Sean Hocking, Author at Green Market Report - Page 2 of 2

Sean HockingSean HockingMarch 12, 2019
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12min1390

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AUTHOR: “Jordan Zoot.  “aBIZinaBOX Inc., CPA’s”
PUBLISHER:  CANNABIS LAW REPORT

 

Back to the BRC – while 2015 seems like ancient history, however, that was when then Lt. Gov. Gavin Newsome’s Blue Ribbon Commission published “Pathways Report – Policy Options For Regulating Marijuana in California” which contained a detailed analysis of the policy choices that were to be considered in what gave California Proposition 64 and subsequently SB 94 which led to the system of regulation for the legal cannabis industry that exists in California today.

While we could devote a book length article to a present day critique of that report we are going to limit our thoughts to a review of the Tax Policy component of the report which appears on pages 48 through 56. The section, “Taxing Marijuana” begins by noting

 

“The ability to tax cannabis is one of the main political reasons given to support recreational legalization. A successful tax system will need to raise money to pay for increased education, public health and enforcement costs associated with marijuana cultivation and use.”

 

California will have to wrestle with when and, how to tax marijuana. Each decision has trade-offs that must be considered by policymakers. Yet it still remains that a logical and effective taxation system can help establish effective broader public policy. Regulators and decision makers should consider how to set up a tax scheme that will help them achieve the core goals of legalization policy that have been stated earlier in this report.

 

In drafting any taxation scheme, it is important to devise a plan that can be administered and enforced effectively. Tax policy can be the driving force for public policy only if it is effectively enforced, and effective enforcement will result only from systems that can be properly administered. Tax and regulatory compliance should be simple to execute and formulated in a way that makes compliance desirable to market participants.”[1]

 

If we were to just STOP AND REFLECT after only having gone that far, the admonishment couldn’t have been more profound. The greatest challenges that highly regulated system which was initiated by the California Legislature and embellished by the regulatory and tax agencies they created are principally burdened by excessive complexity and difficult in both participant compliance and agency administration. We have commented at length in recent articles with our suggestions to correct both aspects.

 

The BRC considered the triumvirate of Price vs. Weight vs THC and ultimately adopted Price for the Cannabis Excise Tax [“CET”] and Weight for the Cannabis Cultivation Tax [“CCT”]. We are going to expressly reserve comment on the THC choice which is CLEARLY the appropriate choice for applying tax to the product of manufacturing [eg. extraction for the production of vaping cartridges and edibles].

 

Taxing by percentage of sale price seems easy and quick. But calculating marijuana taxes as a percentage of price creates the danger that taxes will be, at first, too high, and then later too low. Initial business start-up costs and possible shortages in supply can drive up the retail cannabis cost in the beginning, artificially creating more tax revenue. But then as businesses and the market mature and production costs go down, tax revenue will decrease.

 

Taxes that are too high make prices for the legal market unattractive to consumers relative to the prices for the untaxed illicit market. This results in two negative effects:

 

  • lower actual tax collections,
  • and a continued illicit market.

 

The BRC Report continues with a comment about initial experience in Colorado

 

“That’s why Colorado’s original 15% price-based producer tax was converted to a weight base—so the state has something it can measure.   In many cases, there is no actual producer price to tax. Colorado originally required producers to sell directly to consumers (forced vertical integration). When the producer is not a separate entity from the retailer, there is no “arm’s-length,” or actual, producer price.   The absence of an arm’s-length market price caused the state to estimate an “average market rate” which it uses to compute a weight-based tax. This average market rate, adjusted every six months, applies even to sales between unrelated parties.”[2]

 

We see the consequences of this approach, particularly the imputation of an arbitrary rate of mark-up in the CET. The alternative “weight-based” approach was utilized in the CCT.

 

The BRC notes

“A weight-based excise tax has the advantage of creating a kind of price floor under the market and guaranteeing at least some government revenue even in the event of a marijuana price collapse. Assessing tax on the basis of the weight sold raises potential arguments about when the weight should be assessed (e.g., at the farm gate, at the processor, at the retail outlet) and how to account for the fact that, as a harvested plant, marijuana will change in weight as it loses moisture.

A further challenge of a weight-based tax is that it could incentivize producers to make extremely high-potency products so as to reduce the amount of tax per unit of THC sold.”[3]

 

Targeting a tax directly at intoxication might seem a theoretical best practice. Some have suggested taxing THC, the primary intoxicant, directly—or adjusting the tax down for the presence of CBD, which may have a mitigating effect on THC. Indeed, measuring THC in homogeneous concentrates, before incorporation into edibles and other products, might yield reliable and replicable results. But measuring THC in raw plant material, like dried flower, is more problematic.

 

These products are not homogeneous. Broad-brush test results, accurate enough to warn or inform consumers, may not be accurate enough for taxation.

 

Our financial modelling of California’s cannabis taxes raises a couple of additional factors that have had a significant impact on behavior by participants in the cannabis supply chain. The levels of mark-up and profits sought by Cultivators vs. Distributors vs. Dispensaries have significant impact on the market. The instances of integration such as Cultivators owning distribution and manufacturing entities through Cannabis Cooperative Associations [“CCA’s] could become significant “disruptors” to the vertically integrated, larger players such as Flow Kana which have recently emerged.

 

There are several points in the supply chain where cannabis taxes can be assessed cultivation and at the retail level. The may be additional points for assessment of tax if manufacturing or distribution components are involved in the process. We have observed that each of the state with legal cannabis has adopted a combination of the methods in different configurations. Each of the methods has advantages and disadvantges that need to be evaluated in the context of both revenue and policy objectives. .

 

Also, because marijuana prices and marijuana consumption will change over time, certain types of taxes may offer more stable tax revenue and consistent after-tax prices than others.

 

Finally, the BRC notes

 

If we put aside the risks of leakage and tax evasion, late collection has certain apparent advantages – despite the “collect early” guideline. With any chosen ad valorem tax percentage on price, imposing it as late as possible gives the state more revenue, since the price of any product ordinarily rises as it passes through the supply chain. For instance, a 20% retail tax will collect more revenue than a 20% production tax, since the retail price is normally higher than the production prices. If, instead of a particular percentage, the state seeks a specific dollar amount of revenue, taxing later in the supply chain usually results in lower consumer prices, since retailers tend to add a percentage of profit margin based on their costs, including the cost of taxes.”[4]

 

We have no illusions [or delusions] that our thoughts will become the basis for the California regulatory and tax agencies to make change in tax rates or policy. However, what we do know is that unlike many that merely speculate about forces that impacted the highly regulated cannabis market, we have derived substantial insight by “pushing the numbers” and observing relationships between both the cost components, and the behavior of the market participants.

 

We hope our readers are developing a sense of those relationships as well.

 

[1]Pathways Report – Policy Options For Regulating Marijuana in California” at Page 48

[2] Page 49

[3] Page 50

[4] Page 53

 

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Sean HockingSean HockingMarch 11, 2019
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11min1430

MARKETING MATTERS: THE ART OF BRANDING & IDENTITY

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AUTHOR: Glenn Johnson

PUBLISHER: CANNABIS LAW REPORT

 

The rise of social media has taught us that good storytelling and branding can go a long way to project success for any brand. They’re a gateway to customer conversations that when well done, can lead down a rabbit hole of discovery for any consumer to journey across your brand. Everyone loves an underdog, and in Cannabis more than any category represents an emerging class of new brands, new products and new experiences for consumers to listen, learn, sample and engage with.

The push-pull of the regulatory dance that’s occurring on a state by state basis in the US has unleashed a mashup of start-ups at every level of the industry’s verticals. Not everything is rainbows and sunshine however, and we’re all too familiar with seeing websites, social media, packaging and branding decisions that fall short in one way shape or form or another. It is quite honestly what drives me in my own work to address the needs of businesses as they’re getting started or pivoting into a larger scale.

 

From soil to oil, flowers and beyond, every brand has a unique challenge to overcome when it comes to your “branding” efforts. What people see, and what they remember may be two different things. For start-ups and entrepreneurs in the Cannabis space, there are some basic caveats that apply and should be used as a benchmark as you go about introducing yourself to the market in which you do business.

 

STEP ONE is to refine or define your Brand Identity. A company’s brand identity is what it says about who it is – the products or service it delivers, the quality it gives customers, its advantages over competing brands and what makes it unique. That’s a fancy way of being clear about who you are and what you sell. You will need to codify and agree upon a clarified brand meaning which aligns with your brand goals (setting these goals are manifold related to the market categories you serve, pricing and inventories, more on that later).

 

STEP TWO is your Brand Image, which is how a brand is perceived by the public, what they see, what they will remember–the overall Look & Feel of your brand. You want to work to ensure the brand assets align with your Brand Identity so that the end consumer, be it B2B wholesale or B2C Sales and social media makes sense and adds value to your business, whether its driven by price or perception.

 

STEP THREE is to align your “Branding” with the markets you serve and letting your brand live in the space in which you do business. Take the remarkable start-up NW Nectar, a Tier 3 Producer / Processor in Spokane, WA who, “works to provide great experiences to our retailers and customers.” Their collection of brands reflect a kickass appeal from the native northwest, from the Great PNW to their Lefty’s brand (which reckons back to the notorious “left hand cigarette,” which cannabis was once known as. Evolving beyond stigmas of yesterday to create something pleasantly nostalgic with an air of mystery and includes their portfolio is a bevy of wonders and includes Trips Kitchen, with its own unique iconography.

 

 

I bring you these thoughts, sparked by the remarkable infographic, The Art of Cannabis Culture, from the thoughtful folks at the Ganjaprint.com They know a thing or two about the visualization of a brand from their extensive printing experience and have some terrific examples of winners in the category too, many you’ve heard of like Marley’s Natural and Kiva Confections to smaller brands from Cali like Lola Lola who’s colorful confections aim to: Enhance. Every. Experience.

There’s a lot to take in here, and it’s not laid out in any particular sequence, but the Optics takeaways are a great reference point for any brand. These tips dovetail well with the steps I’ve outlined above, which are in fact from the approach I’ve found successful working with brands of every size, from larger brands in Spirits like Maker’s Mark and Knob Creek’s small batch collection to smaller brands and start-ups in numerous verticals including Cannabis. It’s definitely worth saving and sharing with your teams as you go about building your business. I welcome your feedback in the comments, and any opportunity to ask me any specific questions via email if you’d like.

 

About Glenn Johnson

I am a Marketing, Branding and Communications Consultant w/ experience in high-touch luxury consumer marketing in the travel/hospitality, wine/spirits, fashion/beauty/grooming and Cannabis categories. My talents include Branding & Brand development, Business Building, Strategy and Brand Storytelling. I excel in working with Founders, funders, start-ups, and small brands.

 

Previously I was co-founder & moderator for the Creative Mind Salon series hosted at Soho House NY w/ industry innovators, creatives & decision makers from fashion, film, photography, music and digital industries which provided IRL intelligent discourse amongst highly-curated leading edge creatives. I can be contacted at glenn.johnson@gmail.com Connect with me on LINKEDIN: https://www.linkedin.com/in/glenn-johnson-8018944/

 


Sean HockingSean HockingMarch 10, 2019
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4min1550

As any farmer knows, planting season waits for no one. Washington state lawmakers are showing they understand this as well.

While other states have moved more aggressively to encourage commercial hemp, Washington’s total hemp crop in 2018 was less than 150 acres, all grown by the Confederated Colville tribes northwest of Spokane. Lawmakers in Olympia are determined that 2019 will be better — Hector Castro, Director of Communications for the Washington State Department of Agriculture recently stated, “It makes sense to assist farmers to get seeds in the ground this season.”

Legislative changes have been proposed to harmonize Washington’s hemp laws with the federal government’s 2018 Farm Bill. A legislative fix is necessary for hemp-derived CBD sales and for out-of-state hemp export.

The Washington State Department of Agriculture is also stepping up to the hemp table and considering two rulemaking changes that would benefit the industry. If successful, these rule changes would allow hemp to be grown within four miles of marijuana cultivation and remove the requirement that hemp farmers get permission from the DEA before importing hemp seeds.

One open issue is how to pay for the hemp-licensing program that is compliant with the 2018 Farm Bill. The program is predicted to cost just over $200,000 annually. If that cost is passed on to farmers instead of being funded by the state budget, the current $300/year hemp license fee could increase dramatically and undercut the momentum that Olympia is trying to build.

Peter Becker

Peter Becker is an experienced trademark, copyright and domains attorney with experience developing and implementing global strategies and IP portfolios for billion-dollar brands, including Microsoft and Amazon.      

Peter advises senior executives on building brand equity, enforcing and monetizing non-patent IP assets, and defending IP threats. He is well versed in brand management overseeing risk analysis, clearance, prosecution, oppositions, uniform domain name dispute resolution policies, customs seizures, policing and defensive conflicts. Peter also guides clients through all aspects of IP management related to mergers and acquisitions.


Sean HockingSean HockingMarch 9, 2019
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15min3780

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AUTHOR: Mark Taylor
PUBLISHER:  CANNABIS LAW REPORT

Cannabis lawyers are heading to Brussels next week to challenge a recent decision by the European Union to reclassify food products containing cannabidiol (CBD) and prohibit their sale.

While the rest of the western world moves towards acceptance of cannabis products either medically or recreationally, the European Union pushed back in February, updating a classification of CBD under the Novel Food Regulation.

The law ((EU) 2015/2283), which applies across all member states, means any product deemed as ‘novel’ must gain authorization from food authorities before it can be sold as a foodstuff within the EU.  Food can be considered ‘novel’ if it was not consumed by humans to any significant degree prior to May 1997.

These regulations apply to food supplements, ingredients, and substances intended to be incorporated into food. In the case of CBD, this includes extracts, oils and other derived products that are intended for ingestion by humans.

The decision caused an outcry amongst pro-cannabis groups having come almost out of the blue, and now the legal troops have been mobilized in a bid to overturn the decision.

London law firm Mackrell Turner Garrett, together with a leading food and trading standards barrister, was instructed by the Cannabis Trades Association UK (CTA) to make representations to the European Food Safety Authority (EFSA).

Robert Jappie, head of cannabis law at Mackrell Turner Garrett and Jonathan Kirk QC, of Gough Square Chambers, will travel to Brussels on March 12 to meet with EFSA officials.

They are taking issue with the change by the EU in its submission for the term ‘cannabinoids’ states: “Extracts of Cannabis sativa L. and derived products containing cannabinoids are considered novel foods as a history of consumption has not been demonstrated. This applies to both the extracts themselves and any products to which they are added as an ingredient (such as hemp seed oil).”

Although EFSA’s Novel Food Catalogue is merely advisory, domestic regulators rely on it for guidance and are likely to act first, ask questions later.

Austria’s government interpreted the EU law in such to ban CBD even prior to the change, taking a hardline stance to the emergence of multiple shops selling oils, and even CBD-infused cakes, on the high street.

Such is the immaturity of Europe’s technically regulated CBD market, it’s true worth is almost impossible to price. US analysts say CBD could be a $22bn market by 2022; by comparison, any EU sector would larger.

While unexpected, the EU’s decision is a reminder to the business of its independent thinking and willingness to act quickly in cases where it observes a potential threat to consumers.

It has long kicked back against trends emerging from the US in financial and other markets, not least since the 2008 financial crisis. It has also recently begun flexing extra-territoriality muscles in regards to data regulation, positioning itself as world police of consumer data, to the chagrin of Silicon Valley’s luminaries.
European capitalists have been closely watching the green wave sweep over the US and maneuvering to cash in when it hits these shores, however, Brussels is a different beast, and member states, however desperate for cash, are perfectly capable of slowing down the tide to give themselves an advantage.

The soaring popularity in Britain is not in question, however, and can be evidenced in the CTA’s growing membership; since formation in 2016, it now boasts more than 700 members who produce a wide range of legal CBD products.

“The growth of the UK’s CBD industry has been spectacular in the last three years and its contribution to the UK economy is thought to exceed £100m ($130m) per annum,’ said Jappie.

Novel food is defined as food that was not consumed to a considerable degree by citizens of the EU prior to 1997 when the first regulation on novel food came into force.

The EU claims CBD falls into this category, however supporters say hemp flower products such as hemp seed and hempseed oil (extract) are already authorized, and the ban is unlawful

“Only food products that are enriched with isolated CBD should be considered novel,” said Mike Harlington, chairman of the CTA. “Hemp extracts are not novel and this is the position we have presented for almost two years now. Our position remains unchanged. Our members’ products remain legal, and will not be removed from sale.”

FURTHER INFO

You’ll already be aware of the Mackrell Turner Garrett Cannabis practice

Here’s some further information on

Jonathan Kirk QC specialises in consumer law and financial regulation. In recent years this has primarily focused on issues of mis-selling, misleading prices, unfair terms and EU food regulation.

He is one of the two general editors of the ‘Encyclopedia of Financial Services Law’ and the author of a textbook on financial services, ‘Modern Financial Regulation‘. He is also the general editor of ‘Consumer and Trading Standards: Law and Practice’ (‘the Pink Book’)

In 2015 he represented a parking company in the seminal case of ParkingEye Limited v Beavis, arguing before the Supreme Court that a £85 parking ticket issued for overstaying on private land was not a contractual penalty or an unfair term. He also defended several national companies against allegations of mis-selling or misleading prices.

He has substantial experience of litigation involving Part 8 of the Enterprise Act 2002, having represented parties in the OFT or CMA investigations into the supermarket, ticket reselling and furniture sectors.

He advises NTS (‘National Trading Standards’), the CTSI (‘Chartered Trading Standards Institute’), the Bar Council and the Law Society on consumer law matters.

He lectures widely on EU consumer and trading standards law. He has been an approved Bar Advocacy Trainer for 10 years and was appointed as counsel at the United Nations (ICTR) in 2005 and Queen’s Counsel in 2010.

  • R (on the application of Stephanie Hudson) v Liverpool City Council (High Court, QBD, 2016): contempt proceedings against the Council for breaching its undertaking to review its decision to restructure its consumer protection services;
  • R (Kingston upon Hull City Council) v Secretary of State for Business, Innovation and Skills, Newcastle City Council and Greggs plc (High Court, Admin, 2016): represented Greggs plc, an interested party, in a judicial review of the endorsement by BIS’ Better Regulation Delivery Office (‘BRDO’) of advice given under the Primary Authority Scheme to Greggs plc, concerning provision of sanitary facilities;
  • Competition and Markets Authority v Various Supermarkets (2016): defended a supermarket in the CMA investigation into the Consumers’ Association (Which?) super-complaint about pricing and promotional practices in the groceries market;
  • Beavis v ParkingEye Ltd [2015] UKSC 67: acted for parking company in appeal to Supreme Court concerning an £85 parking charge; case is now the leading decision on penalty clauses, re-examining the scope of the common law doctrine and the approach to challenges to unfair terms in consumer contracts;
  • Competition and Markets Authority v Seatwave, Viagogo, StubHub! and Get Me In! (2015): defended the Getmein! website in the CMA investigation into the ticket re-selling market;
  • R (Hudson) v Liverpool City Council (High Court, Admin, 2015): acted in judicial review proceedings against Liverpool CC in relation to the claim that it had drastically reduced its trading standards capacity and therefore breached its European and domestic consumer protection responsibilities;
  • Torfaen County Borough Council v Tesco Stores Limited (2015) defended Tesco in allegation of mis-selling of peanuts under the Price Marking Order 2004;
  • British Parking Association v A Private Parking Enforcement Company (2015) defended a private parking company in disciplinary proceedings brought by the British Parking Association in relation to allegations of fraud by parking wardens falsely issuing parking tickets;
  • R (Wren Kitchens Limited) v Advertising Standards Authority (2015): acted for Wren Kitchens Limited in ASA adjudication on price comparisons and in subsequent judicial review proceedings;
  • Halsall & ors v Oasis Land Development Ltd (High Court, Ch Div, 2015): represented corporate defendant in a  fraudulent misrepresentation trial concerning land in the Cayman islands;
  • OFGEM v Various Energy Companies (2015): acted for OFGEM in allegations against energy companies under Part 8 EA and the Consumer Protection from Unfair Trading Regulations 2008 (‘CPUT’);
  • Office of Fair Trading v Carpetright PLC, SCS, Dreams, Furniture Village Limited, Homestyle Operations Limited, Harveys and Bensons for Beds (2014): defended Carpetright PLC in the OFT’s investigation into alleged misleading reference pricing in the furniture retail sector;
  • Hertfordshire County Council and London Borough of Brent v Wendy Fair Markets Limited(High Court, Ch Div, 2014): claim under Part 8 EA 2002 for injunctive relief against market operators concerning consumer law infringements in relation to counterfeit goods;
  • Torfaen CBC v Douglas Willis Ltd [2013] UKSC 59 (Supreme Court): food standards and minimum durability labelling;
  • R v X Limited [2013] EWCA Crim 818 (Court of Appeal): first consideration of the meaning of ‘commercial practice’ under CPUT;
  • Birmingham CC v Tesco Stores Limited (2013): pricing under CPUT (strawberries);
  • Cheshire East v Salsa Enterprises Limited and Sean Ellman (2013): defence of company accused of breaching CPUT by selling ‘legal highs’;
  • R v Blake (2013): defence of managing director of finance company prosecuted for breach of financial conduct provisions;
  • OFT v First Step Finance Limited (2013): representation of company in relation to the revocation of its consumer credit licence;
  • House of Cars Ltd v Derby Car and Van Rental (2012): first private prosecution under CPUT;
  • East Riding of Yorks v UK Parking Control Ltd (2012) (CC, HC (QBD) and CofA): first trading standards enforcement of CPUT in private car parking enforcement;
  • R (LOCOG) v Sportsworld Limited, Events International Limited and International Corporate Events Limited (2012): defence of national ticket sales company prosecuted under the provisions of the 2006 Olympic Act;
  • Brighton & Hove CC v Towers Property Developments Ltd (High Court, Ch Div, 2011): first Part 8 EA 2002 and CPUT trading standards enforcement against land banking company.


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


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