Reporting.

“(a)A licensee shall record in the track and trace system all commercial cannabis activity, including:

(1)Packaging of cannabis goods.

(2)Sale and transfer of cannabis goods.

(3)Transportation of cannabis goods to a licensee.

(4)Receipt of cannabis goods.

(5)Return of cannabis goods. 

(6)Destruction and disposal of cannabis goods. 

(7)Laboratory testing and results.

(8)Any other activity as required pursuant to this division, or by any other licensing authority.

(b) The following information shall be recorded for each activity entered in the track and trace system:

(1)Name and type of the cannabis goods.

(2)Unique identifier of the cannabis goods.

(3)Amount of the cannabis goods, by weight or count, and total wholesale cost of the cannabis goods, as applicable.

(4)Date and time of the activity or transaction.

(5)Name and license number of other licensees involved in the activity or transaction.

(6)If the cannabis goods are being transported:

(A)The licensee shall transport pursuant to a shipping manifest generated through the track and trace system, that includes items (1) through (5) of this subsection, as well as: 

(i)The name, license number, and licensed premises address of the originating licensee.

(ii)The name, license number, and licensed premises address of the licensee transporting the cannabis goods.

(iii)The name, license number, and licensed premises address of the destination licensee receiving the cannabis goods into inventory or storage

(iv)The date and time of departure from the licensed premises and approximate date and time of departure from each subsequent licensed premises, if any. 

(v)Arrival date and estimated time of arrival at each licensed premises.

(vi)Driver license number of the personnel transporting the cannabis goods, and the make, model, and license plate number of the vehicle used for transport.

(B)Upon pick-up or receipt of cannabis goods for transport, storage, or inventory, a licensee shall ensure that the cannabis goods received are as described in the shipping manifest, and shall record acceptance or receipt, and acknowledgment of the cannabis goods in the track and trace system.

(C)If there are any discrepancies between the type or quantity of cannabis goods specified in the shipping manifest and the type or quantity received by the licensee, the licensee shall record and document the discrepancy in the track and trace system and in any relevant business record.

(7) If cannabis goods are being destroyed or disposed of, the licensee shall record in the track and trace system the following additional information:

(A) The name of the employee performing the destruction or disposa 

(B)The reason for destruction and disposal.

(C)The entity disposing of the cannabis waste.  

(8) Description for any adjustments made in the track and trace system, including, but not limited to:

  • Spoilage or fouling of the cannabis goods.
  • Any event resulting in damage, exposure, or compromise of the cannabis goods.

(9) Any other information as required pursuant to this division, or by any other applicable licensing authorities.

(c) Unless otherwise specified, all transactions must be entered into the track and trace system within 24 hours of occurrence.

(d) Licensees shall only enter and record complete and accurate information into the track and trace system, and shall correct any known errors entered into the track and trace system immediately upon discovery.”

[13] 5310. Records.

“In addition to the records required by section 5037 of this division, a licensed Distributor shall maintain the following records:

  • Records relating to branding, packaging and labeling;
  • Inventory logs and records;
  • Transportation bills of lading and shipping manifests for completed transports and for cannabis goods in transit;
  • Vehicle and trailer ownership records;
  • Quality-assurance records;
  • Records relating to destruction and disposal of cannabis goods;
  • Laboratory-testing records;
  • Warehouse receipts; and
  • Records relating to tax payments collected and paid under Revenue and Taxation Code sections 34011 and 34012.”

 

[14]  8400. Record Retention. For the purposes of this chapter,“record” includes all records, applications, reports, or other supporting documents required by the department. 

“(a)Each licensee shall keep andmaintain the records listed in subsection 8400(d) of this chapter for at least seven (7) years from the date the document was created.

(b)Licensees shall keep records, either electronically or otherwise, identified in section 8400(d) of this chapter on the premises of the location licensed. All required records shall be kept in a manner that allows the records to be examined provided at the licensed premises or delivered to te department, upon request. 

(c)All records are subject toreview by the department during standard business hours or at any other reasonable time as mutually agreed to by the department and the licensee. For the purposes of this section, standad business hours are deemed to be 8:00am  5:00pm (Pacific Standard Time). Prior notice by the department to review records is not required. 

(d)  Each licensee shall maintain all the following records on the licensed premises, including but not limited to: 

  • Department issued cultivation license(s); 
  • Cultivation plan; 
  • All records evidencing compliance with the environmental protection measures pursuant to sections 8304, 830 8306, and 8307 of this chapter; 
  • All supporting documentation for data or information entered into the trackandtrace system; 
  • All UIDs assigned to product in inventory and all unassigned UIDs. UIDs associated with product that has been retired from the trackandtrace system must be retained for six (6) months after the date the tags were retired; 
  • Financial records related to the licensed commercial cannabis activity, including but not limited to, bank statements, tax records, contracts, purchase orders, sales invoices, and sales receipts; 
  • Personnel records, including each employee’s full name, social security number or individual taxpayer identifition number, date of beginning employment, and, if applicable, date of termination of employment; 
  • Records related to employee training for the track and trace system or other requirements of this chapter. Records shall include, but are not limited to, the date(s) training occurred, description of the training provided, and the names of the employees that received the training; 
  • Contracts with other state licensed cannabis businesses; 
  • All permits, licenses, and other authorizations to conduct the licensee’s commercial cannabis activity; 
  • Records associated with composting or disposal of cannabis waste; 
  • Documentation associated with loss of access to the track nad trace system prepared pursuant to section 8402(d) of this chapter. 

 

(e)   All required records shall be prepared and retained in accordance with the following conditions: 

  • Records shall be legible; and 
  • Records shall be stored in a secured area where the records are protected from debris, moisture, contamination, hazardous waste, fire, and theft”. 

 

[15] 8401. Sales Invoice or Receipt Requirements.

“The licensee shall prepare a sales invoice or receipt for every sale, transport, or transfer of cannabis or nonmanufactured cannabis product to another licensee. Salesinvoices and receipts may be retained electronically but must be readily 

accessible for examination by the department, other state licensing authorities, any state or local law enforcement authority, and the California Department of Tax and Fee Administration. Each sales invoice or receipt shall include all of the following: 

 

  • Name, business address, and department or other licensing authority issued license number of the seller; 
  • Name, business address, and department or other licensing authority issued license number of the purchaser
  • Date of sale or transfer (month, day, and year). The date of any sale or transfer of cannabis and nonmanufacturedcannabis products shall be the date of transfer to the licenseereceiving it; 
  • Invoice or receipt number; 
  • Weight or quantity of cannabis and nonmanufactured cannabis products sold or transferred; 

 

(1)  Weight. For the purposes ofthis section a licensee must use wet weight or net weight. Wet weight and net weight shall be determined following weighing device requirements pursuant to section 8213 of this chapter and measured, recorded, and reported in U.S. customary units (e.g., ounce or pound); or International System of Units (e.g., kilograms, grams, or milligrams). 

 

(2)  Weighing Devices. A licensee shall follow weighing device requirements pursuant to section 8213 of this chapter. 

  • Cost to the purchaser, including any discount applied to the total price, shall be recorded on the invoice; 
  • Description for each item, including strain or cultivar, and all of the applicable information below: 

 

(1)  Plant; 

(2)  Flower; 

(3)  Leaf;  

(4)  Shake; 

(5)  Kief; and 

(6)  Prerolls. 

         (h)Signature of the seller, or designated representative of the seller, acknowledging accuracy of the cannabis and nonmanufactured cannabis products being shipped; 

(i)Signature of the purchaser, or designated representative of the purchaser, acknowledging receipt or rejection of thecannabis or nonmanufactured cannabis products.”

[16] 8402. Track‐and‐Trace System.

“Except as provided in section 8405(e) of this chapter, each licensee shall report in the department’s trackand trace system the disposition of immature and mature plants, nonmanufactured cannabis products on the licensed premises, any transfers associated with commercial cannabis activity between licensees,and any cannabis waste pursuant to this chapter. 

  • The licensee is responsiblefor the accuracy and completeness of all data and information entered into the track-and-trace system. Data entered into the track and trace system is assumed to be accurate and can be used to take enforcement action against the licensee if not corrected. 
  • Each licensee shall use the trackandtrace system for recording all applicable commercial cannabis activities. Each licensee shall: 

 

(1)   Designate an owner or other natural person(s) in the licensee’s organization that can legally represent the license 

to be the licensee’s trackandtrace account manager(s); 

(2)   Require the trackandtrace account manager to complete trackandtrace system training. If the designated 

account manager did not complete the trackandtrace system training prior to the licensee receiving their annual 

license, the account manager will be required to register for the trackandtrace system training provided by the  department within five (5) business days of license issuance; 

 (3)   Designate trackandtrace system users, as needed, and require the users to be trained

 by the licensee’s trackandtrace account manager in the proper and lawful use of the trackand trace system before the users are permitted to access the trackandtrace system; 

(4)   Require the trackandtrace account manager to maintain an accurate and complete list of all trackandtrace 

system account managers and users and update the list immediately when changes occur; 

 (5)   Cancel any trackandtrace users from the licensee’s trackandtrace system account if that individual is no longer 

authorized to represent the licensee; and 

(6)   Correct any data that is entered into the trackandtrace system in error within three (3) business days of discovery of the error. 

(c) Pursuant to section 8109 of this chapter, each licensee shall identify an owner in the licensee’s organizatn     on to be the licensee’s trackandtrace system account manager. The licensee’s designated trackand trace system account manager shall be responsible for all the following: 

 

(1)  Complete trackandtrace system training provided by the department. If the designated account manager did not 

complete the trackandtrace system training prior to the licensee receiving his or her annual license, the 

designated account manager will be required to register for them trackandtrace system training provided by the 

department within five (5) calendar days of license issuance; 

 

(2)  Designate trackand trace system users, as needed, and require the users to be trained in the proper and lawful use of the trackandtrace system before the users are permitted to access the trackandtrace system; 

 

(3)  Maintain an accurate and complete list of all trackandtrace system users and update the list immediately when 

changes occur; 

 

(4)  Within three (3) calendar days, cancel the access rights of any trackandtrace user from the licensee’s trackand

trace system account if that individual is no longer authorized to use the licensee’s trackandtrace system account; 

 

(5)  Correct any data that is entered into the trackand trace system in error within three (3) calendar days of discovery of the error; and 

 

(6)   Notify the department immediately for any loss of access that exceeds three (3) calendar days.

 

  • The licensee is responsible for all actions any licensee representatives take while logged into the trackandtrace system or otherwise conducting commercial cannabis activities access and use of the licensee’s trackand trace system account. 

 

  • If a licensee loses access to the trackandtrace system for any reason, the licensee shall prepare and maintain comprehensive records detailing all required inventory trackingactivities conducted during the loss of access. 

 

(1)  Once access to the trackandtrace system is restored, all inventory tracking activities that occurred during the loss of access shall be entered into the trackand trace system within three (3) calendar business days. 

 

(2)  A licensee shall document the date and time when access to the trackandtrace system was lost, when it was restored, and the cause for each loss of access. 

 

(3)  A licensee shall not transfer cannabis or nonmanufactured cannabis products to a distributor until such time as access to the system is restored and all information is recorded into the trackandtrace system.”

 

[17] 8403. Track‐and‐Trace System Unique Identifiers (UID).

 

(a)  Within five (5) calendar business days of the date the licensee’s designated account manager(s) was credentialed by the department to use the trackandtrace system, the designated account manager licensee shall request UIDs using the trackandtrace system as prescribed by the department in Artic le 5 of this chapter. 

 

(1)  The licensee shall only use UIDs provisioned and distributed by the department, or the department’s designee. 

 

(2)  The licensee shall maintain a sufficient supply of UIDs in inventory to support tagging in accordance with this 

section. 

 

(3)  The licensee shall use the trackandtrace system to document receipt of provisioned and distributed UIDs within 

three (3) calendar business days of physical receipt of the UIDs by the licensee. 

 

(4)  Except as provided in section 8407 of this chapter, all cannabis shall be entered into the trackandtrace system by the licensee starting with seed, cannabis which has been propagated onsite or purchased from a licened nursery, or seedling purchased from a licensed nursery pursuant to this chapter. 

 

(b)  The UID shall accompany the cannabis products through all phases of the growing cycle, as follows: 

 

(1)  Licensees with immature plants shall assign a UID to each established lot respectively. The lot UID shall be placed in a position so it is visible and within clear view of an individual standing next to the immature lot to which the UID was assigned, and all UIDs shall be kept free from dirt and debris. For the purposes of this subsection, each lot of imaure plants shall be uniform in strain or cultivar and shall not have more than one hundred (100) immature plants at any one time. All immature plants in a lot shall be labeled with the corresponding UID number assigned to the lot and shall be contiguous to one another to facilitate identification by the department. 

 

(2)  Immature plants transferred from a licensed nursery, via a distributor, to a licensed cultivator shall meet 

requirements of subsection (b)(1) above. Each immature plant intended for retail sale shall have a UID affixed, or be  labeled with the corresponding UID number of the lot, and be recorded in the trackandtrace system prior to  transfer from the licensed nursery. 

 

(3)  The licensee shall apply a UID to all individual plants at the time any plant is moved to the designated canopy area or when an individual plant begins flowering, as defined in section 8000(l) of this chapter. The licensee may tag individual immature plants prior to movement to the designated canopy area or prior to flowering. 

 

(4)  UIDs are required for each mature plant. UIDs shall be attached to the main stem, at the base of each plant. The UID shall be attached to the plant using a tamper evident strap or zip tie and placed in a position so it is visible and  itwithin clear view of an individual standing next to the mature plant to which the UID was assigned and UIDs shall be kept free from dirt and debris. Licensees are prohibited from removing the UID frm the mature plant to which it was attached and assigned until the plant is harvested, destroyed, or disposed. 

 

(c)   Each harvest batch shall be assigned a unique harvest batch name which will be associated with all UIDs for each individual plant, or portion thereof, contained in the harvest batch. 

 

(d)  UIDs are required for all cannabis and nonmanufactured cannabis products and shall be associated with the  corresponding harvest batch name from which the cannabis and non-manufactured cannabis products were derived. 

 

(e)   Upon destruction or disposal of any cannabis or nonmanufactured cannabis products, te applicable UIDs shall be retired in the trackandtrace system by the licensee within three (3) calendar business days of the destruction or disposal and be performed in accordance with the licensee’s approved cannabis waste management plan.

 

[18] § 8500. Inspections, Investigations, and Audits Applicability.

 

(a)  All licensees and applicants shall be subject to inspection, investigation, or audit of their licensed premises and records by the department to determine compliance with applicable laws and regulations. 

 

(b)  Inspections, investigations, and audits may be conducted by the department in coordination with the California Department of Fish and Wildlife and the State Water Resources Control Board consistent with section 12029, subdivision (c) of the Fish and Game Code. 

 

  • 8501. Inspections, Investigations, Examinations, and Audits.

 

The department shall conduct inspections, investigations, examinations, and audits of licensees including, but not limited to,a review of any books, records, accounts, inventory, or onsite  operations specific to the license.

  • The department may conduct an inspection, investigation, examination, or audit for any of the following purposes:
  • To determine accuracy and completeness of the application prior to issuing a license;
  • To determine compliance with license requirements including, but not limited to, the cultivation plan;
  • To audit or inspect any records outlined in section 8400 of this chapter;
  • To respond to a complaint(s) received by the department regarding the licensee;
  • To inspect incoming or outgoing shipments of cannabis and nonmanufactured cannabis products; and

 

(6)  As deemed necessary by the department.

(b)Inspections, investigations, examinations, and audits of a licensed premises shall be conducted at any time, or as otherwise agreed to by the department and the licensee or its agents, employees, or representatives. Prior notice of inspection, or investigation, or examination is not required.

 

(c)   No applicant, licensee, its or any agent or employees shall interfere with, obstruct, or impede the department’s inspection, investigation, or audit. This includes, but is not limited to, the following actions:

  • Denying the department access to the licensed premises;
  • Providing false or misleading statements;
  • Providing false, falsified, fraudulent, or misleading documents and records; and
  • Failing to provide records, reports, and other supporting documents.

 

(d)  Upon completion of an inspection, investigation, examination, or audit, the department shall notify the licensee of any violation(s) and/or action(s) the department is taking.

 


Sean HockingSean HockingJanuary 18, 2019
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9min430

 Authored By: Patrick McKnight

December 21, 2018

Despite the progress and widespread optimism surrounding Garden State cannabis reform in 2018, politics has once again proven to be the biggest obstacle. On November 26th, New Jersey made headlines when bill S2703 left legislative committees and seemed destined for a quick approval vote by the Assembly and Senate. The committees also submitted legislation to further expand New Jersey’s medical cannabis program and develop a process for criminal expungements.

Shortly thereafter momentum abruptly stopped. Disagreements over the details of S2703 have apparently exacerbated a rift between Governor Phil Murphy and Senate President Steve Sweeney. The remaining issues include the proposed tax rate and finalizing the regulatory scheme. The current legislation employs a 12% rate. Murphy wants a higher 25% tax rate which Sweeney is concerned will encourage a black market. The earliest the bill could move forward is now January 2019.

As 2018 comes to an end it may be helpful to review the winding path of events that brought this legislation to its current impasse. When the year began cannabis reform advocates were buoyed by newly-elected Governor Murphy’s campaign promise to sign legislation within his fist 100 days. Although this window came and went, the new administration did take executive action to loosen restrictions on New Jersey’s medical marijuana program. These changes doubled enrollment in just six months.

Momentum seemed to be building for legislative action through the spring until contentious debates over the State budget threatened a government shutdown in June. Several cannabis legalization bills were drafted and support seemed to be coalescing around a single proposal, however the near-shutdown of the state government gave the first indication all was not well between the Governor and legislative leadership.

Over the summer State Attorney General Grewal temporarily encouraged local prosecutors to pause the prosecutions of non-violent cannabis offenders. Though this was widely reported as the state “decriminalizing” the possession of cannabis, in fact it was only an interim measure intended partly to reassert state jurisdiction after Jersey City attempted to take unilateral action to decriminalize cannabis. Since late August municipal prosecutors have been allowed to resume cannabis prosecutions, although Attorney General Grewal has encouraged them to use their discretion.

In the fall momentum towards legalization renewed with positive comments coming from legislative leadership. This optimism came to fruition on November 26th when S2703 was approved to leave committee and proceed to a full vote. Many lawmakers openly discussed their desire to enact the legislation before the end of the 2018 session, but this date came and went without an agreement between Sweeney and Murphy.

To further complicate matters, the Governor’s office is now embroiled in a sexual misconduct scandal involving former staffers. This scandal has resulted in a legislative investigation which threatens to deepen the divide between Murphy and the State House. The future remains unclear, especially as neighboring states such as New York threaten to deprive New Jersey of its lucrative first-mover advantage in the tri-state area. Some experts forecast the legalization of adult-use cannabis in New Jersey could generate $1 billion in twelve months.

Legalization efforts in New York increased after Governor Andrew Cuomo dramatically expanded his support last year. “The fact is we have had two criminal justice systems: one for the wealthy and the well-off, and one for everyone else,” Governor Cuomo said before recently introducing his plan to legalize the adult use of cannabis. He went on to note that prohibition had “for too long targeted the African-American and minority communities.”

“Let’s legalize the adult use of recreational marijuana once and for all,” he added.

Pennsylvania has not approved recreational cannabis, but Governor Tom Wolf recently made headlines on December 19th when he tweeted:

More and more states are successfully implementing marijuana legalization, and we need to keep learning from their efforts. Any change would take legislation. But I think it is time for Pennsylvania to take a serious and honest look at recreational marijuana. https://t.co/LHOmYKzMyp

— Governor Tom Wolf (@GovernorTomWolf) December 19, 2018

The City of Philadelphia decriminalized cannabis in 2014. Pittsburgh followed with a similar measure in 2016. Medical cannabis was signed into law in 2016 and the first dispensaries opened in 2018.

Elsewhere in the Northeast cannabis reform continues to accelerate. Massachusetts was the first state to prohibit cannabis in 1911, but voters elected to legalize recreational adult use in 2016. The first two recreational dispensaries opened on November 20, 2018 with more coming soon. These were the first legal retail sales of recreational cannabis in the eastern half of the United States. Massachusetts voters approved medical cannabis use in 2012.

  • Vermont legalized the adult possession of up to one ounce of cannabis on January 22, 2018. The new law took effect on July 1, 2018 but did not contain a “tax-and-regulate” system. Only medical users are currently permitted to purchase from dispensaries. Vermont’s legalization was the first time legalization was enacted by a state legislature rather than a ballot initiative. Vermont approved medical cannabis in 2004.
  • Maine legalized adult use in 2017 and the first recreational retail sales are expected in 2019. Maine decriminalized the possession of small amounts of cannabis back in 1976 and legalized medical use in 1999.
  • New Hampshire approved a relatively limited medical cannabis law in 2012 and decriminalized possession in 2017. The governor has vowed to “absolutely” veto any legalization bills.
  • Connecticut decriminalized cannabis in 2011 and approved medical use in 2012. Legalization legislation has been approved by an Assembly committee but has not gone forward for a final vote. Governor-elect Ned Lamont has expressed his support for legalization.
  • Rhode Island approved the medical use of cannabis in 2006 but recreational use remains illegal. Delaware approved medical cannabis in 2011 and decriminalized possession in 2015. It has not approved recreational adult use.

Given the drama of 2018, making predictions about the timetable of future political developments has proven to be a fool’s errand. It seems clear that both New Jersey and New York are on the path to fully legalize the adult use of cannabis, potentially in 2019. The optimistic forecasts of impending action in New Jersey have been thwarted again and again by the realities and in-fighting of local politics. In Pennsylvania, it is too early to tell whether Governor Wolf’s recent comments represent mere rhetoric or a more substantive change in direction.

 

IF YOU WISH TO REPUBLISH THIS ARTICLE PLEASE ENSURE YOU ACCREDIT
Author: Patrick McKinght
Publication: Cannabis Law Report

Sean HockingSean HockingJanuary 17, 2019
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2min70

PRESS RELEASE

SACRAMENTO – California’s three state cannabis licensing authorities today announced that the Office of Administrative Law (OAL) has officially approved state regulations for cannabis businesses across the supply chain from cultivation to retail. These new regulations take effect immediately.

The previous emergency regulations, adopted by the Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture in December 2017 and readopted in June 2018, were originally issued through the emergency rulemaking process to meet the legislative mandate to open California’s regulated cannabis market on January 1, 2018. With today’s action, these emergency regulations are no longer in effect.

“These approved regulations are the culmination of more than two years of hard work by California’s cannabis licensing authorities,” Bureau Chief Lori Ajax said. “Public feedback was invaluable in helping us develop clear regulations for cannabis businesses and ensuring public safety.”

Each licensing authority’s final regulations and rulemaking documents have been posted to the California Cannabis Portal and can be viewed by clicking the following link: https://cannabis.ca.gov/cannabis-regulations/.

The three licensing authorities submitted these regulations to OAL on December 3, 2018, which was the start of their 30-working day review process. This review process ended Wednesday.


Sean HockingSean HockingJanuary 17, 2019
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3min70

Craig Delsack, www.NYCannaBusiness.com New York canna-business lawyer writes ,

“On January 15, 2019, Governor Cuomo and his team – led by Assistant Counsel to the Governor for Health, Axel Bernabe and Assistant Counsel to the Governor, Jason Starr – have published  the draft legislation for New York State cannabis legalization.  

Here is the relevant portion of the law (click to view or download NYS Proposed Marijuana Cannabis Law 2019).

It is too soon to tell how the proposed law will change through the legislative process, but it is the basis for what will soon be legal cannabis in New York State. “

Source  http://www.nyccounsel.com/cannabis/governor-cuomo-announces-new-yorks-cannabis-law-in-state-of-the-state-speech/

 

 

Full doc . Start Part VV Page 200

You then have 191 pages of draft legislation to plough through.

We look forward to 14 and half months of discussion, debate and everything else in between

It starts with……

It is hereby declared that such policy will best be carried out by empowering the state office of cannabis management and its executive director, to determine whether public convenience and advantage will be promoted by the issuance of registrations, licenses and/or permits granting the privilege to produce, distribute, transport, sell, or traffic in canna bis, medical cannabis, or hemp cannabis, to increase or decrease in the number thereof and the location of premises registered, licensed, or  permitted thereby, subject only to the right of judicial review herein after provided for. It is the purpose of this chapter to carry out that policy in the public interest. The restrictions, regulations, and  provisions contained in this chapter are enacted by the legislature for 01/15/19 the protection of the health, safety, and welfare of the people of the  state. 3 § 3. D

NYS-2019-Budget-and-Cannabis-announcement-revenue-artvii-edited


Sean HockingSean HockingJanuary 17, 2019
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6min90

So.. how did his testimoney with regard to regulated cannabis go down with the industry mouthpieces ?

Steve Hawkins, executive director of the Marijuana Policy Project  commented on hearing the testimony

“We are pleased to hear Mr. Barr intends to respect state marijuana laws if he is confirmed as our next attorney general. His reference to the Cole memo suggests that he will maintain the policy of non-interference that has existed since August 2013. This is not only a sensible decision, but is one supported by a vast majority of Americans.

“We are also sympathetic to Mr. Barr’s call for a more consistent federal approach, provided it is one that respects the will of the people. To that end, it is time for Congress to pass a law that either removes marijuana from the federal Controlled Substances Act or formally exempts state-legal cannabis activity from its provisions.”

 

The ICBC ( International Cannabis Business Conference) sent out an alert after the conclusion of the day’s testimony that said the following.

William Barr’s pledge to refrain from meddling with states’ cannabis laws if he becomes U.S. Attorney General is just the latest evidence that cannabis legalization has moved into the mainstream position in our political discourse. It isn’t surprising that an issue that enjoys over 60% support would become so dominant, but it is remarkable how far the cannabis community has come over the years.

 

Over at the NCIA (The National Cannabis Industry Association) is also fairly positive with a note of caution from Aaron Smith the executive director of the association.

“Mr. Barr is correct in acknowledging that many Americans rely on the legal cannabis industry and the successful state marijuana programs operating throughout the country today. His pledge not to use Department of Justice resources to undermine state laws provides assurance to over one hundred thousand cannabis industry employees, thousands of legal businesses, and the many state and local governments reliant upon marijuana tax revenue.”

Read the full press release at

Attorney General Nominee Vows to Respect State Marijuana Laws

Cannabis business press outlet Ganjapreneur highlighted that Barr understood in his testimony that at some point Congress will have to step in with a Federal plan, Barr even admitted in the hearing that the “current system is untenable,” suggesting that Congress should pass legislation to address the disparity between state and federal laws.

Read their report at.

AG Nominee William Barr “Will Not Go After” Cannabis Companies

 

We’re sure there’ll be a lot more on the subject moving forward so let us finish on somebody’s opinion that actually matters

 

Sen Cory Booker (D) New Jersey who’s been in the conversation a number of years and will be a key player on the Hill if there is Federal progress.


Sean HockingSean HockingJanuary 16, 2019
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6min60

Hello all and Happy New Year! I know I’ve already said Happy New Year but I’m really serious about this coming year being your best ever. Today, we’re going to discuss, which is a nice way of saying I think you should follow my advice and do as I say, the aesthetics of your new retail Cannabis space.

When I began researching layout and design for my retail Cannabis shop in Washington State, I only had Colorado to look at. And quite frankly, I was less than impressed. My wife Diane went so far as to say she’d never set foot in let alone stay in one of these shops I was examining. They were in no particular order; dark, dingy, dirty, and stocked full of mostly male employees who looked like a combination of bikers and and former wannabe tough guy bouncers!

When the first stores opened in Washington, about six (6) weeks ahead of my shop’s Grand Opening, I saw much of the same. But instead of looking at merely pictures and in some cases live streaming, I got to experience the actual, human, sort of, experience. So in addition to the loads of shades of green and tatoos and tank tops along with general sloppiness, I got to experience the real thing! Body odor, bad design and color schemes that looked like a local high school football team had put together. And perhaps the topper was the guy dressed nearly always in black, out in front of the store packing a firearm and checking IDs with all of the tact of an arresting law enforcement officer! Not inviting.

The problem was that I felt very strongly women would not feel comfortable in these environments. Now I know that sounds a bit sexist but I firmly believed and still believe we need to run our shops so that the girls, over 21 of course!, feel safe, secure, comfortable, and clean! After being in some these early shops, which felt more like head shops to me, I felt the need to immediately go home and shower! My shop is clean, brightly lit, and I dare say, cute.

It is a marvellously fun place to be and the girls love being in my shop. The guys feel good being in my shop as well, but I truly felt we needed to address concerns of the female customer and I believe after inquiring with dozens of female and male patrons, we have succeeded in creating a space where everyone feels great!

In addition, I observed the majority of employees and the majority of the customers in these early shops were in fact male. Cannabis Central of Ellensburg, my shop, is run by two (2) female managers. Half of my employees are female. We welcome all varieties of people; old and young, male and female, gay and straight, tall and skinny and short and fluffy! I need all people who are in my shop and who wish to spend their hard earned monies in my establishment.

One final but nonetheless vital point. Your retail shop will need to be brimming with positive energy and genuine enthusiasm. Some of your customers may be going through tough times, tough days. They may be dealing with personal issues, family issues, work-related issues. Make sure you try to make the visit to your shop the highlight of their day! We have a saying in the store and on the store literally, and that is “Spread the Happiness”. Be happy! Smiles are contagious! Our customers come to our store for a variety of reasons, too many to list here. But know they are hoping and in fact expecting to have a better day than they otherwise would have as a result of coming to see us in our shop. That is a big responsibility! Recognize that and never take that for granted.

Rob Hendrix
Cannabis Business Consultant

email:- rob@ccnationwide.com
website:- https://www.cannabisconsultingnationwide.com/


Sean HockingSean HockingJanuary 16, 2019
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2min60

Here’s the announcement in full…The Bureau of Cannabis Control (Bureau) today announced it has released an updated version of its online license search system. Industry stakeholders, licensees, and members of the public may now use the updated search to find information about state-licensed retailers, distributors, testing laboratories, microbusinesses, and temporary cannabis events.

To perform a search in the new interface, click on the following link – http://online.bcc.ca.gov/. Proceed to open the ‘License Search’ tab, select your search criteria, provide a response to the reCAPTCHA, and select the ‘Search’ button.

Users may now search by the following criteria:

  • License Type
  • License Number
  • License Status
  • Legal Business Name
  • Business Owner Name

The license search provides premises locations for Bureau licensees by city, county, and zip code. For storefront retailers, the license search system also provides the physical street address of the licensed premises. In addition to these location-based search results, the license search provides the commercial cannabis activities that a microbusiness may conduct.

SOURCE: BCC PRESS RELEASE



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