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StaffStaffJanuary 22, 2019


It’s time for your Daily Hit of cannabis financial news for January 22, 2019.

On The Site

Tilray, Inc. (TLRY) has entered into an agreement to acquire all of the issued and outstanding securities of cannabis cultivator Natura Naturals Holdings Inc. in a deal valued at $35 million, but could ultimately grow to $70 million.

Under the terms of the agreement, Tilray will deliver C$35 million at closing. This will be made up of C$15 million in cash and C$20 million in Tilray Class 2 common stock. The statement said that if  Natura reaches certain quarterly production milestones over the following twelve-month period, up to C$35 million of Tilray common stock may become payable resulting in a total purchase price of C$70 million if fully achieved.

In Other News

KushCo Holdings, Inc. (OTCQB: KSHB) closed a registered direct offering of 6,476,190 shares of common stock and warrants to purchase 3,238,095 shares of common stock with a combined purchase price of $5.25 per share on January 18, 2019.  The warrants have an exercise price of $5.75 per share, are immediately exercisable and will expire five years from the date of issuance. The gross proceeds of the offering are approximately $34,000,000 before deducting placement agent fees and other estimated offering expenses. The Company intends to use the net proceeds for general corporate purposes, including, among other things, working capital, product development, acquisitions, capital expenditures, and other business opportunities.

Harvest Health & Recreation Inc. (CSE: HARV, OTCQX: HTHHF) is trading on, the OTCQX Best Market. Harvest Health & Recreation (Harvest) upgraded to the higher visibility OTCQX Best Market and is trading under the symbol “HTHHF.”

Village Farms International, Inc. (TSX: VFF) (OTCQX: VFFIF) announced that it has filed an application to list its common shares on NASDAQ Capital Market under the symbol “VFF”. Village Farms’ common shares will continue to be listed on the Toronto Stock Exchange (TSX), also under the symbol “VFF”.

Flower One Holdings Inc. (“Flower One” or the “Company”) (CSE: FONE) (OTCQB: FLOOF) announced a new licensing agreement and Brand Partnership for cannabis-product fulfillment in Nevada with California-based, Old Pal, the popular lifestyle cannabis brand that offers the most affordable legal cannabis in the state of California. Flower One is now licensed to produce, manufacture and distribute the entire Old Pal product line to Nevada’s 130 cannabis retailers, marking Old Pal’s first out-of-state expansion and entry into the Nevada market.

Canopy Rivers Inc. (TSXV: RIV) completed an equity investment in 10663522 Canada Inc., or “Herbert”, a unique brand platform that focuses on the adult-use cannabis beverage and edibles market. Canopy Rivers subscribed for C$1,500,000 of preferred shares in Herbert, and received incremental warrants entitling the Company to increase its economic interest in Herbert under certain circumstances, as well as other governance-related rights.

CannaRoyalty Corp. d/b/a Origin House (CSE: OH) (OTCQX: ORHOF) announced that its wholly-owned subsidiary, CRHC Holdings Corp., has completed the sale of 51% of its 10% equity stake in Bodhi Research & Development Inc. to Green Relief Inc. Pursuant to the previously disclosed agreement, Green Relief has purchased from CRHC and other vendors, 51% of all outstanding common stock of Bodhi Research. As consideration for the Share Purchase, Green Relief has paid CRHC $1.74 million in Green Relief common shares.


Debra BorchardtDebra BorchardtJanuary 22, 2019


Tilray, Inc. (TLRY) has entered into an agreement to acquire all of the issued and outstanding securities of cannabis cultivator Natura Naturals Holdings Inc. in a deal valued at $35 million, but could ultimately grow to $70 million.

Under the terms of the agreement, Tilray will deliver C$35 million at closing. This will be made up of C$15 million in cash and C$20 million in Tilray Class 2 common stock. The statement said that if  Natura reaches certain quarterly production milestones over the following twelve-month period, up to C$35 million of Tilray common stock may become payable resulting in a total purchase price of C$70 million if fully achieved.

Based in Leamington, Ontario, Natura operates a 662,000 sq ft licensed greenhouse that was undergoing a phased conversion and retrofit that was expected to bring up to 15,000 kg of annualized cannabis production online in 2018. Once completed in 2019, the facility is expected to bring total annualized cannabis production capacity to approximately 70,000 kg per year.

Last July, Emblem Corp. (OTC: EMMBF) had planned to acquire Natura in a deal with a potential value of $76 million. By September though the deal fell apart and the agreement was terminated. Emblem had actually advanced Natura C$2 million for the expansion of its facility.

“We’re very pleased to have an agreement in place that allows us to expand our capacity to supply high-quality branded cannabis products to the Canadian market,” said Brendan Kennedy, Tilray President, and CEO. “Through an extensive and thorough search for the right supply partner, we’re pleased to have come to a mutually-beneficial agreement with Natura.”

If this deal is completed, Tilray will obtain Natura’s 662,000 square-foot greenhouse cultivation facility, of which 155,000 square-feet is currently licensed, and all subsequent cannabis output from this facility. Natura, through a wholly-owned subsidiary located in Leamington, Ontario, is a licensed cultivator under the Cannabis Act specializing in the greenhouse cultivation of cannabis.

Debra BorchardtDebra BorchardtJanuary 21, 2019


Hightimes Holding Corp., the parent company of High Times Magazine, is acquiring Spannabis, the European Union’s largest Cannabis industry event in a deal valued at $7 million. The terms include $3 million in cash and $4 million of Hightimes stock, plus two milestone payments for the show in 2020 and 2021. The deal is expected to close in the first quarter. 

“Spannabis is one of the most prolific events in the cannabis ecosystem, and one of the most well-known annual festivals within the EU,” said High Times CEO Adam Levin. “This acquisition will provide an additional international platform for our customers looking for additional international exposure opportunities.”

Spannabis is considered to be part trade show and part research conference and is set to celebrate its 16th event this March 15-17 in Barcelona, Spain.  The festival, which also includes its own award ceremony crowning the best cannabis and cannabis-related products in the region, attracts tens of thousands of consumers from across the globe annually.

“This deal is a game-changer for Spannabis. We’ve idolized High Times for decades, so to be adopted by this groundbreaking team is nothing short of extraordinary!“ said Spannabis CEO Carlos Palomino, “We know the future is bright for Cannabis, and for the High Times who has been leading this movement since many of us were in diapers. We look forward to continuing to push this thriving movement forward, together.”

This is just the latest acquisition for the long-time cannabis publication as the company is focusing its efforts on more events. High Times recently announced its acquisition of the accessory cannabis conference called the BIG Show. It’s own Cannabis Cup frequently contributed approximately 75% of the company’s revenue. The statement noted that this marks its second foray into Europe for the predominantly US driven brand, and is a sign of the markets coming globalization.

The company has been able to go on this past year’s spending spree as it has embarked on a Regulation A+ crowdfunding campaign, which has raised millions of dollars from more than seventeen thousand investors across the globe.

“We believe that High Times is the most recognizable brand in Cannabis across the world. You can see our logo proudly displayed from New York to Singapore and we look forward to creating more access and experiences for consumers no matter where they live,” Levin added.

Video StaffVideo StaffJanuary 18, 2019


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Also, Green Market Report released its fourth quarter review on the Cannabis Company Index. Head to the website and read what is one of GMR’s most popular reports.

Ohio began sales of medical marijuana this week. Sales were reported as brisk and lines were long, but the patients said they were happy and supplies held out. Acreage Holdings (CSE: ACRG.U) and Greenleaf Apothecaries both opened dispensaries

New York Governor Cuomo said he hoped to have adult cannabis legalized within 100 days. That doesn’t mean products will be for sale in a few months, it just means legislation could happen. Expect several more months before any retail stores open.

This week, Tilray (TLRY)  signed a $100 million deal with Authentic Brands to provide CBD for any of the company’s product lines. Authentic licenses companies like Nine West and Juicy Couture. This comes just one week after DSW said it was working with Green Growth Brands  to sell its CBD products

MedMen released its unaudited revenue figures for its second fiscal quarter. systemwide revenue increased 40% sequentially to $29.9 million. The company said that if it included pending acquisitions that revenue number would be $49.5 million. Official results will be posted in February.

TILT closed the Jupiter and Blackbird transactions this week. Through Jupiter, TILT has a “bird in the hand” vape hardware business expected to drive roughly $200m in revenues in 2019 as vape demand continues to accelerate. Blackbird brings wholesale distribution capabilities in CA and NV that can be propagated into additional markets as well as leveraged longer term with the company’s Baker CRM to expand TILT’s wholesale footprint.”

Golden Leaf terminated its plan to buy Sweet 16 license.

HEXO Corp. said that its common shares have been approved for listing on the NYSE and will begin trading at the open of markets on January 23. HEXO’s shares will trade on the NYSE American under the ticker symbol “HEXO”, the same symbol the Company’s common shares currently trade under, and will continue to trade under, on the Toronto Stock Exchange.

StaffStaffJanuary 17, 2019


It’s time for your Daily Hit of cannabis news for January 23, 2019.

On The Site

MedMen Enterprises Inc.  (CSE: MMEN) (OTCQX: MMNFF) released unaudited financial results for its fiscal 2019 second quarter ending December 29, 2018. Across the company’s operations in California, Nevada, New York, and Arizona, systemwide revenue increased 40% sequentially to $29.9 million. The company said that if it included pending acquisitions that revenue number would be $49.5 million. Official results will be posted in February.

The growth is mostly due to the company’s stores in Southern California. MedMen has eight retail locations there that reported a combined $23.7 million in revenue, which represents a 27% quarter-over-quarter increase. Cowen & Co.’s most recent estimate projects California will be a US$11 billion market by the end of 2030.

In Other News

HEXO Corp.  (TSX:HEXO) said that its common shares have been approved for listing on the NYSE American LLC  and will commence trading effective at the open of markets on January 23, 2019. HEXO’s shares will trade on the NYSE American under the ticker symbol “HEXO”, the same symbol the Company’s common shares currently trade under, and will continue to trade under, on the Toronto Stock Exchange. HEXO intends to cease the quotation of its shares on the OTC under the symbol “HYYDF”.

Golden Leaf Holdings Ltd.  (CSE: GLH) (OTCQB: GLDFF) has agreed to terminate the Contingent Asset Purchase Agreement for the company to acquire the multi-use “Sweet 16” license, as well as certain other assets. The agreement was originally announced on August 17, 2018.

TILT Holdings (TILT) closed the Jupiter and Blackbird transactions this week, substantially improving the company’s growth prospects and competitive position. The company said, “Through Jupiter, TILT has a “bird in the hand” vape hardware business expected to drive roughly $200m in revenues in 2019 as vape demand continues to accelerate. Blackbird brings wholesale distribution capabilities in CA and NV that can be propagated into additional markets as well as leveraged longer term with the company’s Baker CRM to expand TILT’s wholesale footprint.”

Debra BorchardtDebra BorchardtJanuary 17, 2019


MedMen Enterprises Inc.  (CSE: MMEN) (OTCQX: MMNFF) released unaudited financial results for its fiscal 2019 second quarter ending December 29, 2018. Across the company’s operations in California, Nevada, New York, and Arizona, systemwide revenue increased 40% sequentially to $29.9 million. The company said that if it included pending acquisitions that revenue number would be $49.5 million. Official results will be posted in February.

The growth is mostly due to the company’s stores in Southern California. MedMen has eight retail locations there that reported a combined $23.7 million in revenue, which represents a 27% quarter-over-quarter increase. Cowen & Co.’s most recent estimate projects California will be a US$11 billion market by the end of 2030.

“California is the prize of the cannabis industry and the performance of our stores, quarter-over-quarter, is a reflection of our continued execution in our home state,” said Adam Bierman, MedMen chief executive officer, and co-founder.

West Hollywood Store

Unfortunately, MedMen did not receive a permanent license for its West Hollywood location. This information was divulged in a recent lawsuit filed against MedMen that alleged the company was being mismanaged. This early release of revenue results may be an attempt to fight back against those allegations. In other words, if revenue has jumped 40% quarter-over-quarter how can the company be mismanaged?

The city council of West Hollywood debated their own wisdom of awarding licenses to businesses that had no open stores and no assurance they could open stores quickly.

Mayor Pro Tem  John D’Amicosaid in a public meeting, “We haven’t asked the eight new licensees whether they can open a business in three months in the city, whether or not they’re in the position to do that – that was supposed to be explained. We also don’t know what the other four medical cannabis licenses mean if the state has conflated cannabis and adult use licenses, and that was supposed to be brought to our attention when I suggested we table this. So we’re having a discussion without any of the actual information we need. Except that four really great businesses in our community potentially will be asked to stop serving their constituents, their customers, if they don’t get some way to continue to provide service.”

That sounds like the city leaders are having second thoughts.

Other MedMen Retail Locations

The retail revenue numbers including those pending acquisitions are based on 31 retail stores that were operational at the end of the quarter. The company said that includes the MedMen Paradise location near McCarran International Airport in Las Vegas, which opened in October, and the MedMen Scottsdale location in Arizona, which opened in December through the closing of the Monarch acquisition. The operational retail locations, including pending acquisitions, represent 40% of the 77 total stores that the company is licensed for across 12 states.

In addition to growing revenue at its existing locations,MedMen has 16 new locations slated to open during the calendar year 2019, including 12 locations in Florida, where the Company is licensed for up to 30 locations. The Company is set to open four retail stores in Florida in the next 90 days, which include locations in Miami Beach, Orlando, West Palm Beach, and Key West.


Debra BorchardtDebra BorchardtJanuary 16, 2019


New York State Governor Andrew Cuomo announced his plan to legalize adult use cannabis in 100 days. The governor did not provide a lot of details but suggested it would continue to be a restrictive program.

Of course, New Jersey also said it would legalize adult use cannabis but then found it has taken much longer to make adjustments to the rules and regulations of a conservative medical cannabis program. Cuomo did note that consumers would need to be over the age of 21 and he was very supportive of towns cities having the ability to opt out of allowing cannabis businesses.

In December the Governor said, “The fact is we have had two criminal justice systems: one for the wealthy and the well-off, and one for everyone else. He also said that law enforcement “for too long targeted the African-American and minority communities.”

On May 15, 2018, New York City Comptroller Scott Stringer published a report estimating the potential size of the state’s legal cannabis market and how much tax revenue it would generate for both the city and the state. According to the report, the New York State cannabis market could see up to $3.1 billion in annual sales, with up to $1.1 billion being generated in New York City alone. In terms of tax revenue, legal cannabis could generate up to $436 million for New York state and $336 for New York City. Some lawmakers have even suggested this money could be used to fix the troubled subway system.

A new report from ArcView and BDS Analytics is estimating the New York cannabis market could reach $1.6 billion by the year 2022, a big jump from the expected $263 million in sales for 2018. This would be the fourth biggest market in the U.S. The biggest market is California, followed by Colorado and Florida respectively.

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

During the midterm elections, the New York State government shifted to Democratic control and it was expected that the new lawmakers would fully legalize cannabis. The efforts by Cuomo as expected to be approved in Albany. The tax revenue and jobs from fully legal cannabis would be a big boost to some of the needy areas in the state.

Just this week, Canopy Growth (NYSE: CGC) said it was going to spend $150 million to build its first production facility in the U.S. after getting a license to grow hemp by New York.

Canopy Growth Corp. will spend as much as $150 million to build its first production facility in the U.S. after the Canadian cannabis company was granted a hemp license by New York state. “I applaud the political leadership at the federal and state level that has allowed today’s announcement to become reality,” Canopy Chief Executive Officer Bruce Linton said in a statement.

The company said it was reviewing locations in the Southern Tier region of New York State and said it would announce the winner within 100 days.

Cuomo is under pressure to create jobs in depressed areas in upstate New York and cannabis jobs fit the bill. A study, published by Joblift, shows that cannabis growth in California is “steadily declining,” while New York State is experiencing strong growth. New York is now third in terms of gross domestic product and is experiencing a “surge in medical marijuana job postings,” with the study saying it could hold “the most potential for overall growth in the sector.” New York experienced two times more job postings (155 vs. 67) in the first half of 2018, compared to the prior year.

Next comes the question investors want to know. Who is poised to capitalize on the New York market? Cannabiz Media is a company that tracks license holders in states around the country.

Figure 1Provided by CannaBiz Media



Company Symbol
MedMen Enterprises CSE: MMEN
Vireo Health Private Company
Columbia Care Q1 2019 Est Public Date
Etain Health Private Co.
Acreage Holdings CSE: ACRG.U
Fiorello Pharmaceuticals Private Company
iAnthus CSE: IAN
Curaleaf CSE: CURA


MedMen Enterprises

According to their data, it looks like MedMen Enterprises Inc. (CSE: MMEN) (OTC: MMNFF) is poised to be the big winner as a result of its acquisition of PharmaCann, which had the highest number of permits awarded in the state. MedMen acquired PharmaCann for $682 million in an all stock deal back in October. It not only doubled the reach for MedMen, but expanded its presence in New York.

MedMen had acquired New York’s struggling Bloomfield Industries at the beginning of 2018. The company had been unable to pay vendors and was looking for new investors. Bloomfield was one of the original five licensees in New York.

“MedMen is proud of its record of providing high quality products and shopping experience to medical marijuana patients in the state of New York and customers around the U.S. We believe that as New York moves to become the 11th state in the union to legalize adult use, the wealth of experience and knowledge MedMen brings having operated in other highly regulated and complex markets is an asset to the state,” said spokesman Daniel Yi. “We also believe that in order for an adult use cannabis market to flourish and thrive in New York, there needs to be a clear path for participation in ownership and jobs for new entrants to the industry. There also needs to be access to resources and capital for such new operators in communities disproportionally impacted by the war on drugs, and more specifically the prohibition of marijuana. MedMen stands ready to work with the state and to be a proactive partner with others in the community to build a sustainable and inclusive cannabis program.”

Vireo Health

Vireo Health is next on the list. Vireo  is  a physician-led multi-state medical cannabis company, that says “It is committed to safely alleviating pain by providing patients with best-in-class cannabis products and compassionate care.” Unfortunately for investors, this company is still private. Although it did raise $17 million back in August and the company said that it was planning on going public at some point.

Vireo is still making headlines as formers executives were set to go to trial at some point this year for smuggling cannabis oil from Minnesota to New York. The company was trying to move inventory to meet a New York deadline and the move was exposed due to a whistleblower. Dr. Laura Bultman and Ronald Owens, the company’s former chief medical officer and chief security officer.  face felony charges of smuggling $500,000 worth of cannabis oil into New York. They face up to two years in jail and a $3,000 fine for violating Minnesota state medical marijuana laws.

Columbia Care

Next in line for number of permits is Columbia Care, which is expected to go public in the first quarter of 2019 following a merger with Canaccord Genuity Growth (CGGC), a special purpose vehicle.  In October it was announced that the two companies would combine. The companies agreed that CGGC would be valued at C$60.7 million and that Columbia Care would be valued at US$1.35 billion. The deal is expected to close in the first quarter of 2019.

Columbia was selected to be one of five licensees in Virginia and became the first U.S. company licensed in the European Union. It was recently awarded one of the six new licenses in New Jersey.

Etain Health

Etain Health is one of the original five licensees in New York and it too remains a private company. It is female-owned only recently began to expand beyond the state lines as it looks to California as another market for its products.

Acreage Holdings

Acreage Holdings, Inc. (CSE: ACRG.U) (OTC: ACRZF) also stands to benefit due to its ownership of New York Canna, now known as Terradiol New York. New York Canna was originally formed  in 2015. The initial shareholders of New York Canna, Inc. were intended to be New Amsterdam Distributors (NAD) and EPMMNY. However, NAD and EPMMNY were unable to reach an agreement as to EPMMNY’s contributions to the operating entity and the terms of investment. NAD says it was the sole shareholder of New York Canna when it began talking to Acreage among others.

EPMMNY doesn’t agree with this assessment and recently filed a lawsuit asking for $400 million. EPMMNY says in its lawsuit that it was “frozen out” in 2016 and its stake reduced initially to 12.5% as NYCANNA merged with defendant NY Medicinal Research & Caring, which included NYCI Holdings, Impire Holdings and Acreage Holdings as investors.

Fiorello Pharmaceuticals

Firorello Pharmaceuticals also known as FP Wellness is a New York State only licensee. It is privately owned. The company lists its partners as The Clinic, Plant Consulting Group and LIU Pharmacy on its website. A report in the Daily Gazette said that Fiorello is building a medical marijuana production facility in Glenville and plans to open other dispensaries in Monroe, Nassau and New York counties.


Valley Agriceuticals was supposed to be sold to iAnthus Capital Holdings Inc. (CSE: IAN) (OTC: ITHUF) in 2017  for $17.3 million, but that deal was never closed. iAnthus then acquired New York’s Citiva Medical for $18 million at the beginning of 2018. According to the original press release, Citiva NY’s license included a cultivation and processing facility and four dispensary locations to be located in Brooklyn, Staten Island, Dutchess County and Chemung County. Citiva’s proposed 2,000 square-foot flagship Brooklyn dispensary was slated to open in Q4 2018, and would be one of only two dispensaries located in New York City’s most populous borough, with 2.6 million residents.

The statement said that Citiva’s Staten Island dispensary, would be the only Registered Organization serving Staten Island’s 500,000 residents and it was also slated to open in Q4 2018. The Dutchess County and Chemung County dispensaries are planned for the second quarter of 2019.


Finally, Palliatech, which changed its name to Curaleaf Holdings Inc. (CSE: CURA) (OTC: CURLF) is based in Boston MA. It has locations in seven New York counties. Its website says more counties are coming. Near Manhattan there is a dispensary in Forest Hills in Queens. In the company’s last earnings announcement, it said that it estimates it will post revenue of $400 million in 2019 including revenue generated by the non-profits, and free cash flow of $100 million. Curaleaf expects to complete two acquisitions in the fourth quarter of 2018 in Maryland and Massachusetts. At the end of 2018, Curaleaf also expects to have at least 40 operational stores.

Debra BorchardtDebra BorchardtJanuary 16, 2019


Ascend Massachusetts was awarded the first conditional-use permit for adult-use cannabis retail sales in the city of Boston. The flagship store will be the first adult-use retailer to operate within a major East Coast metropolitan city and is expected to open by the end of the year.

Massachusetts legalized adult use cannabis sales, but it took two years to license operators and open stores. When sales began on November 20, 2018, only two locations had been approved resulting in traffic headaches and customer lines. Still, the state managed to log $7 million in sales in just the first three weeks. A new report by ArcView Research and BDS Analytics projects that cannabis spending in Massachusetts will reach $1 billion by 2022 and that it will be the fifth biggest market in the U.S.

“Ascend Massachusetts is honored to be chosen as the first company awarded a license for an adult-use retail store by the city of Boston,” said Andrea Cabral, CEO of Ascend Massachusetts, which is a wholly own subsidiary of Ascend Wellness. “A core value of our company is to positively impact our neighborhoods and communities. We are proud to have the support of leaders and organizations across Boston and Massachusetts in this endeavor.”

No doubt that support helped sway the approval process.  Ascend managed to get letters of support from State Senator Joseph Boncore (D); State Representative Aaron Michlewitz (D); Boston City Councilors Josh Zakim and Ed Flynn; The Downtown North Business Association; as well as a letter of non-opposition from the West End Civic Association.

The store will be located in downtown Boston close to Faneuil Hall, a site built in 1742 for merchants and where the Sugar Act was protested in 1764 and established the doctrine of “no taxation without representation.” The store will be multi-leveled and designed by the Andrus Group, which has designed stores for Apple, Tesla, and Burberry. The designers noted that the store will combine innovation with education in order to create an engaging in-store experience for shoppers.

James Andrus, principal at The Andrus Group said, “This is a unique project that builds upon our experience in creating highly visited retail locations that serve the needs of tourists, consumers, and the community.”

So far, five retail locations have been approved in the state. There are still about 200 completed applications waiting for the state’s review and approval.

“We are proud of the work that Andrea and her team did to secure and plan our location,” says Abner Kurtin, CEO of Ascend Wellness. “We are gratified by the confidence the City of Boston has in Ascend Massachusetts to create best-in-practice and best-in-class adult-use retail for the Boston community.”

Ascend Wellness is a private multi-state operator located in three states: Illinois, Michigan, and Massachusetts. The Massachusetts CEO Cabral was the Executive Secretary of Public Safety in Massachusetts where she oversaw 14 public agencies. She was the twice-elected Sheriff of Suffolk County and the first female sheriff in Massachusetts’ history.

Sean HockingSean HockingJanuary 16, 2019


Authored By:  Jordan Zoot


We welcome Jordan to Cannabis Law Report. as well as writing detailed pieces about tax and accountancy issues relating to law in the cannabis sector Jordan has a incisive knowledge about how the cannabis sector operates and writes wickedly funny articles on his blog . We’re looking forward to publishing his work regularly.

Jordan is the principal of The Cannabis Practice Group [“CPG”] of aBIZinaBOX Inc.

The CPG has professionals in Evanston, IL, and Oakland, CA. The practice is led by Jordan S. Zoot, CPA, Managing Director – CEO, who has been in professional practice since 1982. See their capabilities reel at.

Read his full biography below the article.


On June 13, 2018, the United States Tax Court published its Opinion in Alterman & Gibson v. Commissioner, T.C. Memo 2018-83. Alterman involved income tax deficiencies and penalties asserted by the IRS for 2010 and 2011 against individual taxpayers who owned and operated a small Colorado cannabis dispensary. The individual taxpayers had filed joint returns for 2010 and 2011 in which they reported the income from their cannabis dispensary.

The amount of the income tax deficiencies and penalties asserted by the IRS against the taxpayers (2010: Tax $157,821, Penalty, $31,564; 2011: Tax $233,421, Penalty, 46,684) undoubtedly represented substantial liabilities to the individuals. These deficiencies, however, are modest for a case involving a cannabis dispensary. These deficiencies are also modest for a case that proceeds to trial before the Tax Court with such a limited likelihood of success.

The decision in Alterman was published as a memorandum decision. A Tax Court Opinion is published as a memorandum opinion when the Tax Court considers the case solely involves the application of well-established principles of federal tax law to situations that are not unusual. Anyone interested in the taxation of the cannabis industry should read the Alterman opinion for that very reason. The Alterman opinion describes how a dispensary should not be operated. The taxpayers did a poor job or maintaining financial and inventory records. Their accountant did not provide the detailed workpapers that are a requirement to support the amounts reported in the tax return. There was no evidence that the taxpayers maintained proper inventory records to support amount recorded as Cost of Goods Sold. The taxpayers in Alterman lost on every issue except for those issues the IRS conceded before the commencement of the trial.

The decision against the taxpayers in Alterman is primarily the result of failure to comply with the basic recordkeeping requirements of the Regulations and IRS guidelines. The case primarily involves recordkeeping, compliance with reporting requirements, and the maintenance of a comprehensive system of internal accounting controls. Taxpayers are expected to maintain proper records, and tax return preparers, particularly Circular 230 practitioners, are held to a higher standard than taxpayers are.

Tax professionals should be particularly careful to correct deficiencies identified as part of the annual tax return preparation process. A failure to take corrective action lays the foundation for the Internal Revenue Service to assert the existence of pattern of repeated and potentially reckless and intentional disregard of the regulations and requirements. Such a pattern can result in the assertion of the “second tier” enhanced penalty under IRC Sec. 6694(b)(2). Such a penalty assertion could result in an additional sanction through a practitioner disciplinary referral to the Office of Professional Responsibility [“OPR”].

The issues where the taxpayers did not prevail go beyond IRC 280E. The taxpayers inAlterman lost principally because they failed to create and maintain the types of books of account, records and another documentary evidence required that is required of taxpayers. The deficiencies in Alterman could have been significantly reduced if the taxpayers had prepared, maintained and presented to the Court adequate financial records and supporting documentation.

The statute, regulations and IRS policy provide basis for the abatement of all of the asserted delinquency penalties under IRC§ 6651(a) and the accuracy related substantial understatementpenalty contained in IRC Sec. 6662. The delinquency penalties for failure to file returns and failure to pay tax as well as the accuracy related penalty do not apply if the taxpayer’s failure to comply is due to reasonable cause and not to willful neglect1. Reasonable cause means that the taxpayer exercised ordinary care and prudence2. It is clear from the Opinion that the Court did not believe the taxpayers’ actions met the burden that is imposed on taxpayers to demonstrate the existence of reasonable cause at the time of the failure to file, of the failure to pay, or of the disregard of the rules which caused the accuracy related penalty to apply.

The Internal Revenue Manual defines reasonable cause as conduct which, when judged separately based on the facts and circumstances at hand, justifies the non-assertion or abatement of applicable penalties against taxpayers who have exercised ordinary business care and prudence in addressing their tax filing, payment and record keeping responsibilities3.

Further, courts have held that “reasonable cause exists where:

  • A taxpayer relies on the advice of counsel that a tax return is not required to be filed4.

  • A taxpayer’s good faith belief that no return is due may constitute reasonable cause for late filing5.

  • A taxpayer’s reliance upon on the advice of a competent tax advisor6. The taxpayer must have received incorrect advice after contacting a tax advisor who is competent on the specific tax matter and who is furnished all necessary and relevant information.

  • In addition, the taxpayer must have exercised ordinary business care and prudence in determining whether to obtain additional advice based on the taxpayer’s own information and knowledge.

The “reasonable care” requirement in connection with the execution of recordkeeping and maintenance of records relating to the operation of a business can provide a foundation for a waiver by the IRS of the assertion of the twenty percent substantial understatement penalty.

1 IRC §6651(a)(1)

2 Rags. §301.6651-1(c); U.S. v. Boyle, 469 U.S. 241 (1985)

3 IRM (8-20-98)

4 See U.S. v. Boyle, 469 U.S. 241 (1985); Paxton Est. v. Comr., 86 T.C. 785 (1986).

5 See, e.g., LFAM Corp. v. U.S., 99-1 USTC ¶50,223 (Fed. Cl. 1999); Diaz v. U.S., 90-1 USTC ¶50,209 (C.D. Cal. 1990) (Good faith belief that employees were independent contractors is reasonable cause for failure to file employment tax returns).

6 U.S. v. Boyle, 469 U.S. 241 (1985). See also Henry v. Comr., 170 F.3d 1217 (9th Cir. 1999) (Reliance on accountant in treating option sale as capital gain instead of ordinary income held reasonable); IRM (8-20-98).


The bulk of the issues in the Alterman case involved IRC §280E either directly or indirectly.

We have previously written extensively on this topic.1 Alterman should be read by anyone contemplating engaging in commercial business within the cannabis industry.Alterman is a “poster child” example of what not to do. Alterman provides a punch list of actions to avoid. Diligence is required of a cannabis industry business in vetting professionals [e.g. attorneys, certified public accountants] as well as in securing appropriate advice relating to compliance, security, and inventory control. The selection of an advisor lacking in competence will exacerbate the problems for a cannabis business.

Alterman is likely significant for the cannabis industry for another reason. A dispensary case is pending before the Tax Court – Patients Mutual Assistance Collective Corporation d.b.a. Harborside Health Center v. Commissioner (Docket Nos. 29212-11, 30851-12 and 14776-14) – that involves much larger income tax deficiencies than the deficiencies inAlterman.

Harborside had been fully briefed and pending decision for over a year when the Opinion in Alterman was filed. A decision in the consolidated Harborside cases appeared imminent. However, the IRS filed a motion to reopen the record in the Harborside cases on June 14, 2018 – the day after the Opinion in Alterman was filed. The IRS undoubtedly moved to reopen the record to address an over-sight relating to the IRS’ penalty assertions. A motion to reopen the record is required in some Tax Court cases as a consequence of the decision of the Tax Court in Graev v Commissioner, 149 T.C. No. 23 (December 20, 2017). The reopening of the record in the Harborside cases will delay for at least a couple of months the issuance of a decision.

The Opinion in Alterman is significant for the cannabis industry for another reason. Judge Richard T. Morrison’s analysis in Alterman is likely to portend the analysis the Tax Court will apply in the consolidated Harborside cases. We are hopeful the accounting and inventory records in the Harborside cases will create a substantially stronger evidentiary record. Strong internal accounting controls, proper recordkeeping and diligence are critical create a foundation to minimize the impact of IRC §280E on a cannabis dispensary.

Taxpayers will continue to lose in proceedings in the Tax Court unless they have prepared and maintained complete and accurate financial records. The creation and maintenance of complete and accurate financial records for a cannabis dispensary requires the guidance of qualified professionals as well as adherence to the recordkeeping guidance they provide.

1 A Methodology for Cost and Expense Allocations for IRC Sec. 280E – in particular, Footnotes 9, 10, 11 and 12 contain an extensive elucidation of IRS requirements with respect to internal accounting controls over cash, IRS requirements for reporting certain cash transactions, the purpose, use, and type of accounting records which must be maintained, and record retention requirements.



The Cannabis Practice Group [“CPG”] of aBIZinaBOX Inc.

300 Frank Ogawa Plaza, Suite 370

Oakland, CA 94612

Phone: 1-510-761-9977


Jordan Zoot is licensed as a CPA in CA, FL, IL, NY, and TX. He has a national reputation of technical and transactional taxation of pass-thru entities [Partnerships, LLC’s and S Corporations], private equity and alternative asset funds primarily in distressed mortgages and assets, professional services, real estate, venture-funded tech start-ups, and the commercial cannabis industry in California.

Mr. Zoot has extensive experience in taxpayer and practitioner representation with the Examination, Appeals and Collection functions with IRS, including Special Procedures – Bankruptcy, Insolvency, Offer in Compromise, and Circular 230 Practitioner Representation with the Office of Professional Responsibility [“OPR”]

Mr. Zoot has a member of the AICPA, and state societies [CalCPA, FICPA, ICPAS, NYSSCPA, and TSCPA] for over thirty years. He has served an appointed member of AICPA’s Responsibilities in Tax Practice, Practice Management, and Subchapter K Technical Committees and as the CITP Champion for Illinois. He has had extensive involvement in the regulation commenting process with the US Treasury.

Mr. Zoot is engaged at numerous points of contact in a lead role with AICPA senior executives in the process of developing policy, advocacy and education for CPA’s serving the legal cannabis industry. He has been involved with OPR in connection with the cannabis industry, Title 31 [FinCEN] matters and the IRS’s OVDP Amnesty Program.

Mr. Zoot is engaged with CalCPA’s Government Liaison Office in connection with SWOT analysis, talking points for engagement with the legislature, the cannabis regulatory agencies, Bureau of Cannabis Control “BCC” [Retail, Retail-Delivery, Distribution – Packaging], California Dept. of Public Health “CDPH” [Manufacturing, Processing, Extraction], California Dept. of Food and Agriculture “CDFA” [Cultivation] and the California Dept. of Tax and Fee Administration [“CDTFA”] in connection with urgently need regulatory guidance for Cannabis Cultivation, Excise and Sales Taxes.

The firm is skilled in dealing with:

• The unique financial record-keeping needs of cultivators, distributors, processors, and extractors.

• The selection of optimal operating structures for each participant in the California cannabis industry.

• Adjusting structures and modifying financial record-keeping to comply with a rapidly evolving regulated California marketplace.

• Understanding of the challenges presented by a long history in this industry of “doing business in cash” and the associated problems.

• The practical needs related to banking, card processing, and anti-money laundering issues applicable to this industry.

• The complex processes relating to permitting, licensing as well as reporting and paying cannabis excise tax and gross receipts tax at the municipal and county level.

• Implementing effective strategies for addressing the onerous impact of the limitation on the deduction of ordinary and necessary business expenses imposed by Internal Revenue Code §280E on businesses engaged in “trafficking”.

A Leader in California’s Cannabis Practice, the CPG will retain its position as a leader in financial record-keeping and be reporting for California’s medical and recreational cannabis industry by constantly adjusting to the demands of this evolving industry.

The CPG moderates a California Cannabis Regulation subreddit at

Sean HockingSean HockingJanuary 15, 2019


With 10 states and the District of Columbia having legalized recreational cannabis (representing nearly a quarter of the U.S. population, including the most populous state), an emerging issue is how to deal with the odor generated by marijuana production facilities. A December 19, 2018 article in The New York Times noted a growing number of neighbors of cannabis farms are complaining about “skunky” odors caused by certain volatile organic compounds generated during growing and processing. The Times cited Sonoma County in California, which it reported received more than 730 complaints about cannabis last year, nearly two-thirds related to odor. Regulators at the state, regional and local levels are attempting to deal with these issues through a combination of permitting, land use and nuisance rules.

In states such as Washington and Colorado, where recreational cannabis has been legal since voter initiatives passed in 2012, regulators have addressed odor as an air quality issue. For example, in the Puget Sound region, the Puget Sound Clean Air Agency — typically recognized in the industry as “PSCA,” or the organization you may have received an unexpected and nondescript invoice from — does not have a specific regulation for marijuana odors. It does, however, have jurisdiction to impose limitations on marijuana production facilities under the state’s general regulations for air pollution sources (WAC 173-400). PSCA regulates odors through the Notice of Construction process, which operates in conjunction with local permitting processes, such as a conditional use permit, and licensing by the Washington State Liquor and Cannabis Control Board.

The PSCA odor regulations set a “best available control technology” (BACT) standard, which is the maximum degree of reduction for each air pollutant subject to regulation under the Washington Clean Air Act (RCW 70.94) that the permitting authority determines is achievable, taking into account energy, environmental, economic and other costs. PSCA’s rules are based on a nuisance standard — causing or allowing an air contaminant in sufficient quantities and of such characteristics and duration as is, or is likely to be, injurious to human health, plant or animal life, or property, or which unreasonably interferes with enjoyment of life and property.

For marijuana producers under PSCA’s jurisdiction (King, Snohomish, Pierce and Kitsap Counties), the agency has determined that BACT means no detectible cannabis odor outside the facility property line. The agency in recent permitting actions has implemented this standard by requiring operators to design all exhaust points (e.g., vents, stacks, windows, doors) associated with an enclosure, building or greenhouse for cannabis production or processing to continuously control odors and volatile organic compounds (VOCs) using carbon adsorption technology, which involves placement of carbon canisters before emission points. At a minimum, these carbon units must be replaced every quarter. An operator also must have a person who has not been exposed to the smell periodically monitor the air at the property line to determine compliance with the “no detectible odor at or beyond the property line” standard.

One significant ramification of this standard is that PSCA does not believe outdoor cannabis production facilities can continuously achieve the “no odor outside the property boundary” standard without the proper use of an enclosure that routes emissions to a carbon adsorption system. PSCA also does not allow odor masking, such as spraying a curtain of scented oil vapor around the perimeter of greenhouses. Although the Times article mentions this system as a way one California grow operation has tried to mitigate odors, PSCA will not accept that as a control technology.

In Colorado, cannabis cultivation facilities are designated as agricultural activity and exempt from state air quality regulations unless they are a major source of pollution. The City and County of Denver, however, has an odor ordinance that requires cultivation facilities control the odor impacts of their operations. An August 2018 draft of the Denver Department of Public Health & Environment’s “Cannabis Environmental Best Management Practices” (BMP) recommends use of carbon filtration to reduce the VOC emissions from a cannabis cultivator. In addition, draft guidance recommends other best management practices, including:

  • Regular inspection and maintenance of HVAC systems;
  • Sealing the grow space within a greenhouse and circulating air for approximately one week and purging exhausts during low ozone formation periods (evenings, windy days, cloudy days);
  • Ensuring temperature and relative humidity are under control and within tolerances so that high temperatures and humidity do not perpetuate odor issues;
  • Having a system in place to record and respond to odor complaints;
  • Purchasing a “scentometer” or Nasal Ranger to quantify odors and record data from self-testing;
  • Timing harvests to minimize ozone impact and minimizing emissions during morning, early afternoon and summer; and
  • Train and allocate responsibilities among staff members to ensure consistent and continuous implementation of BMPs.

Colorado facilities manufacturing marijuana-infused product are subject to health and safety regulations and regulations on extraction processes in the Colorado Code of Regulations. Those facilities must estimate their VOC emissions from solvent uses and follow the state’s Air Pollutant Emission Notice and permitting requirements.

With the increasing production of cannabis for recreational purposes, more conflicts with neighbors are likely. This is a situation where an ounce of prevention by implementing a wide-range of BMPs could go a long way toward reducing the risks of litigation and enforcement.

Photo of Michael A. Nesteroff

Michael A. Nesteroff

Mike Nesteroff is a preeminent environmental lawyer with extensive experience representing clients in environmental litigation, agency negotiations, property acquisition and leasing issues, and counseling clients on risk and compliance.

During his 29 years at Lane Powell, Mike has represented clients in litigation claims involving hazardous material investigations, cleanups, and cost recovery at sites in Washington, Oregon and Alaska. He has obtained a several million-dollar cost recovery judgement on behalf of one client and a defense verdict in another cost recovery case. Mike has also represented clients in litigation involving public records and obtained a favorable court of appeals ruling on a previously-untested exemption in the Washington Public Records Act.

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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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