Legal Archives - Green Market Report

Debra BorchardtSeptember 17, 2020

The House will postpone the much-anticipated vote on HR 3884: The Marijuana Opportunity, Reinvestment, and Expungement Act, commonly referred to as the MORE Act. The cannabis legislation became the target of politicization causing sponsors to pull the vote. Earlier this week, Senate Majority Leader Mitch McConnell took a swing at House Speaker Nancy Pelosi, claiming that she wouldn’t “make time for more COVID relief,” but that she would “make time for marijuana.” The legislation, which has Republican sponsors, suddenly became a toxic subject.

It is now expected to be voted on in November. NORML noted that in the past few weeks, the MORE Act had gained dozens of new co-sponsors and likely had the support to pass the House floor with a bipartisan majority vote.

NORML Political Director Justin Strekal said, “This delay by the House does not change the fact that the overwhelming majority of voters support ending the federal prohibition of cannabis, including majorities of Democrats, Independents, and Republicans. This delay does not change the fact that 33 states and the District of Columbia regulate the production and distribution of medical cannabis in a manner that is inconsistent with federal policy, and that one-out-of-four Americans now reside in jurisdictions where adult-use is legal under state law. This delay does not change the fact that voters in several states, including key electoral battleground states for both control of the Presidency and the Senate, will be passing similar state-level marijuana measures on Election Day.”

Maritza Perez, Director of the Office of National Affairs at the Drug Policy Alliance (DPA) said, “Unfortunately, this decision means justice delayed for millions of Black, Latinx, Indigenous and low-income individuals disproportionately impacted by our country’s racist marijuana laws. We cannot continue to force these communities to wait for a ‘politically convenient’ moment while they continue to be robbed of employment opportunities, housing, education, other government programs, and even their children or immigration status.

If members of Congress are serious in their commitment to responding to calls for racial justice, then this vote must take place the moment the House is back in session following the elections. Even with just a six-week delay, approximately 77,000 more people could be arrested on marijuana charges, based on current averages – most of which could have been avoided.”

The MORE Act would:

Decriminalize marijuana federally by removing cannabis from the Controlled Substances Act
Facilitate federal expungements for minor charges and incentivize state and local governments to do the same
Create pathways for ownership opportunities for local and minority entrepreneurs
Allow veterans to obtain medical cannabis recommendations from their VA doctors
Remove the threat of deportation for immigrants

Cynthia SalarizadehSeptember 16, 2020

National Expungement Week (N.E.W.) 2020, the third annual week of awareness across the U.S. that offers expungement and other forms of legal relief to some of the 77 million Americans with criminal records will take place September 19-26, 2020.

Adapting to address COVID-19 health and safety concerns, N.E.W. 2020 will continue its vital work through a mix of online and in-person clinics, workshops, and events – featuring crucial supportive services including pop-up food pantries and voter registration at select locations.

N.E.W. 2020 clinics will cover all 5 regions of the U.S., representing states including California, Colorado, the District of Columbia, Florida, Hawaii, Illinois, Kentucky, Massachusetts, Missouri, New York, New Jersey, Oregon, Pennsylvania, South Carolina, and Washington. Besides record clearing services, legal advice, and education, N.E.W. 2020 will continue its mission to restore individuals and communities through wraparound services focused on key areas of relief exposed by the ongoing pandemic, including reparative justice, voting rights, housing, and food insecurity. N.E.W. 2020 is made possible by Canopy Growth Corporation, local sponsors, partner organizations, and a tireless community of grassroots organizers working directly with disenfranchised communities.

“Our year-round work never stops, and we are determined to use this week to inspire communities to take action, clear records, and restore the rights of some of the 77 million justice-impacted people in the U.S.,” says LaTorie Marshall, the founder of National Expungement Week.

N.E.W. is a permanent assistance network for marginalized communities nationwide, which has helped over 1,000 people start to clear or seal convictions on their records. More than 3,000 people have also received related social services offered at N.E.W. clinics and events, including employment resources, voter registration, and health screenings. Since its launch in 2018, the grassroots network has generated a public benefit of over $10,000,000.

N.E.W. 2020 is powered by people of color, supported in full solidarity by Cage-Free Repair, and brought to communities through a dedicated group of community organizers and activists. The collective advocates for uniform legal relief laws and automatic expungement policies nationwide and raises awareness for the 44,000 legal and socioeconomic barriers that exist for the disenfranchised. Though not cannabis-specific, mitigating the impact of the War on Drugs is a key focus, as it works to put marginalized communities directly in touch with valuable services and resources. N.E.W. has also created an online toolkit to further their expungement efforts year-round.

N.E.W.’s partnership with Code For America continues in a number of forms in 2020. Code for America’s National Day of Civic Hacking (September 12, 2020) will focus on the social safety net, and those efforts will be amplified by the wraparound services offered at N.E.W. events one week later. In time for one of the most consequential election cycles of a generation, N.E.W. 2020’s push for voter registration also coincides with National Voter Registration Day, which takes place on September 22, 2020.

For more information on N.E.W. 2020, including a full list of locations and events, please visit www.nationalexpungementweek.org.

StaffSeptember 11, 2020

The Marijuana Policy Project announced that the Nebraska Supreme Court has ruled that the medical marijuana ballot initiative supported by Nebraskans for Medical Marijuana will not appear on the November 2020 ballot. The decision came in response to a lawsuit filed by opponents arguing that the measure violated the state’s single-subject rules.

The state isn’t considered a very large market as compared to other states. It was projected to have sales of roughly $30 million by 2024 by Canaccord analyst Bobby Burleson. Nebraska currently has 79 hemp farming licenses with 1,675 outdoor acres permitted for farming and 465,807 square feet of approved greenhouse space.

Matthew Schweich, deputy director of the Marijuana Policy Project said, “This is an outrageous and deeply flawed decision by a group of activist judges. This ruling means that sick and suffering medical marijuana patients, including veterans, will continue to be criminals in Nebraska when they try to live healthier lives. This ruling tramples on the constitutional rights of over 190,000 Nebraskans who signed the petition and deprives the voters of Nebraska of their opportunity to decide this issue at the ballot box.” MPP has worked on the campaign since its inception and was instrumental in getting the signatures.

Nebraskans for Medical Marijuana submitted over 190,000 signatures in support of the amendment in July. The Court’s decision overturns Secretary of State Bob Evnen’s decision to certify the initiative after a similar legal challenge was submitted by opponents in August.

Nebraskans for Medical Marijuana

16 hours ago

We just heard and the news is not good. Like all of you, we are absolutely devastated by the Supreme Court ruling. But this fight is not over. Nothing changes the fact that an overwhelming majority of Nebraskans stand with the patients and families who deserve compassion and safe access to medical cannabis. We will be regrouping and updating you all soon with plans for our next steps.

Schweich added, “Our opponents are cowards. They use insider political tactics because they cannot win this debate. Medical marijuana will be legal in Nebraska one day. We lost this battle but we will undoubtedly win the war. We’ll be back.”

Debra BorchardtSeptember 4, 2020

On Thursday, the Securities and Exchange Commission (SEC) announced charges against Geoffrey Thompson for illegally selling more $19 million in unregistered securities.

The SEC’s complaint alleges that Thompson, a repeated securities laws violator, and his company, Covalent Collective, Inc., directed numerous offerings of unregistered securities from 2014 to 2019, ultimately raising more than $19 million from approximately 500 investors. “As alleged in the complaint, Thompson used numerous mechanisms to solicit investors, including providing investors video and audio recordings in which Thompson encouraged investors to spread the word about the company’s securities to friends and family. The complaint further alleges that despite raising nearly $20 million, Covalent never commenced any revenue-generating operations. According to the complaint, Thompson diverted more than $2.7 million of investor funds for his own benefit.”

Repeat Offender

Green Market Report has followed the saga of Geoff Thompson and his revolving door of cannabis companies. Investors continued to complain to GMR as to why the SEC allowed Thompson to keep setting up cannabis companies and selling shares if he was really just ripping them off. In September 2017, the SEC sued Thompson for securities fraud and registration violations in connection with another of his companies, Accelera Innovations, Inc. (See SEC v. Accelera Innovations, Inc., et al., 17-cv-7052 (N.D. Ill). In April of this year, Thompson agreed to a final judgment permanently requiring him to quit violating securities laws.

He was also required to pay $350,000, prejudgment interest in the amount of $74,000, and a $100,000 civil penalty. The court also imposed a five-year ban on Thompson from (a) serving as an officer or director of a public company and (b) offering penny stocks. Even while the SEC was investigating him for Accelera, Thompson founded Covalent Collective, Inc., f/k/a Doyen Elements International Inc. f/k/a Advantameds Solutions Inc. and would insist that any shareholder problems with Doyen were because “there were two Doyens and his wasn’t the bad one.”

Covalent

Between July 2014 through at least June 2019, the SEC said that Covalent and affiliated entities offered several different investments, all of which were connected to Covalent common stock. The Covalent securities offerings resulted in the sale of over 800 investments, to approximately 500 different U.S. investors, cumulatively raising over $19 million. Thompson directed Covalent to use offering methods including unregistered broker-dealers, press releases, an investor relations firm, a public website, and a call center operated by Fortress Legacy.

Covalent sold “special warrants” to approximately 177 different investors, raising a total of approximately $8 million. Approximately 79 of the 177 investors did not indicate that they were accredited. Between 2018 and 2019, an additional 440 subscription agreements with 293 different investors, sold more than $8 million in Covalent common stock. Other investors affirmatively disclosed to Covalent that they were not accredited, but were still allowed to invest. Thompson would email audio recordings about the stock offering and promote it through a public website. Covalent never provided the common stock investors with a prospectus or financial statements.

In a related action, the Commission instituted settled administrative proceedings against Covalent. The document read, “Covalent violated Section 5(a) of the Securities Act, which prohibits the sale of securities through interstate commerce or the mails unless
a registration statement is in effect, and Section 5(c) of the Securities Act, which prohibits the offer to sell any security through interstate commerce or the mails, unless a registration statement has been filed as to such security with the Commission.”

As recently as July, Covalent shareholders were being told of a new endeavor called Black Bear Farms and posted a YouTube video updating the shareholders. The new board says they were informal advisors to Covalent and are now the new management team. The video also mentions the company Hempcentrics. Thompson talked about Hempcentric in a 2019 podcast and it is unclear whether he is still a part of the company. Covalent shareholders can receive shares in this company if they choose.

In a recent email, the company said this about Hempcentrics, “Hempcentrics, formerly known as North American Hemp, is a company rightfully owned by CC. Gene (Berg) is working with the current Hempcentrics team to properly and fairly carve out our equity stake, taking into account what the individuals that have worked to form this company deserve. Once complete, Bill Gregorak and myself (Sal Milazzo) will need to approve it.”

Where Did $19 Million Go?

According to the SEC case, despite raising $19 million, Covalent never started any revenue-producing moves. Instead, Thompson is accused of giving $2.7 million to himself, his wife, and other companies he owed. Covalent asked Thompson to resign when this was discovered. The SEC is asking for disgorgement of ill-gotten gains and prejudgment interest, and civil money penalties from Thompson.

Cultive

At the end of August, Covalent sent an email to shareholders saying it was rebranding its parent company to the name Cultive. Just two weeks prior to the SEC prohibiting the company from offering securities through the mail, the company said in its email,

We have decided on a structure that will offer all CC shareholders an equity stake in Cultive without having to further invest personal funds. Thus, you will have interest in Cultive based on having shares in CC. Furthermore, accredited CC investors will be invited to purchase additional shares, equal to the number of shares they originally bought in CC. Basically, Covalent Collective will be issued 5% of our parent company. 46% of the company will be made up of CC accredited shareholders that choose to take advantage of our invitation to invest further in the business, along with those people that loaned Cultive funds to develop the farm and acquire the property and capital for the extraction facility and distribution center. The remaining 49% ownership, as we have reported prior, is owned by the Joint Venture partners.

In Closing

The new management team wants the investors to believe that they are trying to salvage this mess. Lawsuits involving attempted acquisitions (involving Thompson) and continuous requests for more money make that a difficult task. The SEC may move slowly and eventually punishes those that violate securities laws. However, it can’t return the money to investors and it can’t jail the individuals accused of violations. The SEC would have to refer the case to another agency to pursue incarceration.

Gretchen GaileySeptember 2, 2020

Editors Note: This is an opinion piece.

I would like to say kudos to Pennsylvania Governor Tom Wolf for finally calling on the Pennsylvania General Assembly to legalize adult-use cannabis. It would have been better if he had actually thought through what he was proposing and meant it.

Last week, the governor said that he would like to legalize cannabis in order to bring in more revenue for the state and he thinks that selling cannabis in the state liquor stores is the way to do it.

“My hope is that with the pandemic and the hit that we have taken to revenues that there might be a little more interest in it now. And I think that we have had a little more time to see what’s happening in places like Colorado with revenues for example. This might be one way to plug a hole….We have a state store system that would be an ideal way to distribute it,” said Wolf.

Wolf spoke about how he would like funds left over from the CARES Act and tax revenue from cannabis sales to help turn the tide of the pandemic induced recession that has hit the commonwealth, but Senator Daylin Leach the sponsor of SB350 known as the “gold standard” for adult use legalization calls the governor’s plan a nightmare.

“I think it would be unresponsive to the consumer, a bureaucratic nightmare, discourage innovation and kill large parts of the industry right off the bat. Sure, we could do it. We could do it in a way that is less profitable, less advantageous, we can do it in a way that is lesser all around. I don’t know why we would do this,” said Leach.

Wolf’s proposal would make Pennsylvania the only state-run cannabis market in the country and we all know how well things go when the government takes over. If the state runs cannabis sales, it eliminates the retail market opportunity, a key driver of market competition, which means consumers will be the ones taking the hit in their pocketbooks. It will also constrain the product market, keeping out the smaller less capitalized brands, less flexibility in what brands will be sold and less chance of innovation.

Leach says that the governor’s plan is a political nonstarter and his state store announcement did more damage than good.

“He has made it (legalization) far less likely to pass. Republicans hate the state system, they are looking to shut down the state system, not expand their portfolio. Other than sign medical, he did nothing to help us pass medical. Wolf’s efforts to pass legalization have been clumsy and ham-handed enough.”

Knowing that Republicans are opposed, and every other state has passed on a government takeover of their cannabis markets, doesn’t it seem obvious that his proposal is a poison pill? Does it not seem intentionally designed to fail? There is plenty of precedents that makes it clear from every state why no government in its right mind would take this approach.

Debra BorchardtAugust 4, 2020

A cautionary tale for cannabis companies and the Securities & Exchange Commission (SEC) was laid bare last week when the Central District of California filed a $25 million complaint against nine defendants. The group raised money from investors by selling the unregistered stock for the purpose of funding a marijuana farm in Salinas California.

The individuals named included Anthony Todd Johnson (aka Todd Johnson), Jeremy Johnson, Richard Portillo, Charles Lloyd, Mark Heckele, and Michael Gregory. The companies that wanted funds for the marijuana farm were named as Smart Initiatives, LLC, Valley View Enterprises LLC, Target Equity LLC, Zabala Farms Group, LLC, and Green Growth Ventures, LLC. The companies that raised money for a CBD extraction facility were named as – C Quadrant LLC, GPA Enterprises LLC, RJ Holdings Group, LLC, and Extraction Capital Tier 1, LLC.

Alleged Actions

The group engaged in so many alleged actions, it’s easiest to just list them as follows:

Claimed the investments would generate returns of 100% or more
Misrepresented their compensation
Misappropriated $2.7 million
misled and deceived investors about a purported “business loan,” secured by C-Quadrant’s real property
Rather than using that business loan for the benefit of C-Quadrant, Gregory used the loan proceeds to pay off different investors in an entirely unrelated entity.
Falsely claimed a relationship with a prominent California University
Acted as unregistered broker-dealers in connection with the offerings, none of which were registered with the Commission
Used general solicitation to attract prospective investors, including via cold calls, Craigslist, Facebook, and other websites and social media.
None of the securities offerings were registered with the Commission as required by the Securities Act
Many of the investors in each offering were unaccredited and unsophisticated.
The defendants did not take reasonable steps to verify the investors’ accreditation status

The alleged behavior took place between 2017 and 2019. The Johnsons used pro-forma numbers when soliciting investors. The farm though revised those figures. The revised pro forma P&L statement adjusted the farm’s projected net income significantly downward, from a range of $23 to 37 million per year to a range of just $6 – $23 million per year. The group though continued to raise money knowing the farm could not generate the amounts they are accused of touting. They also told the investors they would get quarterly payments, which the farm said it had not agreed to make.

C-Quadrant Property

The case says that the sales team touted C-Quadrant’s ownership of the property, the Johnsons and Gregory failed to disclose that they had collateralized C-Quadrant’s property and that Gregory had used the loan proceeds to pay off investors in an unrelated entity. In early 2018, C-Quadrant purchased a former recycling plant, where it planned to locate its extraction facility. In October 2018, prior to the start of the second C-Quadrant offering, the Johnsons and Gregory transferred ownership of the property to another entity they controlled and used it as collateral for an almost $2.9 million loan. Gregory used the majority of the loan proceeds to make payments to investors in an unrelated cannabis farm that he owned.

Less Than Honest Bios

The group was also less than honest with investors about their backgrounds. Johnson told prospective investors, in Gregory’s presence, that Gregory had an MBA, which he apparently did not have. Jeremy Johnson had filed for personal bankruptcy in 2012 but did not disclose this to investors.

Portillo has an extensive criminal record that also wasn’t disclosed to investors. In June 2018, Portillo was convicted of felony domestic violence and witness intimidation. He had at least two prior convictions for domestic violence, and was on probation and subject to a restraining order at the time of the 2018 assault. Portillo also has prior convictions for felony possession of marijuana for sale, felony taking of a vehicle, and felony assault with a deadly weapon. Investors, no doubt, would have liked to have this information.

Punishment

The SEC is asking the group to disgorge all the money received and pay civil fines.

Debra BorchardtJuly 23, 2020

What started out as an investigation over late or unpaid taxes mushroomed into a laundry list of misdeeds culminating into one of the largest fines levied against a cannabis company since the industry was legalized in Nevada. The new Nevada regulator, the Cannabis Compliance Board, signed off on the agreement with CWNevada LLC, whose majority owner is attorney Brian Padgett this past Tuesday. As a result of the settlement, CWNevada will pay $1.5 million in back taxes, $1.25 million in fines, lose six licenses and must sell its remaining eight licenses.

Padgett has been replaced by a receiver, Dotan Melech, who signed off on the agreement. In addition to the fines and back taxes, CWNevada also owes $300,000 in back pay to employees.

The following six CW Licenses/Certificates shall be revoked:
a. Ali Baba Medical Cultivation Certificate (C009);
b. Ali Baba Recreational Cultivation License (RC009);
c. Oxbow Medical Production Certificate (P010);
d. Oxbow Recreational Production License (RP010);
e. Oakridge Distribution License (T022); and
f. Oakridge Medical Cultivation License (C011).

The Receiver agrees to use his best efforts to sell the following eight CW Licenses/Certificates within six (6) months of the Effective Date of this Stipulation and Order subject to approval by the Receivership Court:
a.Blue Diamond Medical Dispensary Certificate (D010);
b. Blue Diamond Recreational Dispensary License (RD010);
c. Highland Medical Cultivation Certificate (C010);
d. Highland Recreational Cultivation License (RC010);
e. Ali Baba Distribution License (T021);
f. Ali Baba Medical Production Certificate (P009);
g. Ali Baba Recreational Production License (RP009); and
h. Oakridge Recreational Cultivation License (RC011).

Tax Man Cometh

The investigation began in 2018 over unpaid taxes according to the case filed by the State of Nevada. It escalated when inspectors showed up on March 18, 2019 and found employees were working with marijuana products in an unapproved area, which was the breakroom. The company was told to quarantine the product until further notice, but employees said they returned the product to the cultivation facility. Again, the state said not to move the product. On video two of the quarantined boxes were shown to have been delivered to a dispensary.

METRC data showed that some of the product was repackaged at the cultivation facility. On April 12, 2019, the Department put an administrative hold on all Clark products which would have prevented marijuana products from the Clark NMSD dispensary from being legally transferred. On May 8, 2019 another inspection took place. Auditors also discovered 89 groups, a total of 1,342 units, of untagged marijuana products.

May 9, 2019, the Department’s inspectors conducted an inspection of CWNevada’s cultivation facility located at 9680 Oakridge Ave, Pahrump, Nevada 89048 and discovered the following transfers of marijuana from Clark NMSD dispensary to the Oakridge cultivation facility when none of the marijuana originated from the Oakridge cultivation facility. In addition to this, the company couldn’t provide video surveillance as required. Between March 21, 2019 and June 7, 2019, CWNevada sold 1,924 marijuana products where the point of sale data did not match the marijuana products identified in METRC.

Padgett when notified he needed to pay his taxes, continued to say he would pay the taxes, but then never did. In addition to unpaid taxes, CWNevada incurred expenses and debts that resulted in a Final Award in favor of one of its creditors, 4Front Advisors, LLC in the amount of $4,987,092.29. Employees were also moving money from the company to various bank accounts for Padgett. On June 13, a receiver was appointed.

Burn It Down

According to the court documents, on February 27, 2020, the Department ordered the destruction of the untagged marijuana and marijuana products discovered at the dispensary located at 6540 Blue Diamond Road, Las Vegas, Nevada 89139 on or about May 8, 2019, the cultivation facility located at 9680 Oakridge Ave, Pahrump, Nevada 89048 on or about May 9, 2019 and February 6, 2020, and all untagged marijuana and marijuana product observed by the Department at the cultivation and production location at 4145 Ali Baba Lane, Las Vegas, Nevada 89048.

On March 30, Padgett was found guilty of contempt for violating court orders of the receivership.

Debra BorchardtJuly 21, 2020

The FDA issued draft guidance for clinical research related to the development of drugs containing cannabis or cannabis-derived compounds. The FDA is taking comments and suggestions for the next 60 days. The guidance does not address the development of fully synthetic versions of substances that occur in cannabis.

As part of drug development, sponsors may conduct clinical trials under an investigational new drug (IND) application to determine if a drug is safe and effective for a particular intended use. The IND application provides a mechanism for those developing a new drug to conduct studies and ship their proposed drug to clinical trial sites. The data obtained from these studies may later become part of a new drug application (NDA), which is then used to formally propose that FDA approve a new drug for sale in The United States.

The following additional principles and recommendations are particularly relevant for
developing drugs that contain cannabis and cannabis-derived compounds:

Cannabis is held to the same regulatory standards as any other botanical raw material,
botanical drug substance, or botanical drug product. The general considerations and
recommendations for botanical drugs contained in the guidance for industry Botanical
Drug Development (December 2016) provides core principles for conducting clinical research on botanical drugs, including drugs that contain cannabis and cannabis-derived compounds.
In addition, FDA recommends that those pursuing drug development using cannabis or cannabis-derived compounds consider the following principles and documents: — Adequate characterization of cannabis and cannabis-derived compounds, for example via a chemical fingerprint, is critical to ensure batch-to-batch consistency. — USP General Chapter <561> Articles of Botanical Origin, particularly regarding tests for residual pesticides, including any pesticides routinely used in the countries of origin of botanical raw materials.
There may be drug scheduling considerations under the CSA for applicants pursuing FDA approval of an NDA for a drug that contains cannabis or cannabis-derived compounds. FDA’s review of the NDA may include an abuse potential assessment to inform labeling and to provide DEA with a scientific and medical evaluation of the drug’s abuse potential.
The human major metabolite of cannabidiol, 7-COOH-CBD, is expressed disproportionately in humans compared to animals. While disproportionate metabolism is not limited to botanical products, FDA would like to make stakeholders aware that this is a known issue with certain cannabinoids.
Activities related to growing and manufacturing cannabis for use as an investigational drug for research must comply with CSA and DEA requirements

Debra BorchardtJuly 10, 2020

Law 360 reported that the Massachusetts’ Cannabis Control Commission handed down hefty fines to three cannabis companies doing business in the state. 4Front Ventures Corp. (FFNTF) and Garden remedies were fined for using pesticides on plants, while Acreage Holdings Inc. (OTC:ACRGF) was fined for failing to disclose its relationship with two license holders.

4Front Ventures

4Front Ventures fined $350,000 settlement over pesticides used at its Georgetown, Massachusetts, facility. According to Law360, the settlement included a statement that 4Front Ventures admitted hydrogen peroxide, baking soda, and other pesticides were used at the facility, which is not approved for use on marijuana. The commission reportedly said that the company received test results that showed the plants contained a banned pesticide in June or July 2019 but didn’t alert the commission until August. Company CEO Leo Gontmakher said the company has made changes to ensure the violations do not happen again. “Patients were protected and no one was harmed,” Gontmakher said.

Garden Remedies

A $200,000 settlement was reached with cannabis company Garden Remedies over its Fitchburg, Massachusetts, facility. Like 4Front, Garden Remedies also noted in its settlement that it acknowledged using unapproved pesticides and altering its financial records to hide the purchase.

Company CEO Karen Munkacy said in a statement that the company has fired the employees involved in the falsified documents and ended its relationship with the vendor that provided the pesticides in question.

“While the product we used is permitted to be used in cannabis cultivation in many other states and is not an externally applied pesticide that puts anyone in danger, it is not permitted in Massachusetts and the situation was mishandled,” Munkacy said. “The company and I will continue to strive to ensure that ethical and regulatory violations never again occur.”

Acreage Holdings

Law360 also reported that The Botanist, an Acreage Holdings subsidiary agreed to pay a $250,000 fine for failing to disclose its parent company’s controlling relationship with two medical marijuana licensees. Massachusetts had passed a law when its program was established that limited license holders to just three so that there would be no monopolies and more companies would share in the industry.

Acreage Holdings came under fire for bragging that it had numerous licenses in the state. The commission’s investigation found that Acreage’s contracts with two affiliate medical marijuana treatment centers in the Bay State gave it a controlling relationship over them. Despite the ruling, the commission can approve two provisional retail licenses for The Botanist Inc.

“We want to express our thanks to the CCC for their professional approach as we worked through today’s resolution,” Acreage general counsel James Doherty said in a statement. “We’re looking forward to focusing all of our energies on what we do best, which is deliver great products to the citizens of Massachusetts.”

It seems the original agreements had been entered into while Massachusetts had a medical-only program and the regulations at the time were not so specific about control and ownership. The commission went on to clarify the rules about ownership limits at which time the commission said Acreage should have realized it had too many.

The commission did state that The Botanist “cooperated with the commission’s investigation into ownership and control interests and engaged in good-faith efforts to comply with the regulations after being notified of possible control issues.”

Sean HockingJuly 6, 2020

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

AUTHOR: aBIZinaBOX Inc. CPAs – Jordan S. Zoot, CPA

PUBLISHER: CANNABIS LAW REPORT

The Santa Barbara County Grand Jury issued its 2019-2020 Final Report on June 30, 2020. The last section of this report is devoted to the County’s actions relating to the cannabis industry. This last section of the Report is a scathing indictment of the manner in which greed for money and power influenced the governance of Santa Barbara County in its adoption of ordinances relating to cannabis.

The following is an introductory summary of the Report.

“The action taken by the Santa Barbara County Board of Supervisors to certify the development of a robust cannabis industry as the primary objective of the cannabis ordinances has altered the quality of life in Santa Barbara County, perhaps forever.

“The fulfillment of that objective dictated the actions taken by the Board from the excessive allowance of licenses and acreage, creation of an unverified affidavit system, ignoring widespread odor complaints, not acknowledging the conflict between cannabis cultivation and traditional agriculture, to rejecting the environmentally superior alternatives of limited cannabis development.

“Instead of a balanced approach carefully evaluating how the cannabis industry would be compatible, both as to amount of acreage and location, the Board simply opened the floodgates. These ordinances must be amended.”

This is the report of a civil grand jury. It is clear, however, that some of the matters discussed in this 26-page Report could well be the subject matter of a criminal grand jury investigation if these same matters were viewed a little differently. In fact, some of the matters described in this Report may well be under consideration by a criminal grand jury.

We are not writing about this Report because we have any particular interest in Santa Barbara County, or because some of the activities described in the Report may be criminal. We are writing about this Report because this Report should be mandatory reading for every member of every Board of Supervisors, City Council, Planning Commission, and Administrative Office that is involved in the considerations of that member’s governed community relating to the involvement of the community with the cannabis industry. This Report should also be mandatory reading for every California legislator and for every executive-level Administrator in any Administrative Department or Agency that has significant involvement with the cannabis industry.

California legalized medical cannabis in 1996 in Proposition 215. California legalized adult-use cannabis almost 20 years later in Proposition 64 – an initiative amendment to the California Constitution. Proposition 64 was ill-conceived and poorly drafted. See Keeping Proposition 215’s Promise. The California Legislature compounded the problems created by Proposition 64 with its attempt to impose regulation and taxation on a well-established industry by force of will. See, See Implementing Proposition 64. The most grievous error of the Legislature, however, is likely its creation of an administrative agency structure filled with intelligent and skilled administrators who were wholly lacking in an understanding of the existing industry as well as in the vision required to guide the conversion of the existing underground industry into a regulated industry. See Background California Cannabis Regulation.

The foundation for the chaos created by the people of California in Proposition 64 and the Legislature was passed on to the Cities and Counties of California much like a dangerous virus. Every City and County received some measure of encouragement, or pressure, from advocates, promoters, advisers, consultants, experts, and voters as well as a host of opportunists. Each had an opinion. Each had an agenda.

None of these individuals had a comprehensive and workable plan for how a particular locality could best fit into California’s regulated cannabis industry. The Legislature failed to design a comprehensive and workable plan for California’s regulated cannabis industry let alone explain how the well-established underground cannabis industry would transition into a regulated industry. As a consequence, most California Cities and Counties have some local version of the chaos that prevails throughout California in its cannabis industry.

Santa Barbara County is different from all other Counties. No other County is likely to have made the same errors as Santa Barbara. Most Cities and Counties, however, have succumbed to a greater or lesser degree to the encouragement, or pressure, that led Santa Barbara County to error so grievously. We recommend those individuals we describe above at least consider those paragraphs of the closing of the Report that follows and how the thoughts of the Santa Barbara County Grand Jury may apply in the locality with which they are involved.

“A more sobering realization for the Jury was that the governance in this matter took the form of some Supervisors aggressively pushing through their own agendas while other Supervisors meekly followed or resigned themselves to the inevitable.

“Some senior staff in the office of the Santa Barbara County Chief Executive Office and the Santa Barbara County Planning and Development Department became cannabis advocates, losing their objectivity to the point of interfering in the responsibilities of independent agencies and elected officials.”

“The Board of Supervisors rushed through the cannabis ordinances, ignoring the Santa Barbara County Planning Commission and staff recommendations on verification of applicants claiming eligibility to grow cannabis, to buffer distances for odor, and to not establishing cannabis as a compatible use that would allow for an analysis of compatibility with traditional agriculture. The actions of the Board resulted in the picking of winners and losers.

“The Board of Supervisors used the mechanism of an Ad Hoc Sub Committee to craft the cannabis ordinances out of public view. These ordinances are now the cautionary tale for other counties in the State of California on what not to do.

“The Ralph M. Brown Act codified as California Government Code 54950 et seq., declares as follows:

‘In enacting this chapter, the Legislature finds and declares that the public commissions, boards, and councils and the other public agencies in this State exist to aid in the conduct of the people’s business. It is the intent of the law that their actions be taken openly and that their deliberations be conducted openly.’

The people of this state do not yield their sovereignty to the agencies which serve them. The people in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments they have created.’

“The Jury believes the Board of Supervisors, in their hubris, failed the people of Santa Barbara County. Now they must amend the cannabis ordinances to regain the people’s trust.” [Bold added.]

All of the tools exist under the existing laws of the State of California to create a legal cannabis industry that encompasses both medical and adult-use cannabis in which all businesses are in complete compliance with all applicable tax and regulatory responsibilities. The State of California, working with the purported leaders of the cannabis industry, has forcefully demonstrated that it does not know how to produce such a result. This result, if it is to be achieved, will be produced by the thoughtful efforts of the governance of California’s Cities and Counties.

The lesson all local leaders must take from Santa Barbara County is that the decisions each locality makes relating to cannabis must be based on a comprehensive understanding of the interests of the entire community with respect to California’s cannabis industry. Every resident of California is impacted to some degree by California’s cannabis industry. As a consequence, every resident has some interest in California’s cannabis industry. Responsible governance of each locality demands informed and thoughtful compromises relating to the best interests of the entire community in all things, including cannabis.

Cannabis is just another agricultural commodity. As California agricultural commodities go, it is not particularly important from a financial standpoint. As a consequence of greed, this agricultural commodity has received far more attention in recent years than can be justified. For political reasons, this agricultural commodity has long caused injuries to far more California residents than were justified. The legalization of adult-use cannabis in California has raised the financial stakes and imposed a far greater burden on knowledgeable and thoughtful local governance.

The story told in the Report illustrates how difficult it is for local governance to rise to the occasion in view lack of adequate support and guidance from the State. In this regard, some may see a parallel with the States and national leadership in connection with the COVID-19 crisis.

Older Posts

The Daily Hit: September 22, 2020

Spanish-Language Cannabis Outlet El Planteo Is Launched

In other news

Akerna Partners With Priority Technology Holdings, Inc. To Offer Hemp-CBD Industry Payment Processing

Laganja Estranja Brings Drag To The World Of Cannabis

Auxly Chooses Maple Over Pumpkin For Fall Flavors

Legal Archives - Green Market Report

The MORE Act Vote Is Postponed As Cannabis Gets Weaponized By Republicans

National Expungement Week 2020 To Feature Virtual and In-Person Services

Nebraska Pulls Medical Marijuana Off 2020 Ballot

SEC Charges Cannabis Executive Geoff Thompson With Securities Violations

Repeat Offender

Covalent

Where Did $19 Million Go?

Cultive

In Closing

Pennsylvania Senator Calls Cannabis State Store Idea A ‘Nightmare’

SEC Files Case Against Cannabis Investor Offering

Alleged Actions

C-Quadrant Property

Less Than Honest Bios

Punishment

CWNevada Receives $1.25 Million Fine, Loses Licenses

Tax Man Cometh

Burn It Down

FDA Issues Draft Guidance For Cannabis Research

Massachusetts Fines Three Cannabis Companies

4Front Ventures

Garden Remedies

Acreage Holdings

Rebooting Cannabis In California

The Daily Hit: September 22, 2020

Spanish-Language Cannabis Outlet El Planteo Is Launched

Hemp Group Files Suit Against DEA Over New Interim Rule

Get the latest news delivered straight to your inbox!

You have Successfully Subscribed!