Sean Hocking, Author at Green Market Report

Sean HockingSean HockingJuly 18, 2019
IMG_0744.jpg

13min910
If you wish to re-publish this story please do so with the following accreditation
PUBLISHER:  CANNABIS LAW REPORT
Wake Up California Cannabis Growers It’s 2019  and the world you may have grown up and worked in since the late 1990s was changed forever on January 1, 2018, due to the passage of SB 94 [Proposition 64].

Just to digress for those that may have never seen a rigorous history, medical cannabis in California was legalized in 1996 with the passage of Proposition 215[1]. The rights of Californians to have access to cannabis for medical use is discussed in Keeping Proposition 215’s. Promise,   which points out that Proposition 215 also led to the lawsuit, People v. Kelly The Kelly case was decided on January 2010 by the California Supreme Court.  In the Kelly case, the Court held the state of California cannot, through the legislative process, impose a state limit on medical cannabis that is more restrictive than what is allowed under Proposition 215. The language that appeared on the ballot stated:

  • “Exempts patients and defined caregivers who possess or cultivate cannabis for medical treatment recommended by a physician from criminal laws which otherwise prohibit possession or cultivation of cannabis.
  • Provides that physicians who recommend the use of cannabis for medical treatment shall not be punished or denied any right or privilege for making such a recommendation.
  • Declares that the measure is not be construed to supersede prohibitions of conduct endangering others or to condone the diversion of cannabis for non-medical purposes.”

Also, Proposition 215 contains a severability clause. The exact language of Proposition 215 added §11362.5 to the Health & Safety Code.

The passage of SB 94 [Proposition 64[2]] represented a compromise…

The population of California received the ability to legally purchase cannabis for recreational or “adult-use” rather than be restricted to “medical use”.

The State of California seized an opportunity to generate substantial tax revenues through the creation of a Cannabis Cultivation and Excise Taxes [“CCT and CET”][3] in addition to expanding the existing sales tax to adult-use cannabis. The State of California also created three agencies to regulate the entire legal cannabis industry in California[4] retail dispensaries, distribution and testing labs, manufacturing and extraction, and cultivation[5]. As a consequence, the legal cannabis market went from being a “light touch” laissez-faire medical cannabis market to a highly regulated commercial market.

We have written extensively about the missteps, mistakes and outright failures that the California regulatory and tax agencies have made over the past eighteen months in their attempts to create licensing processes, promulgate regulations, and oversee the transition to a regulated commercial market[6]. The black market continues to thrive and may have even grown since MARCUSA became the law[7].

The MARCUSA legislation created what many call a system of “dual control” where cities, municipalities, and counties throughout California were granted and maintain the first rights over cannabis activity through land use [“zoning”] and permitting which has created a patchwork throughout California. The cities, counties, and municipalities maintained the right to tax cannabis activity within their jurisdictions.

The situation is further complicated by the existence of “delivery companies” that would appear to have the right to deliver cannabis product anywhere in California. Further, under Proposition 215 and People v. Kelly, may very well be a challenge brewing under the California Constitution over an individual’s right to receive medical cannabis anywhere in the State of California.

We believe that the description above provides a quite accurate and reasonably complete of the cannabis markets, regulatory and tax environment in California as of the date of this article. The environment is complex and changing rapidly in many dimensions.

Our view is that the State of California will not succeed in creating a viable legal commercial market unless it undertakes urgent steps to correct several problems of its own making that we have written about many times. There is another aspect that is equally as clear, and that is that there is absolutely no way that a Grower, Extractor, Distributor or Dispensary can reasonably expect to understand, interpret and comply with complexities of licensing and operation of a cannabis business in California without engaging attorneys, tax advisors, accountants, water quality consultants, etc. The changes in the rules make that both an unreasonable expectation and impossible.

As such when a grower both misunderstands the complexities of the commercial cannabis market as it presently exists in California, and then misconstrues the application of complex quotation such as President Theodore Roosevelt from a century ago when he stated:

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

Our view that the use of that quote in this context is a small-minded and short-sighted view. The current reality is that there would be no legal commercial cannabis industry if a plant-touching business owner were not growing, processing and selling cannabis flower and other products. However, the likelihood that those businesses would survive, let alone prosper without the existence of all of the ancillary non-plant touching business today is a BIG FAT ZERO. As such, every business in the ecosystem plant-touching or not need to understand the purpose of, and appreciate every other business in the legal cannabis ecosystem in California.

 

[1] See Background – California Cannabis Regulation and California Cannabis Cultivation – Qualification as Farming

[2] See Implementing Proposition 64: Cannabis Policy In California

[3] The taxes are administered by the California Dept. of Tax and Fee Administration [“CDTFA”]

[4] The legal cannabis industry in California is regulated by the Bureau of Cannabis Control [“BCC”], the parent agency of which is the California Dept. of Consumer Affairs [“DCA”]. BCC was given the “power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity” in MAUCRSA. BCC has direct oversight responsibility for retail and transportation only dispensaries, distributors, and cannabis event organizers.

Cannabis manufacturing and extraction and testing laboratories fall under the jurisdiction of the Manufactured Cannabis Safety Branch [“MCSB”], the parent agency of which is the California Dept. of Public Health [“CDPH”]

Cannabis Cultivation is the responsibility of CalCannabis, the parent agency of which is the California Dept. of Food and Agriculture [“CDFA”]

[5] Indoor and outdoor cannabis cultivation by persons and entities licensed under this division shall be conducted in accordance with state and local laws related to land conversion, current building and fire standards, grading, electricity usage, water usage, water quality, woodland and riparian habitat protection, agricultural discharges, and similar matters. State agencies, including, but not limited to, the State Board of Forestry and Fire Protection, the Department of Fish and Wildlife, the State Water Resources Control Board, the California regional water quality control boards, and traditional state law enforcement agencies, shall address environmental impacts of cannabis cultivation and shall coordinate when appropriate with cities and counties and their law enforcement agencies in enforcement efforts.

[6] See our summary of articles in Quick Update – Posts, Keeping Cannabis Simple, and Colossal Cannabis Fiasco

[7] See Critical Changes, specifically for our comments on raid activity by various California agencies, including the California National Guard.


Sean HockingSean HockingJuly 18, 2019
shutterstock_784662001-1280x720.jpg

13min1030

If you wish to re-publish this story please do so with the following accreditation

Critical Changes – California’s cannabis regulatory agencies have failed miserably.

Every resident of California who bothers thinking about the topic recognizes this failure.

Every Californian from Governor Newsom to the small Humboldt County grower who gave up recognizes how badly these agencies have failed.

[See California government report finds regulators are unable to fully oversee the state’s marijuana market ] We will separately address this report.

Proposition 64 was an ill-conceived, poorly-drafted amendment to California’s Constitution. The black cloud of Proposition 64 has one serious silver lining. Proposition 64 preserved Proposition 215. [ Keeping Proposition 215’s Promise ]

Proposition 64 spawned the Medical and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). [See MAUCRSA] In MAUCRSA the Legislature cobbled together a regulatory structure for commercial cannabis activity based on the ill-conceived mandate of Proposition 64. MAUCRSA created a Bureau of Cannabis Control (“BCC”) within the California Department of Consumer Affairs as the lead agency for the regulation of medical and adult-use cannabis industry. Implementation of cannabis regulation through MAUCRSA under the leadership of BCC has brought chaos rather than regulation. [See Chaos Will Continue! and California Chaos Causes ]

While it would be wonderful to have the luxury of starting over again, rebooting is not an option for California. The past cannot be changed. Those who are interested in addressing the chaos in the regulation of California’s cannabis industry must go forward from where we are today. We are writing this article for that reason.

We believe BCC can still establish an effective regulatory structure in California within the framework created by MAUCRSA through an exercise of foresight, judgment and forceful action. The following are five major changes BCC must cause to be made in the regulation of commercial cannabis activity in order to end the chaos and establish order in the industry. We consider all five of these changes to be critical even though we have ordered this list based on subjective opinions regarding relative importance.

Many will have a longer list of changes. We believe many items others may identify are best-considered details in the implementation of the five critical changes we have identified. Of course, we are fallible. We welcome the addition to our list of a sixth or a seventh critical change that BCC must immediately cause to be made.

“All California cannabis businesses must be immediately issued a California license upon completion of all local requirements for engagement in commercial cannabis activity”.

BCC failed to delegate down to local jurisdictions the details of the implementation of MAUCRSA. Issues relating to land use and public health and safety are inherent issues in which local jurisdictions have the determinative interest. MAUCRSA established a statewide regulatory system for cannabis. The proper role of BCC, and all of its subordinate agencies was to educate, guide, assist, and facilitate the implementation of cannabis regulation consistent with state law under the jurisdiction and control of, and with deference to, local governmental agencies. Proposition 64 mandated a two-tier system.  An effective two-tier regulatory system required guidance and assistance at the state-level for uniform state-wide cannabis regulation with complete deference to local requirements.

The critical issues of regulation mandated deference local jurisdictions to make policy determinations within the requirements of state law.   This combination required BCC and its subordinate agencies to provide guidance for the creation of uniform state-wide regulation under local control with respect to land use and public health and safety issues.

“Commerce a serious effort in coordination with local jurisdictions to pressure underground commercial cannabis businesses into withdrawing from business at the earliest possible time”.

Exercises such as the eradication in Anza Valley last month should never occur. Authorities seized 70 tons of pot worth $190 million. Then, they buried it at Beaumont landfill   California’s regulatory agencies, in coordination with local law enforcement, must discourage unlicensed commercial cannabis activity at the earliest possible date. Unlicensed commercial cannabis activity must not be allowed to continue for months, even years before action is taken. Conflicts exist between the interests of the State and the interests of local jurisdictions with respect to these issues. Coordination with local interests presents a difficult problem for BCC, but coordination of local interests with state-wide interests is critical to success in significantly reducing the underground industry.

The California Department of Tax and Fee Administration (“CDTFA”) can be invaluable to BCC in this regard. Nothing will cast a greater cloud over unlicensed commercial cannabis activity than a formal notice from CDTFA that it has noticed business is being conducted that appears to owe tax returns and very likely taxes. Such notice should include references to civil and criminal tax penalties as well as information on how easy it for a locally licensed cannabis business to secure a state license.

“Require CDTFA to overhaul its systems and processes for the collection, reporting, and remission of the two cannabis taxes established by Proposition 64, Cannabis Cultivation Tax (“CCT”) and Cannabis Excise Tax (“CET”), to create effective and readily verified procedures for the administration of these two taxes.”

We have written multiple articles on the extent to which CDTFA is responsible for the chaos in the regulation of California’s cannabis industry. [tax collection and reporting posts[ CDTFA through the Board of Equalization (“BOE”) and the Franchise Tax Board (“FTB”) is more efficient at collecting taxes than the Internal Revenue Service (“IRS”). MAUCRSA delegated responsibility for the administration of CCT and CET to CDTFA. CDTFA botched this task. CDTFA failed to recognize some subtle differences between CCT and CET, and all other taxes administered by CDTFA.

CDTFA has all of the administrative tools to correct the errors that it has made in the administration of CCT and CET. In this regard, it is of critical importance that CDTFA ties the administration of CCT and CET to Sales Tax reporting in order to facilitate electronic analysis. CDTFA could have made a tremendous contribution to the transition of California into a regulated cannabis industry.

Instead, CDTFA has contributed more than its fair share to the chaos. We could argue that CDTFA is more responsible for the chaos than any other single agency. However, we believe that honor falls to CalCannabis.

“Recognize and acknowledge the differences between adult-use cannabis under Proposition 64 and medical cannabis under Proposition 215”.

Proposition 64 [See Implementing Proposition 64- Cannabis Policy in California ] was to a substantial degree driven by the greed of those who saw the legalization of cannabis as an opportunity to make money as well as the greed of governmental agencies that saw legalization cannabis as an easy source of tax revenue. The forces that made California a leader in the legalization of medical cannabis over 20 years ago have faded into the background but medical cannabis will arise again from the ashes like a Phoenix.

There are still some involved in the industry who believe cannabis should be readily available as medicine – even as a self-prescribed medicine – but not available as a drug merely because the consumer has lived for 21 years. Medical cannabis in California will become significant once again as marketplace forces make the industry more competitive, and cultivators and consumers realize the savings that can be achieved in moving medical cannabis from cultivators to patients.

“Establish a rational regulatory pathway for the licensing of Cannabis Cooperative Associations (“CCAs”) upon organization such entities in order to provide small cannabis cultivators with a pathway to take advantage of the benefits the Legislature granted to them in MAUCRSA”.

BCC and CalCannabis completely missed the boat in connection with CCAs. CCAs were created by the Legislature to help small cannabis cultivators survive in a regulated industry. Neither BCC nor CalCannabis understood the enabling legislation for CCAs.

The legislation that enabled CCAs has not been utilized. Many small growers have retired or remained underground. BCC is ultimately responsible as the lead regulatory agency. CalCannabis is the immediately responsible agency. It was tasked with administering the portions of MAUCRSA relating to the cultivation of cannabis. A CCA is a collective of cultivators. CalCannabis’ errors relating to CCAs, however, pale in comparison to the fiasco of CalCannabis’ licensing of cultivators.

BCC was given the “power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity” in MAUCRSA. BCC has not exercised the foresight and judgment required to carry out this mandate and to lead California into a regulated industry. Effective and forceful leadership from BCC is long over-due.

The preceding is our best summary of the five critical changes that must be made in order for California to successfully transition into a regulated cannabis industry. We welcome additions, elaborations, explanations, and even criticism.

If your mother told you life would be easy, she lied.


Sean HockingSean HockingJuly 16, 2019
images-17-150x150-2-1.jpg

13min510
If you wish to re-publish this story please do so with following accreditation
PUBLISHER:  CANNABIS LAW REPORT

We have decided to write a primer on the advantages of Cannabis Cooperative Associations (“CCAs”) because many of our readers have asked us why we keep talking about them.

 

A CCA is an entirely new form of California corporation which was expressly created for the benefit of small California cannabis growers. A CCA can do everything a business corporation can do.

A CCA is an incorporated agricultural cooperative owned by cannabis growers.

CCAs were created by the Medical and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”). [Chapter 22 (§§26220-26231.2) of Title 10 of the California Business and Professions Code (“B&P”)] Chapter 22 imposes substantial restrictions on the ownership, governance, and operation of a CCA. These restrictions limit the benefits of the use of a CCA to cannabis cultivators.

 

The express reason for the CCA legislation was to provide small cannabis cultivators with  the benefits of agricultural cooperatives. Agricultural cooperatives were created decades ago to give small farmers the ability to compete with large corporations. [See Positioning California’s Agricultural Cooperatives for the Future, Exploring Farmer Cooperatives and Agricultural Co-ops | California Center for Cooperative Development.]

 

One reason the enabling legislation for CCAs was required was because growing cannabis was not treated as agricultural production for many years under California law. The law has changed. [See Cannabis now Considered Agriculture and California Cannabis Cultivation – Qualification as Farming] Treating cannabis cultivation as agriculture solved one problem, but cannabis remained a very special agricultural product. A special form of agricultural cooperative was required because of the special regulatory controls imposed on cannabis in comparison to other agricultural products.

 

A CCA is a financially more efficient structure than any conventional business structure for the conduct of business in California’s cannabis industry because it is an agricultural cooperative. Individuals, especially cultivators, who are interested in making money in California’s cannabis industry should think of Chapter 22 as the very fine, and very important, print in a critical insurance policy that they need. Small cannabis cultivators should look at Chapter 22 as providing an opportunity for livelihood insurance protection that they will never read or fully understand but almost certainly need.

 

Why does the operation of a cannabis business through a CCA have financial advantages over a conventional business structure? The economic benefits of operating a cannabis business through a CCA flow from the fact a CCA is an agricultural cooperative under California law. As an agricultural cooperative, a CCA has an advantageous income tax filing status. As an agricultural cooperative, a CCA also benefits from two important principles of tax planning that flow from its filing status.

A CCA files a Form 1120-C U.S. Income Tax Return for Cooperative Associations for federal income tax purposes. A CCA is treated as a non-exempt agricultural cooperative under Subchapter T of the Internal Revenue Code [“IRC”] for federal income tax purposes.

The California Department of Tax and Fee Administration [“CDTFA”], through the Franchise Tax Board [“FTB”], taxes CCAs as integrated business entities for California franchise tax purposes. A CCA files:

(1) a Form 100 if it is a non-exempt organization and has business income;

(2) a Form 109 if it is an otherwise exempt organization but has business income; or

(3) a Form 199N Annual Electronic Filing Requirement for Small Exempt Organizations.

The income tax filing for a CCA also explains why the operation of a cannabis business in an agricultural cooperative has a financial advantage over the use of a conventional business structure. The business activities of a CCA are deemed to be conducted within a single legally recognized economic entity for federal income tax purposes as well as for California franchise tax purposes.

The treatment of all business activities of a CCA as occurring within a single, consolidated entity for Federal Income and California franchise tax purposes establishes the foundation both for the deferral of the payment of tax as long as possible, and for the minimization of applicable taxes in almost all situations.

These two principles of tax planning apply to a CCA because this special form of corporation is an agricultural cooperative established pursuant to California law. All agricultural cooperatives have these advantages. The financial benefits that flow from the application of these principles are best illustrated through an example.

 

Some of our readers will recall earlier articles

[ Key To Success for California Cannabis Businesses – Managing Tax Liabilities, Allocation – Costs – Gross Profit – Taxes and It’s the Math]

In which we described the impact of taxes on the conduct of business in California’s cannabis industry. In one of the examples, we illustrated the division of revenue, expenses, taxes, and profit as oil extracted from cannabis moved from Cultivator, to Manufacturer, to Distributor, to a sale to a consumer through a Dispensary.

The examples referenced above were designed to illustrate the sharing of an approximately 45% total tax load between Cultivator, Manufacturer, Distributor, and Dispensary.

 

We will utilize the same movement of oil extracted from cannabis using different and arbitrary amounts to illustrate the financial advantages of the use of a CCA.

Assume a Cultivator sells cannabis material with a production cost of $312 to a Manufacturer for $412 plus the Manufacturer’s assumption of the associated Cannabis Cultivation Tax (“CCT”) of $88. The Cultivator has a profit of $100. The Manufacturer pays $88 to the California Department of Tax and Fee Administration (“CDTFA”), adds $400 of costs extracting oil, and sells the oil to a Distributor for $1,100 plus the Distributor’s assumption of the liability for the Cannabis Excise Tax (“CET”) of $264 that is now associated with the oil. The Manufacturer has a profit of $200.

The Distributor adds costs of $500 and sells the packaged oil to a Dispensary for $1,800 plus the Dispensary’s payment to the Distributor of the associated CET of $432. The Distributor pays the $432 to CDTFA and has a profit of $200. The Dispensary sells the cannabis material to consumers for $2,880 (60% mark-up) plus CET, Sales Tax and any local taxes, but not CCT which is buried in the Cost of Goods Sold. If the Dispensary has $780 of costs, the Dispensary will have a profit of $300.

CDTFA received a total of $520 for CCT and CET. The total profit for the four profit centers is $800. This profit will be subject to taxation as income. The total profit of $800 is allocated among four profit-centers as follows: Cultivator, $100; Manufacturer, $200; Distributor, $200; and Dispensary, $300. If the same individual owns the four profit- centers as horizontally integrated businesses, or through a vertically integrated business structure, the tax consequences will be essentially the same. A vertically integrated ownership structure for the four profit-centers is likely to have some tax advantages.

Each of the four profit-centers will separately report and pay for cannabis tax purposes and income tax purposes based on their separate transactions and fiscal periods as well as for any other tax purposes.

A CCA completely changes the reporting and timing of the imposition and payment of cannabis taxes and income taxes. If the same individual owns the four profit-centers through a CCA, the payment of both CET and CCT can is deferred until the Dispensary remits these taxes to the Distributor. In addition, the entire $800 of profit will be income to a single profit-center. This profit-center is an agricultural cooperative for income tax filing purposes. The total net revenue of $800 for the entire cannabis business operation will receive the maximum deferral of reporting and payment. Reporting income for tax purposes as an agricultural cooperative is critically significant for the financial advantages of a CCA over other business structures.

The preceding is a simplified illustration of the use of a CCA for adult-use cannabis businesses. Proposition 64 preserved medical cannabis in California although some additional effort is required in order to keep the promises in Proposition 215. CCAs can be a vehicle for the movement of medical cannabis from a cultivator to a patient with even more spectacular financial results in comparison to conventional business structures. We will discuss this use of CCAs for medical cannabis businesses in another article.


Sean HockingSean HockingJuly 15, 2019
images-15-150x150-2-1.jpg

11min1410
If you wish to re-publish this story please do so with following accreditation
AUTHORS: João Taborda da Gama  Partner Gama Glória  | Joana Albernaz Delgado
PUBLISHER:  CANNABIS LAW REPORT

João Taborda da Gama

Joana Albernaz Delgado

 

July 18 marks the first anniversary of the Portuguese medical cannabis law. Law 33/2018 set the framework for the regulation of the use of cannabis-based medicinal products, preparations and substances that would effectively allow Portuguese patients to access medical cannabis What really has changed during the last year? Very little happened in practice, but a lot changed in the regulatory setting – or, at least, that setting is now much clearer.

As we wrote one year ago, this law showed some inconsistencies due to political setbacks and last minute amendments, which could harm its success. General provisions on marketing authorizations for medical cannabis, for instance, raise significant doubts on whether the Parliament wanted to bring medical cannabis closer to classical medicinal products, which in the end could delay significantly the implementation of a medical cannabis system. Fortunately, the way the medical cannabis law was regulated by the Government provided more clarity and certainty on the regulatory framework: in January 2019, the Government published Decree Law 8/2019, detailing the requirements under which medical cannabis could be marketed, prescribed and sold.

The major merit of Decree Law 8/2019 was to provide a clear distinction between cannabis-based medicinal products, cannabis-based preparations and cannabis-based substances (dried flower and oils). In fact, after Decree Law 8/2019 it is now undeniable that cannabis-based preparations and substances have a different framework:

  1. Cannabis-based medicinal products (such as Sativex®) are typical medicines, regulated under the medicinal products legal framework and subject to marketing authorizations (in fact, a change in the law was not necessary to accommodate such products);
  2. Cannabis-based preparations and substances (e.g. dried flower and oils) are now clearly considered as a separate and distinct class od products. This does not mean they do not share some of the provisions applicable to conventional medicinal products when relevant, but they are now clearly recognized and have their own regulatory requirements.

 

That is precisely the case of the marketing authorization for cannabis-based preparations and substances. While Law 33/2018 only mentioned vaguely the marketing authorization as a requirement for preparations and substances, Decree Law 8/2019 clarified that cannabis-based preparations and substances will have a different marketing authorization, called authorization for placing on the market, or ACM (autorização de colocação no mercado). ACM takes in consideration the characteristics of medical cannabis preparations and substances, and is a simplified version of the marketing authorization required for medicinal products to some extent (for instance, no clinical trials are required).

Additional regulations were also approved this year, both coming from the Government and the narcotics and pharma regulator, Infarmed. The Government approved regulations on the medical cannabis pricing, and Infarmed, following the provisions of Decree Law 8/2019, approved a very strict list of therapeutic indications appropriate for medical cannabis preparations and substances (spasticity associated with multiple sclerosis; nausea and vomiting caused by chemotherapy, radiotherapy; appetite stimulant for cancer or HIV patients in palliative care; chronic pain associated to oncologic disease or to the nervous system; Tourette’s syndrome; refractory epilepsy in children; and drug resistant glaucoma). Although this list can (and should) be periodically reviewed, Portugal lost an opportunity to expand the access to more patients and give more flexibility to the medical community on the prescription on medical cannabis. At the same time, a closed list of therapeutic indications will also hinder scientific knowledge and research.

Infarmed was also proactive on the implementation of the medical cannabis law, making sure information on the new legal framework was available online to patients, health professionals, companies and the wider public since the entry in force of Decree Law 8/2019.

 

Regardless all these regulatory developments, what did change, in fact? Is there any marketed cannabis-based preparation or substance available in Portugal? Is the medical and the patient communities more aware of what medical cannabis is and how it can be used? Do pharmacies know how to deal with medical cannabis? The answer to all those questions is no. For now, at least.

 

It is true that one year is still a short period of time to implement a brand new market, especially in a such sensitive area (health and therapeutic products) and with a such sensitive product (cannabis is still a controlled substance both at the national and international level after all, although some changes are expected on that too). Companies applying for ACM are still navigating the new regulatory framework, and the same happens with the regulator. But there is a lot to be done on the Government side, especially at the educational and informational levels to doctors and patients. The law approved last year set out that the Government should make information available to doctors and other health professionals, on cannabis based medicinal products, preparations and substances. That is yet to be done, and there is no real access without a well-informed medical and pharmaceutical community.

Although Portugal has now a regulatory framework that allows the access of Portuguese patients to medical cannabis, we are still some steps away from providing patients medical cannabis treatments. The hardest part has already been done. Let us hope this last mile is completed soon, so that the Portuguese medical cannabis law can effectively get off the ground and patients can have full and affordable access to the products.

 

João Taborda da Gama (joao.gama@gamagloria.com) is a founding Partner and Joana Albernaz Delgado (joana.delgado@gamagloria.com) an Associate at Gama Glória (www.gamagloria.com), a Lisbon based law firm that provides strategic advice to businesses and governments and helps clients facing regulatory and public policy challenges.

 

 

Author: João Taborda da Gama
Partner 
+351 914 725 808
joao.gama@gamagloria.com

R. Alexandre Herculano, 38, 4.º
1250-011 Lisbon – Portugal
www.gamagloria.com

 


Sean HockingSean HockingJuly 15, 2019
download-14-150x150-2-1.png

19min1230
If you wish to re-publish this story please do so with following accreditation
AUTHOR: Heather Allman
PUBLISHER:  CANNABIS LAW REPORT

 This is part 2 of a series of 10 articles we are publishing by Heather Allman  on Florida’s Medical Cannabis Landscape.

Read Part 1: Lighting Up Florida’s Medical Marijuana PEOPLE: The Front Lines

 

 

Part 2: Lighting Up Florida’s Medical Marijuana PEOPLE: The Medics Series, Part 1

Can the most recent onslaught of June 28, 2019 OMMU Registry changes blow some necessary steam into the rapidly developing Florida edibles market?

Can we keep our newly smokable flower power rolling effortlessly into the advancing edible market?

 

Federally and in Florida’s state medical marijuana, good cannabis industry questions have few concrete answers.

No state can have a successful, sustainable medical marijuana program without The Medics, dedicated physicians who work hard to give patients the necessary help, treatment, and access they need to thrive in their daily lives.

This team extends to the dispensaries that vitally supply patients with the state-allowed cannabis products to fill the physician’s recommendation, or order.

For interested parties currently residing outside the state of Florida, a comprehensive overview of Florida’s state government is provided.

 

Who’s Who in Florida Government published by Spectrum News Staff and updated on Feb. 28, 2019 gives valuable background on the State of Florida in its Latest from Tallahassee, the state Capitol, including:

 

  • Overall context of state department roles
  • Outlined structure for the State’s various internal departments
  • Explanation of each department
  • List of department employees, elected and appointed
  • Find Florida Lawmakers and look up contact information
  • Important rules, public statements, press releases official state announcements
  • Insight about their intersecting charges regarding the expanding industry.

 

On the Florida Medical Marijuana state lead is the Department of Health and its Office of Medical Marijuana Use, but the DOH works directly in conjunction with the Department of Agriculture and Consumer Services in Florida’s volatile cannabis arena.

 

This article series aims to address specific aspects of the Florida Medical Marijuana Registry program and the current state cannabis landscape at large:

 

  • Who are the Marijuana Medics in Florida?
  • Who are the patients they treat using cannabis as medicine?
  • Why do these dedicated physicians choose to get further CME medical marijuana training and certification?
  • What do these physicians do as Florida CME physicians work as medical practitioners in the state?
  • How does a CME physicians practice marijuana medicine?
  • How and where can interested parties access the invaluable public information these certified physicians learn?
  • What does it mean to be a vertically-integrated Florida dispensary of medical cannabis products?

 

The medical cannabis training these specialized CME physicians receive from the state is readily accessible for the public, including all Florida state medical cannabis certification physician qualifications and official answers:

 

 

What are the next steps for newly-certified medical marijuana physician?

Upon successful completion of the Florida physican CME training, a physician proceeds to immediately update this new medical specialization information with the Florida Division of Medical Quality Assurance.

Patients in need of Florida’s rapidly advancing legal cannabis medication can then search the state’s CME physician database, call for information, and ultimately schedule an initial cannabis patient qualification appointment at a particular practice, or MMTC of their choice.

 During this required update timeframe, physicians often pause briefly to deliberate the choice: what are the implications of being an integral part of Florida’s burgeoning therapeutic cannabis medicine practice?

Membership in the widespread MMTC FL state system offers the most clinical practice hours, and a physician begins seeing possible medical marijuana patients immediately.

Newly-licensed CME physicians can easily update their designated specialized certification online at www.FLHealthSource.gov.

 

Upon login, individual account access appears in the upper right corner of the screen, and physicians can directly email questions to MQAOnlineService@flhealth.gov.

 

But this job as a state-recognized cannabis physician hinges solely on a vertical integration business model, which includes licensed cannabis businesses in Florida.

 

These state-licensed cannabis companies are called “dispensaries.”

 

The Florida Department of Health regulates medical marijuana in Florida and is the agency that issues all required licenses. Visit the Florida Department of Health for further information.

 

These licensed dispensaries must be complete seed-to-sale companies who also provide healthcare to qualified medical cannabis patients by dispensing a patient’s desired product, in the desired delivery route.

These vital, end-line dispensary employees help fit desired cannabis medication products into a patient’s individual money framework. 

That is, these licensed companies eventually dispense a patient’s doctor-issued recommendation by first planting and cultivating medical cannabis before processing and packaging it.

Simultaneously, Florida dispensaries must strive to train efficient, knowledgeable store employees, called Wellness Coordinatorsor “budtenders.”

These necessary individuals present the finished state-certified cannabis product on the dispensary’s shelves in an appealing manner.

These end-line employees smartly and safely sell, or “dispense,” the cannabis product to the patient and consumer per the physician’s recommendation in the Registry.

In early 2014, I began my cannabis advocacy and education, enthralled that a single naturally occurring plant has such phenomenal health benefit potential.

Noted by Enedina Stanger Ramos for the U.S. Pain Foundation’s INvisible Project:

“patients using marijuana find a natural synergy with nature… the veracity of herbs as medicine has never been disputed; the argument is in naming the right herbs that can be called ‘medical.’

Medical cannabis has endless therapeutic possibilities, and by January 2017, I was a qualified Florida Medical Marijuana patient. In the following months, I decreaed my pharmaceutical intake, stopped opioid pain management completely, and increased my overall mental clarity and quality of life.

 In her timely April 2019 Baltimore Magazine article, Lydia Woolever reports from the national trenches in A New Leaf:

“If you had told us 30 years ago that we would be able to legally purchase marijuana in the state of Maryland and then knots to distant future, we probably think you were blowing smoke.”

Yet the United States is poised on the tallest cannabis precipice with no “Green Wave” descent in sight.

Headlines on July 8, 2019 proudly boast that Congressional Democrats “Tout Marijuana Legalization In Election Campaign Petition,” with 80% of the nation having some type of state cannabis legalization.

 Several other national legalization petition campaigns are underway, including the recent one to be delivered to Senator Elizabeth Warren from Amend.it. Over half of the required 500 signatures have already been collected.

 

An objective view on both sides of sweeping national cannabis legislation hails from the insightful ProCon.org – “Should Marijuana Be a Medical Option.”

ProCon’s detached overview on the complex medical marijuana issue is refefreshing, as they present the contentious issue of marijuana therapeutic treatment in a straightforward, nonpartisan format, making bigger strides in the awareness arena through neutrality.

At its core, the medical cannabis issue is none of these things. Remaining, rather, a heated debate charged with division, opinion, and scientific ignorance.

Most Americans are operating mostly blind when talking about medical cannabis. Knowledge is indeed power.

A successful state medical marijuana program also cannot exist without the cooperation of many cities, towns, municipalities, and communities all pitching in by providing medical cannabis product to patients.

All of our state MMTC FL licensed clinics and dispensaries incorporate the lofty goals of both patient and product availability (access) and affordability (cost).

The MMTC and their physicians positively contribute to the community in such events as Florida A & M University (FAMU)’s Medical Marijuana Education and Research Initiative (MMERI) Third Community Forum in Pensacola on July 9, 2019.

This event was “part of its mission to educate and inform the state’s diverse communities about medical marijuana. 

The national Capitol Soup likewise noticed the forum and its potential to set state precedence:

“The MMERI was launched in response to the Florida Legislature’s funding allocation to educate “minorities about marijuana for medical use and the impact of the unlawful use of marijuana on minority communities.” As part of the 2017 legislation, FAMU receives $10 for every $75 identification card purchased by individuals approved to buy medical marijuana.” 

CHART: Marijuana Business DailyDiversification enhances the cannabis market.

 


Sean HockingSean HockingJuly 14, 2019
download-32-150x150-2-1.jpg

12min28380
If you wish to re-publish this story please do so with following accreditation
AUTHOR:  “Jordan Zoot.  “aBIZinaBOX Inc., CPA’s
PUBLISHER:  CANNABIS LAW REPORT

As our readers are aware, we look at developments in California’s cannabis industry differently than most. AB 97 and SB 97 were signed into law by Governor Newsom on July 1st. These Bills address expiring provisional licenses and add a new tool for law enforcement to use against unlawful cannabis activities. We applaud the Legislature and the Governor for trying. However, these Bills merely assure that the chaos will continue. These Bills address none of the causes of the chaos in California’s cannabis industry.

As we have previously described, CalCannabis’ actions are some of the principal causes of the chaos. See Carrot and Stick! and California Chaos Causes. CalCannabis is also a major beneficiary of AB 97 and SB 97. These Bills give CalCannabis time to clean-up the mess it has created with the licensing of cannabis cultivation. Unfortunately, CalCannabis is likely to use this additional time to wreak more havoc unless the Bureau of Cannabis Control (“BCC”) exercises control over CalCannabis.

How did CalCannabis go astray? This question is easy. CalCannabis was tasked with the licensing of cultivators in the Medical and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA”). CalCannabis decided it should do more.

CalCannabis took upon itself the task of regulating cannabis cultivation at the state-level. CalCannabis usurped the authority of BCC. BCC is expressly tasked in MAUCRSA with “the power, duty, purpose, responsibility, and jurisdiction to regulate commercial cannabis activity . . . .” [Business and Professions Code (“B&P”) §26010.5(d)]

CalCannabis was not tasked with the regulation of cannabis cultivation. CalCannabis was assigned two tasks in MAUCRSA. CalCannabis was assigned the task of administering the provisions of MAUCRSA “related to and associated with the cultivation of cannabis . . . .” in the first sentence of B&P §26012(a)(2). CalCannabis was assigned the task of licensing cultivators in the second sentence of §26012(a)(2). Nothing in MAUCRSA grants CalCannabis authority to regulate cannabis cultivation or any other commercial cannabis activity.

CalCannabis usurped BCC’s authority. BCC allowed CalCannabis to usurp its authority. BCC abdicated its “power, duty” and “responsibility” under MAUCRSA to regulate commercial cannabis activity. BCC was derelict in the performance of its responsibilities in allowing CalCannabis to usurp its authority and to create chaos in the licensing of cannabis cultivation.

CalCannabis made licensing a difficult, time-consuming and expensive process instead of a simple and easy process. CalCannabis made the licensing of existing cultivators especially onerous. Such licensing should have been the quickest and easiest. The consequences of the course of action taken by CalCannabis were inevitable. The chaos created by CalCannabis was predicted by all except the most conceited thinkers.

CalCannabis is a governmental agency. Governmental agencies are established to grow and prosper. Growth for a governmental agency means finding more matters to administer and more details to address. An agency with more demands on its resources needs a bigger budget. A bigger budget, of course, fertilizes further growth. The growth of a governmental agency will continue until oversight forces the agency to focus on its objectives instead of its processes.

CalCannabis was assigned the task of licensing cannabis cultivation. CalCannabis should have issued a license to every cultivator with local approval long ago.

BCC is the lead agency for the regulation of cannabis in California. BCC is responsible for the mess CalCannabis created. BCC allowed CalCannabis to run amuck. The mess that CalCannabis created is BCC’s mess to clean-up. The open question that will be answered by the passage of time is whether BCC will be able to clean-up the mess CalCannabis has created. AB 97 and SB 97 provide time to clean-up this mess, but the clean-up requires foresight and judgment. Neither CalCannabis nor BCC have as yet displayed substantial foresight or judgment in connection with the licensing of cannabis cultivation.

Is it reasonable for the Legislature to anticipate BCC will be able to clean-up a mess that the agency failed to prevent from being created? This question reminds me of a rhetorical question an early mentor regularly asked me, “Why is there always enough time to correct an error, but never enough time to prevent the error from being made?”

Let’s look for a moment at the mess instead of the cause of this mess. What does it mean to extend provisional licenses and to allow the renewal of extensions as provided in SB 97 and AB 97? We started over a year ago with applications and temporary licenses. The arrangement morphed into provisional licenses. Provisional licenses can now be extended and these license extensions can be renewed.

Cultivation licenses are annually renewable licenses in which a licensee acquires no property rights. What does it mean to extend and renew provisional licenses that were issued because CalCannabis failed to efficiently issue annually renewable licenses? CalCannabis has already resurrected Milo Minderbinder and Catch-22 in the agency’s licensing of cannabis cultivators. The Legislature has either extended the insanity or given BCC the time necessary to clean-up the mess with AB 97 and SB 97.

The creation of an easy path for cannabis cultivators to legally grow solves only one problem. BCC must also make certain it remains worthwhile for cultivators to legally grow. Worthwhile for cultivators means profitable. BCC must make it reasonably easy for licensed growers to be profitable. An additional law enforcement tool may discourage unlicensed cultivation, but it will not aid in making licensed cultivation profitable.

California will always have a substantial underground cannabis industry. [See Reasonable Rules? ] California should consider its regulation of cannabis is successful when a substantial majority of retail commercial cannabis sales are made through reporting retailers. California does not appear close to achieving such a goal. [See CalCannabis Licensing Debacle?] Both underground cultivation and legal cultivation are expanding at the present date. Both will continue to expand as long as both are profitable.

MAUCRSA created cannabis distributors as a choke-point to control cannabis distribution and to facilitate the collection of Cannabis Cultivation Tax (“CCT”) and Cannabis Excise Tax (“CET”). The California Department of Tax and Fee Administration (“CDTFA”) has discovered the great chasm between hoping something will be so and making something so. Distributors are largely responsible for the black holes into which CCT and CET disappearing.

We have written multiple articles regarding the actions CDTFA must take to improve CCT and CET collection. See [Key to Success for California Cannabis Businesses – Managing Tax Liabilities] and [ It’s the Math]. We communicate regularly with CDTFA. We will continue to do so. Taxes are part of the cost of doing business in the legal market. Prudent business management includes planning for the accurate reporting and payment of taxes. Taxes cause pain when the tax liability comes as a surprise. We specialize in making certain our clients are never subjected to such surprises.

Distributors have proved a barrier to the licensing of cannabis cultivation in addition to being a cause of tax collection slippage. The distributor barrier to the licensing of cultivation has created a dilemma for BCC and CalCannabis. Improved CCT and CET collection by CDTFA will contribute to solving this dilemma, but only slightly. Unlicensed cannabis cultivation is also untaxed cultivation. Avoidance of the payment of taxes is a significant incentive for unlicensed cultivation. The profits that distributors take out of the movement of cannabis from cultivators to consumers increase the disincentive to being a legal grower.

Distributors are using their choke-point control over the flow of cannabis to squeeze greater profits out of licensed growers. The use of choke-point control by distributors to enhance their profits weighs more heavily on smaller growers. Not surprisingly distributors even engage in predatory business practices. The difficulty of operating profitably as a licensed grower because of the choke-point control of distributors has created the dilemma facing BCC and CalCannabis. The more successful distributors are in their operations, the more difficult it becomes to convince independent cultivators to be licensed.

Grower ownership of a vertically integrated cannabis business structure shifts financial power back to the owner-growers. Some growers are trying to move in this direction. Distributors are aware of the financial advantages of integrated business relationships. Most distributors are moving in this direction.

MAUCRSA provides an elegant solution for growers that has not been widely utilized. A vertically integrated cannabis business structure owned by growers through a Cannabis Cooperative Association is financially more efficient than any other integrated cannabis business structure.

We will write more about the use of Cannabis Cooperative Associations on another occasion.


Sean HockingSean HockingJuly 13, 2019
CannabisLicenseLaw1.jpg

8min2800
If you wish to re-publish this story please do so with the following accreditation

A decision by Israel’s Securities Authority last week opens the doors for cannabis companies from around the world to explore a public listing on the Tel Aviv Stock Exchange, even though recreational use is not legal in Israel.

Israel may very soon become not only a well-known center for cannabis innovation and R&D but also a destination for cannabis companies from around the world seeking to raise capital in the public markets.   This is the main import of a decision issued last week by the Israel Securities Authority, not to oppose a pending merger between an Israeli public company and a private company that grows cannabis for recreational use in California. The Securities Authority, in a potentially far-reaching precedent, ruled that it would not oppose the merged company’s public offering of shares even though its activity includes cannabis products for recreational use, which is not legal in Israel.

P.T.L. Financial Services Ltd., listed on the Tel Aviv Stock Exchange (TASE), announced a merger agreement in February 2019 with Ilan Bio, an Israeli private company focused on several cannabis verticals, including cultivating, manufacturing and distributing cannabis products for the recreational market in California. Ilan Bio produces cannabis oil, tissue culture plantlets and other consumer products from its licensed facility in Hollister, CA, the company’s main source of operating revenues in 2018. The Securities Authority and TASE had to decide whether such activity for the recreational market, illegal in Israel, would prevent the merger from going forward and the merged company from issuing its shares to the public. Under Israel’s Dangerous Drugs Ordinance, if an Israeli person or company commits an act outside Israel that would be a drug-related crime had it been done in Israel, it is as if that person committed that crime in Israel, and could be prosecuted. But the law does not address, one way or another, the situation in which those acts are legal in the state where they were done.

After lengthy deliberations involving the Justice Ministry’s central Office of Legal Counsel and Legislative Affairs, the Authority notified the company that it would not oppose the public issue of the PTL’s shares based on Ilan Bio’s cannabis activities, including its US activity for the recreational market, and that the company could get a permit to publish a prospectus based on that adult-use activity, subject to completion of the merger.

This new decision effectively opens the gates to companies and capital from outside Israel, who may wish to take advantage of Israel’s progressive attitude toward the development of the cannabis industry. Israel has long had a strong reputation as a hotbed of cannabis innovation and R&D, ever since THC was first isolated from the marijuana plant by Prof. Raphael Meshoulam at the Hebrew University of Jerusalem in 1965. The past two years have witnessed a strong swell of public listings of cannabis companies on the Tel Aviv exchange – but until now, only companies based in Israel, pursuing non-recreational strategies, and funded largely by local investors.

Yair Ephrati, Head of Investment Banking at Value Base, which represents Ilan Bio in the merger, as well as several of the larger cannabis companies which have gone public on the TASE, said that the decision “opens the door for American and Canadian cannabis companies to list on the Tel Aviv Stock Exchange. TASE has over 15 cannabis-related companies currently traded with strong liquidity and attractive valuations. The combination of the North American market with Israeli cannabis knowhow can create global leaders in the field.”

For American cannabis companies that ‘touch the plant’, the federal legal and regulatory landscape has made the idea of listing outside the US an easy call. But the Israeli ruling comes at a time when the Canadian public markets for cannabis companies have softened, so companies of a sufficient size might find Tel Aviv an interesting avenue now, especially if their strategy involves incorporating Israeli technology or R&D.

Until now, Israeli institutional investors have been reluctant to take positions in public cannabis companies, which have not yet developed significant, steady revenue.   Experts think that the arrival of substantial foreign companies may lead the Israeli institutionals to take a further step towards entering the cannabis public markets, which itself would be a major development in Israel’s rapidly growing industry.

Richard Bardenstein is Hoban Law Group’s resident attorney in Israel and leads its Israel-related practice. He advises foreign investors, companies and governments seeking to do business in Israel, and Israeli companies seeking partners, markets and capital abroad. He can be reached at richard@hoban.law .

 

This article has been prepared for informational and general guidance purposes only; it does not constitute legal or professional advice. You should not act upon the information contained herein without obtaining specific professional advice. No representation or warranty (express or implied) is made to the accuracy or completeness of the information contained in this publication. Hoban Law Group, its members, employees, and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based thereupon.

 


Sean HockingSean HockingJuly 13, 2019
images-11-150x150-2-1.jpg

10min1720
If you wish to re-publish this story please do so with following accreditation
AUTHOR:  “Jordan Zoot.  “aBIZinaBOX Inc., CPA’s
PUBLISHER:  CANNABIS LAW REPORT

 

Cannabis Business Reality – Conference Agenda Mismatch – For those of you who read our post regularly, it is no surprise that we have been “beating a drum” over problems within the cannabis industry in California that focus on licensing and the underground market. Unfortunately, they are the reality problems and may not seem much like “news”. We thought it would be a worthwhile break to take a moment to note developments on other fronts. [We have written extensively in connection with our speculation about changes in the law at the Federal level [See Federal Legalization Then What? ] and we have commented “ad nauseam” regarding our views on the problems that California created for itself with licensing.

We have made some observations relating to how some of these problems might be corrected – most recently yesterday in Cannabis Lawyer – Dangerous? And previously in Carrot and Stick!  Rather than restate today’s news we will quote from two CNBC articles describing broad-based developments which is a practice we usually avoid.

“U.S. lawmakers weighed reforming pot laws in what advocates called a “historic” hearing Wednesday, with numerous members of Congress saying they wanted to loosen federal laws, even legalize marijuana.

“Marijuana decriminalization may be one of the very few issues upon which bipartisan agreement can still be reached in this session,” said Rep. Tom McClintock, R-Calif., adding “it ought to be crystal clear to everyone that our laws have not accomplished their goals.”

Eleven states have legalized adult recreational use and a majority of Americans support legalization. A number of bills are on the table that would reform federal marijuana laws. The House Judiciary Subcommittee on Crime, Terrorism and Homeland Security sought input on how to reform federal laws in a hearing Wednesday titled “Marijuana Laws in America: Racial Justice and the Need for Reform.

“There is a growing consensus in this country that current marijuana laws are not appropriate and we must consider reform,” said Rep. Karen Bass, D-Calif. “Today’s hearing is the first step in that process.”

Despite the optimism, lawmakers did not appear to have a clear consensus on the best approach, such as whether to give states the right to legalize on their own, remove marijuana from schedule 1 of the Controlled Substances Act, legalize it or include promote social and racial equity in marijuana laws.

The STATES Act is among the most popular cannabis bills. It would amend the Controlled Substances Act and exempts state-approved marijuana activity from federal enforcement.

Proponents say the legislation would eliminate federal concerns in states where marijuana is legal. Yet some say the bill does not go far enough because it does not address any racial or social concerns.”

Source: US lawmakers look to legalize pot in ‘historic’ marijuana reform hearing

Cannabis Business Reality – Conference Agenda Mismatch

“There is a bright spot in cannabis revenue growth in Colorado. On Jan. 1, 2014, Colorado launched what many considered a controversial experiment: It became the first state in the country to legalize recreational cannabis. No one was sure how things would play out. Would new entrepreneurs enter the market? Would people stop buying from the black market? Would crime rates fall? Now, more than five years after the first pot shops opened their doors in Colorado, it’s clear the experiment has been a success.

On June 12 the state announced that it surpassed $1 billion in total cannabis-related revenue, the first state in the country to hit that milestone. Companies also have made more than $6.5 billion in sales over the last five years, with April and May of this year the highest-grossing months since legalization.

Per-person sales are also highest in Colorado, with people buying, on average, $280 worth of cannabis per year compared to $220 and $130 for Washington and Oregon, respectively, the second and third states to legalize weed, according to Scott Willis, head of research at Grizzle, a New York-based investment research company.

Much of the legal marijuana market revenue, which accounts for about 3% of the state’s $30 billion budget, goes toward education, health care, literacy services, and drug prevention programs.

In California, a state that should have swiftly raised millions in revenue, considering the size of its population, cannabis legalization has mostly been a dud. Cannabis consumers can’t purchase pot in 75% of the state’s city and counties, while high taxes are impeding legal growth and allowing the black market to expand.

California Gov. Gavin Newsom’s recent state budget plan slashed cannabis tax-revenue projections by $223 million. In the first half of 2018, revenue was $101 million below what was expected. According to reports, California charges a 45% tax on legal cannabis businesses when all taxes are taken into account, a finding that led to calls for a major tax rethink to better compete with the black market.

In Colorado, growers have to pay a 15% excise tax when their product is transferred from cultivation facility to retail store, while consumers have to pay a 15% sales tax on the purchase of cannabis. That’s mostly in line with other states, though Washington has a 37% sales tax.”

Source: Colorado grows annual cannabis sales to $1 billion as other states struggle to gain a market foothold

 

Cannabis Business Reality – Conference Agenda Mismatch

We note that the National Cannabis Industry Association [“NCIA”] is holding its annual Cannabis Business Summit and Expo in San Jose, California on July 22 – 24. We have read the list of speakers [it includes most of the “luminaries” that appear at just about every event on the “cannabis tradeshow circuit” and the descriptions of keynote speeches, seminars, and panels.

We were stunned at the lack of substantive sessions that address the Federal legalization issues [thankfully, the Cannabis Trade Federation has stepped in as the adults dealing with Federal policy and legislative action].

We were also stunned to see the program is DEVOID of significant substantive content addressing:

Problems with cannabis business licensing in California

Discussion of a coordinated approach to shrink California’s Black Market

Substantive discussion of the licensing debacle in Los Angeles

Substantive discussion relating to Cannabis Cooperative Associations [“CCAs”] – which would dovetail nicely with the session – “Understanding Vertical vs. Horizontal Integration in a Changing Legal Landscape

Finally, we were stunned to see a session entitled Advice from the Experts on How to Work with California Regulators“. Regulators need to interact with practitioners, and our thought is that there should be a couple of experienced practitioners on that panel.

We have always been hopeful that cannabis business conferences would evolve to better address the “real world” problems faced by legal cannabis businesses. Unfortunately, real change appears to move at a glacial pace. [See CCIA Policy Conference What’s Missing?]

Cannabis Business Reality – Conference Agenda Mismatch

 


Sean HockingSean HockingJuly 11, 2019
shutterstock_309992177.jpg

11min1690
AUTHOR:  “Jordan Zoot.  “aBIZinaBOX Inc., CPA’s

We were prompted to write this article by the juxtaposition of two articles republished by Cannabis Business Executive in its July 4th Edition. The title of the first article, The Top 5 Most Dangerous Cannabis Contracts in California, caught our eye. We were intrigued by the title. What is a “dangerous” contract?

Dangerous is not an adjective we would use to describe a contract. We regularly describe contracts as ill-conceived or poorly drafted. Such contracts are “dangerous” for the parties. Such contracts expose the parties to financial loss. Even a one-sided contract must be well-conceived and carefully drafted in order to minimize the risk of loss because one party fails to perform.

We will come back to the list of the five most dangerous cannabis contracts. First, we want to briefly comment on What’s a Cannabis Lawyer? The juxtaposition of this article with the above article was surprising. It seems to us the answer to the question “What’s a Cannabis Lawyer?” is “See above.” Isn’t a lawyer who can identify the five most dangerous cannabis contracts a cannabis lawyer?

The title to the second article, like the title to the first article, was eye-catching but misleading. The title “What’s a Cannabis Lawyer?” is a misleading presentation of an issue that plagues California’s cannabis industry. The opening sentence of the article “When compiling the new cannabis law chapter this year, one question loomed largest; what does it mean to be a cannabis lawyer or law firm, and why should cannabis company executives need one?” explains the misleading title.

Asking a single question in two different forms reflects an unjustified conceit. This conceit arises from the idea there is something “special” about cannabis. What is special about a cannabis lawyer? Nothing. What is special about a cannabis business executive? Nothing. Cannabis is not special. Cannabis is an agricultural product with a boatload of historical baggage from marijuana’s place in the War on Drugs.

A business executive involved in the cannabis industry must first ask “Am I qualified to decide what advice and assistance I need in connection with a contractual relationship?” When the first question can be answered with a qualified affirmative, the business executive must then ask, “Who can provide me with the advice and assistance I need in connection with the establishment of an on-going business relationship, and how can I be confident I can rely on the legal advice and assistance I receive?” A business executive involved in any industry should always ask the same questions.

Consider the article “The Top 5 Most Dangerous Cannabis Contracts in California” a five-question pop-quiz. As a business executive with a substantial financial interest in the performance of the parties to each of these types of contracts, what skill and experience should a lawyer have who represents my interests with respect to this type of contract? Does my lawyer have the required skill and experience?

The question business executives involved in California’s cannabis industry should ask with greater frequency is, “Do I know enough about the issues involved in a matter to judge the legal assistance I need?” We have constantly marvel at how many business executives involved in cannabis rely on lawyers whose skill and experience are based in criminal law. Avoiding jail time is no longer a primary concern for most of the individuals involved in California’s cannabis industry.

Making money appears to be the primary concern of most business executives involved in the cannabis industry. Why would the advice of an experienced criminal attorney help you make more money? Experience in commercial transactions and in the negotiation and drafting of business agreements seem far more beneficial. Almost one-half of California dollars spent on cannabis by consumers represent taxes due a governmental agency. Securing quality advice relating to minimizing the tax load on a cannabis business appears important, although as we have observed, many tax advisors involved in the cannabis industry are not well-qualified. [ See Choosing Cannabis Tax Advisors.]

California will have a substantial financial interest in most cannabis business contracts as a consequence of the Cannabis Cultivation Tax (“CCT”) and the Cannabis Excise Tax (“CET”). The most straight-forward business contract is a sale of real property for cash. Every lawyer involved in sales of real estate quickly learns that a sale is not completed until escrow closes and the check clears. The closing of a sale, however, may not be the end for the parties. The parties may become embroiled in litigation. Such litigation may involve others – brokers, lenders, title insurance companies and governmental agencies. Controversies over cannabis business contracts are likely to involve claims by California.

 

California is also likely to have a regulatory interest in business contracts involving cannabis because all commercial cannabis activity must occur between licensees. Proposition 64 was ill-conceived and poorly-drafted [See Implementing Proposition 64” Marijuana Policy in California and Keeping Proposition 215’s Promise ] California’s regulatory landscape is rapidly evolving. [ See Background – California Cannabis Regulation and Cultivators – Taxes – Licensing Delays ] California’s cannabis regulatory agencies have proved singularly inept. [See California Chaos Causes and California Cannabis Regulation Blunders ] A transaction that is legal today may be illegal tomorrow. A contract that complies with law when executed may be against public policy when litigated.

In order to establish a contract, the parties must reach a meeting of minds. The five types of cannabis business contracts identified as most dangerous involve on-going financial relationships. The meeting of the minds that is required to establish such a contract must continue to exist in the future as the underlying premise for the contract is a meeting of minds. If the premise for a contact fails, the contract will begin to unravel. California has an interest in every contract, but it is unlikely to be a signatory. California’s interests in cannabis business contracts can never be overlooked by the parties.

We would likely identify five different types of contracts as those which should cause the greatest concern for business executives. We have a different perspective on which contracts involve the most risk. We focus on the financial repercussions of the failure of performance pursuant to contracts, including the interests of third-parties.

One of the types of contracts identified as dangerous involves slotting fees. The payment of collection of slotting fees may be a reasonable business practice or it may be criminal conduct depending on the facts and circumstances. California has placed tremendous financial power in the hands of distributors. The power given to distributors by California carries with it a tremendous level of responsibility. As we have pointed out, distributors are primarily responsible for the black holes into which some of California’s cannabis tax revenue is disappearing. [[ When California comes looking for money from a distributor, it is unlikely to care whether the distributor’s contracts are well-drafted. California will follow the money, not necessarily the contract. California did not sign the contract. It simply wants its share of the money.

If you receive tax planning or tax reporting advice from us, we provide the highest-quality advice available in California whether the tax issues relate to sales taxes, income taxes, CCT, CET or local cannabis taxes. When it comes to advisors on matters of law relating to California’s cannabis industry, we must observe it appears there are far more “experts” than there are well-qualified attorneys.

We look forward to discussing how we can assist your cannabis business.

 

 


Sean HockingSean HockingJuly 8, 2019
shutterstock_506478736-1280x853.jpg

5min1220
If you wish to re-publish this story please do so with the following accreditation
RE-PUBLISHED BY :  CANNABIS LAW REPORT

Medical use? Recreational Use? Federal vs. State? These are many of the common questions and concerns your average patient has with respect to cannabis today and the answer isn’t quite as clear as we would like it to be; however, there is a linguistic trend steering towards the term “medicated” to replace, the pejorative, “high” for cannabis users seeking medical relief.

Notwithstanding, this re-branding and imaging of cannabis, the basis for much of this confusion is the Controlled Substances Act. As a refresher, cannabis is classified as a “Schedule I” substance, which, defines it as a substance with no currently accepted medical use. A snapshot taken directly from the Drug Enforcement Agency (DEA) website is reproduced below:

Schedule I:

Schedule I drugs, substances, or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse. Some examples of Schedule I drugs are heroin, lysergic, acid diethylamide (LSD), marijuana, (cannabis)l, 3,4- methylenedioxymethamphetamine (ecstasy), methaqualone, and peyote.

Yet, as cannabis barrels onto the public scene, there is more evidence surfacing for suggested medical uses. GW Pharmaceuticals has essentially broken the mold with Epidiolex; a prescription medicine that is used to treat seizures associated with Lennox-Gastaut syndrome or Dravet syndrome in patients two years of age and older. Epidiolex is the first and only FDA-Approved prescription cannabidiol, so how did they do it?

GW Pharmaceuticals creatively applied for orphan status under the Orphan Drug Act (ODA) with the FDA. Per the U.S. Food and Drug Administration,

The Orphan Drug Act provides for granting special status to a drug or biological product (drug) to treat a rare disease or condition upon request of a sponsor. This status is referred to as orphan designation (or sometimes “orphan status”). For a drug to qualify for orphan designation both the drug and the disease or condition must meet certain criteria specified in the ODA and FDA’s implementing regulations at 21 CFR Part 316.

Under the Orphan Drug Act, the FDA may grant such a designation for medications that specifically target a rare disease or condition. In 2013 and 2014, the FDA granted such status for Epidiolex. Now, almost four years later and with FDA approval, the DEA was forced to reconsider the medical acceptance of cannabis-derived medications. To wit, on September 27, 2018, an announcement was made by the Department of Justice and the DEA declaring that Epidiolex was being placed in “Schedule V” of the Controlled Substances Act, the least restrictive schedule of the CSA.

Such a drastic jump from Schedule I to Schedule V is virtually unprecedented and inherently conflicting as it acknowledges that a plant-based derivative — a component — of the Schedule I substance has a definite medical use. Will this represent a turning point in what is deemed “accepted medical use” and create a foothold for other cannabis-based products to enter the medically accepted sphere?

Anthony S. De Ingeniis



About Us

The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


READ MORE



Recent Tweets

@GreenMarketRpt – 13 hours

Executive Spotlight: Howard Lee, CEO & Co-founder of SōRSE Technology

@GreenMarketRpt – 13 hours

cancels its plans to list on which had been expected today. “The Company is not proceeding wit…

@GreenMarketRpt – 14 hours

FWIW did not pay for our recent interview. They have not advertised on our site. It is NOT sponsore…

Back to Top

You have Successfully Subscribed!