For cannabis investors focused on private companies, larger deal flow means better investments
Vetting cannabis companies is complex, time-consuming, and expensive
Using a data-driven deal analyzer automates top-level due diligence, resulting in more deals processed, better fits, and overall higher returns
The emerging cannabis industry is in a state of rapid growth – over 30% compound annual growth rate (CAGR) for the next 5 years – and investors are starting to really pay attention. Angel investors, venture capitalists, and private equity groups are raising funds dedicated to cannabis and they’re starting to grow their portfolios.
To make smart investments, investors of all shapes and sizes need to review a large volume of deals to find the best picks that fit their investment strategy, often referred to as their investor or portfolio “thesis.” But wading through all those decks and conversations can be very difficult and draining.
Investors (and businesses) lose time, energy, and money qualifying and chasing poor fit deals
Cannabis investors spend tremendous amounts of time and energy talking to and qualifying potential deals, only to realize much too late in the process that this company is not a good fit. Although every conversation yields an opportunity to learn, some conversations are much more interesting and productive than others. In the worst case scenario, investors don’t realize the deal is a dud until after deploying capital, resulting in direct portfolio losses.
No one, neither investors nor businesses, wants to waste their precious resources on deals and discussions that will go nowhere. More importantly, these wasted resources result in overall market friction that reduces the rate and acceleration of industry growth as well as investor return on investment (ROI). Double whammy!
So any investor that can review more deals faster, and quickly isolate the most relevant opportunities to pursue further, has a considerable advantage in snapping up the best investments before others get a chance.
Maximizing cannabis investment ROI requires a data-driven deal flow
From our first-hand experience raising capital, as well as second-hand experience talking to investors, one of the biggest challenges is quickly and efficiently identifying a good match on industry vertical, business focus, traction, and values. Beyond these foundational considerations, the next round of challenges revolves around product-market fit, growth potential, and deal terms.
Simply put, there is a standard list of 15-20 questions that every investor should ask a prospective investment (and every company should ask a prospective investor). But these questions can drag on for multiple discovery conversations or documents, ultimately wasting time and energy on both sides.
Some investor platforms, such as Leafwire or Arcview, ask a small set of these questions to help grease the wheels. Cannabis Big Datauses a deal analyzer that algorithmically matches investors & potential deals based on self-reported preferences. Think of the tool like Match.com for investor deal flow with a compatibility score based on profile overlap.
Regardless of the platform or format, investors that have an automated, dynamic way to speed up their deal flow will be able to review more deals faster and find the best companies that fit their thesis. It also means investors have more time for due diligence on the highest value deals, ultimately resulting in higher portfolio returns from investing in stronger, more aligned companies.
For entrepreneurs, a standardized set of investor questions means more time and mental space to focus on developing their product or service and growing their customer base. For the industry, accelerating investment due diligence means less friction in the capital markets and happier humans doing more meaningful work with more time to care for themselves, their customers and their families.
Beyond the immediate and impactful value of a data-driven investor thesis to save time, energy, and money for both investors and businesses, there is also a longer term impact and benefit to cannabis capital bearers.
Over time, cannabis investors can run historical correlative analyses identifying the core considerations that are most likely to impact success and, most importantly, returns on investment. Said in the lexicon of a data nerd, this is a machine learning protocol and predictive model with historical data-driven deal assessments as a training dataset. In plain English, this is a computer algorithm that looks back in time, figures out what worked and what didn’t work, and applies those lessons learned to the matching score for future potential deals.
Overall, what’s true for companies is true for their investors: those most adept at activating their data will quickly dominate the market. So investors need to consider an automated deal analyzer to save time, energy, and money in the short-term while also get smarter picking the best bets that yield the highest returns in the long-term.
Henry Finkelstein, CEO & Founder of Cannabis Big Data, empowers colleagues and clients by spinning data into gold with intuitive, actionable insights. After working in e-commerce, consulting, healthcare and government contracting, Henry saw the opportunity to create a modern-day data toolkit for cannabis businesses that connects the data dots with one-click reports & dashboards that help companies earn more and stress less.
Henry’s person-centric approach to the power of data is summed up as “Let’s count what counts & celebrate our successes because the only relevant data is actionable data.”
VIDEO: Member Spotlight – Silver Sage Wellness
We’re kicking off the month of March with this video spotlight on NCIA members Silver Sage Wellness based in Las Vegas, Nevada. Meet husband-and-wife team Jim and Pam Blasco, special-needs patient advocates with a powerful story about how cannabis changed their lives, as well as the challenges they experience running a cannabis dispensary in the face of unfair tax burdens caused by Section 280E of the IRS Tax Code.
The SAFE Banking Act: What To Expect
As our readers saw in last week’s blog, this month has been a milestone for cannabis banking reform.
Earlier this month, the Subcommittee on Consumer Protection and Financial Institutions held its first ever hearing on marijuana and financial services, entitled: Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses. Up for discussion was a new draft of the Secure and Fair Enforcement (SAFE) Banking Act, which is expected to be introduced any day. The bill is being sponsored by Reps. Ed Perlmutter (D-CO) and Denny Heck (D-WA) in the House, and by Sen. Jeff Merkley (D-OR) in the Senate. All of them have been longtime champions of this cause.
Watch this video for an update on the February 13 hearing:
Because cannabis remains illegal under the federal Controlled Substances Act, individuals who grow, possess, use, sell, transport, or distribute cannabis remain subject to federal criminal prosecution. Under current law, financial institutions providing banking services to legitimate and licensed cannabis businesses under state laws are subject to criminal prosecution under several federal statutes such as “aiding and abetting” and money laundering.
Regardless of whether they’re state or federally chartered, all banks are federally regulated (by FDIC, OCC or the Fed), and thus subject to these rules.
The SAFE Banking Act seeks to harmonize federal and state law by prohibiting federal banking regulators from:
Threatening or limiting a depository institutions’ access to the Deposit Insurance Fund
Discouraging, prohibiting, or penalizing depository institutions for servicing cannabis related businesses
Taking any action against a loan made to a covered business
Forcing a depository institution to halt providing any kind of banking services to state-legal cannabis related businesses
The bill has a few changes from last Congress, including:
Protections for ancillary businesses from money laundering and other laws
Changes the language addressing businesses in Indian Country.
Adds requirement that Financial Institution Examination Council develop guidance to help credit unions and banks understand how to lawfully serve cannabis businesses.
Adjusts the definition of “Cannabis-related legitimate business” to match up with the definition used in last session’s Senate language
Once the SAFE Banking Act is introduced, NCIA will begin gathering cosponsors from both sides of the aisle for the legislation, and will be working with the House Financial Services Committee and its members to advocate for a mark-up of the bill.
While NCIA is making change and advancing our issues every day, there’s still much work to do! Make sure to mark your calendars for our 9th Annual Cannabis Industry Lobby Days in Washington, D.C. on May 21-23 so that you can tell congressional offices your personal story. There’s strength in numbers, and we can’t do it without you!
VIDEO: Capitol Hill Update On Cannabis Banking Hearing In Congressional Committee
Every day, our Government Relations team is keeping our finger on the pulse of what’s happening on the Hill and how it affects our industry. In this case, we have important news from D.C. about movement to fix the banking crisis faced by cannabis industry operators.
Watch this video to learn more about the historic hearing that took place on February 13 in the Subcommittee on Consumer Protection and Financial Institutions. They held the first ever hearing on marijuana and financial services, entitled: Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses. Up for discussion was a new version of the Secure and Fair Enforcement (SAFE) Banking Act.
There’s no better way to stay informed and connected with what’s happening in federal policy than by being a member of NCIA – the largest and most influential national trade association representing the legal cannabis industry. We fight on your behalf year-round in the halls of Congress for our industry to be treated fairly like any other legitimate industry in this country.
Be sure to register in advance for our popular Cannabis Caucus event series – tickets are complimentary for NCIA members, and a limited number of non-member tickets are available. Join us throughout the month of March in Los Angeles, San Francisco, Denver, Lansing, and Philadelphia. For more information, visit our website.
And now is the time to start planning your trip to Washington, D.C. to join us on Capitol Hill! For the 9th year in a row, we’re hosting our Annual Cannabis Industry Lobby Days on May 21-23. This is your chance to walk the halls of Congress and make your voice heard about the unfair tax and banking policies that cripple our industry. This event is exclusively for current NCIA members, so if you’d like to join us for what NCIA members say is “the most important and exciting NCIA event of the year,” then now is the time to join NCIA at one of our three levels of membership, and then join us in May in our nation’s capitol.
If you’re already planning to join us, now is a perfect time to read up on our latest Policy Council report to learn more about priorities for our industry in the 116th Congress.
Show Me The Money! Banking Hearing Held In Congress Last Week
by Michelle Rutter, NCIA Government Relations Manager
A week ago today, the House Financial Services Committee made history.
On Wednesday, the Subcommittee on Consumer Protection and Financial Institutions held its first ever hearing on marijuana and financial services, entitled: Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses. Up for discussion was a new draft of the Secure and Fair Enforcement (SAFE) Banking Act, which is expected to be introduced at the end of the month by Reps. Ed Perlmutter (D-CO) and Denny Heck (D-WA) and Sen. Jeff Merkley (D-OR) in the House and Senate, respectively. Compared to last session’s SAFE Banking Act (H.R. 2215), the discussion draft of this session’s bill has some differences: it adds protections for ancillary businesses providing products or services to a cannabis-related legitimate business; specifies how businesses on tribal land could qualify; and requires the Federal Financial Institution Examination Council to develop guidance to help financial institutions lawfully serve cannabis-related legitimate businesses.
NCIA was proud to work closely with the offices leading the effort, members of the subcommittee, and witnesses leading up to this historic hearing. NCIA submitted written testimony that was introduced for the record by Congressman Ed Perlmutter (D-CO) during the hearing. In addition to submitting our own testimony, NCIA called upon its members to submit their own stories and tell us why the cannabis banking crisis needs to be fixed. By doing so, we were able to submit nearly 100 personal stories that are now a part of the congressional record. Congressman Perlmutter even read three of those testimonies aloud at the hearing!
According to the hearing documents, “An increasing number of financial institutions have expressed interest in providing banking services to state authorized cannabis-related businesses as nearly all states have authorized various degrees of cannabis use, such as for medical use. However, many financial institutions are refraining from offering banking services to these businesses based on several legal and compliance risks. Furthermore, public safety and other concerns have been expressed by stakeholders, including state and local government officials regarding cannabis-related businesses having difficulties accessing basic banking services, such as depositing large sums of cash from their business activity.”
Witnesses for the majority (Democrats) included :
Congressman Ed Perlmutter (D-CO)
Fiona Ma, California State Treasurer
Maj. Neill Franklin (Ret.), Baltimore City & Maryland State Police Departments and Executive Director, Law Enforcement Action Partnership (LEAP)
Rachel Pross, Chief Risk Officer, Maps Credit Union, on behalf of Credit Union National Association (CUNA)
Gregory S. Deckard, President, CEO and Chairman, State Bank Northwest, on behalf of Independent Community Bankers of America (ICBA)
Corey Barnette, Owner, District Growers Cultivation Center & Metropolitan Wellness Center
The minority (Republicans) invited Jonathan Talcott, partner at Nelson Mullins and board member of Smart Approaches to Marijuana (Project SAM) to speak at the hearing. Interestingly, in 2018, Nelson Mullins was paid $200,000 to lobby on behalf of cannabis company WeedMaps. The company has since found another firm to represent them.
This hearing was an historic and important first step in solving the cannabis banking crisis. In the coming months, we are hopeful that the House Financial Services Committee will hold an additional hearing and potentially even a mark-up on the SAFE Banking Act. You can also take a behind the scenes look at this video from the hearing day.
While NCIA is making change and advancing our issues every day, there’s still much work to do! Make sure to mark your calendars for our 9th Annual Cannabis Industry Lobby Days in Washington, D.C. on May 21-23 so that you can tell congressional offices your personal story. There’s strength in numbers, and we can’t do it without you!
VIDEO: NCIA Submits Testimony At U.S. House Committee On Financial Services
Last week, as NCIA wrapped up another successful Seed to Sale Show, we were vigilantly preparing for a historic hearing about the issue of cannabis banking and the SAFE Banking Act. This is an incredible milestone for our industry. If this bill passes, it would allow marijuana-related businesses in states with existing regulatory structures to access the banking system.
The Consumer Protection and Financial Institutions Subcommittee of the U.S. House Committee on Financial Services held this historic hearing about a draft bill that provides safe banking services for legal cannabis businesses. This was the first Committee hearing on stand-alone legislation that is a priority for our industry. Learn more about the hearing from NCIA’s Aaron Smith.
Read NCIA’s Executive Director and Co-Founder, Aaron Smith’s official testimony here.
To find out more about what NCIA is doing to support this bill and other legislative priorities, join us at a Cannabis Caucus event near you!
VIDEO: The Cannabis Industry’s Banking Crisis – Explained
The cannabis industry faces many hurdles along the path to federal legalization. One of the major obstacles faced by cultivators, processors, and dispensary owners is a lack of clear direction for financial institutions about how to provide banking services for those state-legal, licensed cannabis businesses. In this educational video, learn more about the federal banking crisis and the Congressional solution that can fix it.
Member Blog: 7 Steps To Opening A Cannabis Dispensary
As cannabis reform barrels ahead like a freight train, entrepreneurs everywhere are eyeing ways to get in on the green rush. And for those without the background or interest in cultivation or manufacturing, cannabis retail can be a very alluring — and lucrative — prospect.
Of course, that’s not to say there won’t be work involved. Just like any other business, opening a cannabis dispensary requires a lot of planning, paperwork, and, of course, capital. It also requires a lot of additional compliance hurdles not often encountered in other industries.
Today, we’re looking at the seven essential steps you’ll need to address as you seek to launch your own cannabis retail venture.
Seven Essential Steps to Opening a Cannabis Dispensary
Find a suitable location.
While it might seem counterintuitive to talk about location before licensing, the fact is that in most jurisdictions, you’ll be required to have a prospective retail location identified before you can even begin filling out the licensing paperwork.
Naturally, your dispensary location will have to align with all applicable regulations, including local zoning ordinances and state-level mandates. Researching your state’s guidelines shouldn’t be too difficult, as most maintain a checklist on their official government websites.
Obtain a cannabis retail license.
This step is easier said than done — but in the end, no license means no dispensary. Each state has their own cannabis retail licensing and application structure, so once you’ve locked down a potential location, you’ll want to begin researching the requirements and getting all the paperwork in order.
Obtaining a license may take up to a few months, so you’ll be able to work on the other components of your dispensary as you work through the licensing process. But you definitely want to know exactly what you’re up against as early as possible.
Estimate your costs.
The total cost of opening a cannabis dispensary varies greatly by state and local jurisdiction. Application and licensing fees alone can range between a couple thousand dollars up to $20k. Again, you’ll need to research your state and local permitting guides to find out exactly what you’re looking at in terms of licensing fees.
Other major cost considerations will include:
Physical location (real estate rental/purchase as well as renovation, furnishing, and finishing costs)
Professional fees (insurance, legal, financial, etc.)
Payroll
Capital investments (security/surveillance system, dispensary technology, etc.)
Write your business plan.
No serious investor is going to consider bankrolling your operation without seeing a solid cannabis retail business plan. Financiers want to know that you’ve covered all your bases, and your plan should address the following key areas:
Finances
Compliance
Dispensary staff
Sales and marketing
Logistics/operations
Security
Of course, detailed information about your planned location will need to be addressed as well.
Secure your capital.
As quickly as the industry is progressing, federal cannabis banking reform could be here sooner than later. But until then, cannabis-friendly financial services are still very hard to come by. That means your primary source of funding will likely be private investors, friends, family, or yourself. There are also some well-established cannabis-specific investment groups out there that are worth looking into.
Consider your dispensary technology needs.
As a cannabis dispensary owner, you’re going to need a technology solution that not only keeps up with the typical retail performance burdens but also satisfies your state’s compliance requirements — in other words, seed-to-sale reporting.
Compliance reporting (a platform that can tie in directly to the state’s system and automatically report all necessary data can save you untold time and labor costs)
Reliability
Ease of use
Determine your product sourcing procedures.
Finally, you’ll need to determine how you’ll source your products. This is another area that you’ll need to reference your particular state’s rules and regulations on; some states prohibit dispensaries from being involved in cultivation, and others highly encourage it. Either way, you’ll likely have to obtain a separate license if you want to get into cultivation.
Start by identifying and interviewing local cannabis producers. This is also a good opportunity to determine the types of products you’ll want to offer and ways you can incorporate them into your marketing.
Want to Learn More about Opening Your Dispensary?
Get a more in-depth look at everything involved with launching your own cannabis dispensary by downloading our How To Open A Cannabis Dispensary e-book — it’s absolutely free.
Gary leads Cova’s charge into the legal cannabis space by guiding the vision, strategic development, ‘go to market’ plans and culture.
Before joining Cova, Gary was a principal in over a dozen tech start-ups in the mobile communications industry ranging from small VC funded companies to Fortune 100 firms, including Onavo, which was later acquired by Facebook. In those companies he led sales, marketing, business analytics and market expansions. He has also held a multitude of leadership roles with Verizon and AT&T.
Gary holds a degree in finance with a master’s in marketing from the University of Colorado.
Member Blog: The Explosive Growth of California Cannabis Licenses and What Comes Next
We’re more than one year into California’s legal cannabis industry and license growth continued on a fast-rising upward trajectory through the end of 2018. In fact, between November 1, 2018 and December 31, 2018, California issued a total of 6,855 new cannabis licenses according to the Cannabiz Media License Database as people worked extended hours to process the remaining temporary license applications.
To put that number into perspective, California had 4,085 active licenses as of October 31, 2018. During the next 61 days, the state more than doubled that number to 10,940 active licenses on December 31st. You can see the data visually in the chart below.
Majority of Licenses Granted Went to Cultivators
Of the 6,855 licenses granted in California during November and December 2018, 65% were issued to cultivators by the California Department of Agriculture.
Distributor licenses accounted for 14% of the licenses granted during that two month period, followed by manufacturer licenses at 12%, retailers/dispensaries at 3%, microbusinesses at 3%, delivery businesses at 3%, and testing labs at less than 1%.
Cultivators Continue Stacking Licenses
During the final two months of 2018, 45 license holders gained double digit licenses, which accounted for 24% (1,665) of the 6,855 new licenses issued. One reason for this is because cultivator licenses are skyrocketing as more growers secure multiple small licenses to create large cultivation facilities.
Between November and December 2018, five companies received 729 cultivator licenses, which equates to more than 16% of cultivator licenses granted during that time and nearly 11% of all licenses awarded during that time.
Those five companies are Coyote Hills Agricultural Enterprises (210 new licenses), White Light Farms (173 new licenses), BDZ, Inc. (134 new licenses), Iron Angel II, LLC (133 new licenses), and Busy Bee’s Organics (79 new licenses).
Distributor Licenses Saw the Most Growth in Late 2018
While new cultivator licenses grew by the largest quantity during November and December 2018, new distributor licenses saw the largest growth jump over the previous 10 months of the year.
The number of new distributor licenses issued in December and November 2018 was nearly double the amount granted in the previous 10 months. Manufacturer licenses issued increased by 188%, cultivator licenses by 178%, testing licenses by 68%, and retailer/dispensary licenses by 58%.
What’s Next for California’s Cannabis License Holders?
California has stopped issuing temporary cannabis licenses, and throughout 2019, many of the temporary licenses awarded during 2018 will expire. Each of these temporary licenses will need to become provisional and/or annual licenses in order for the license holders to stay active in California’s cannabis industry.
A few months in 2019 stand out as ones to watch because a large number of temporary licenses will expire. In March, 1,559 licenses will expire. In April, the number of expiring licenses jumps to 4,731, and in July, another 2,453 temporary licenses will expire. During other nine months of 2019, the number of licenses that will expire ranges from three licenses in October to 682 licenses in May.
Clearly, the story of cannabis licensing in California is far from over, and the Cannabiz Media team will be watching closely and tracking all of it in the Cannabiz Media License Database. Follow the link to see more data and insights related to license growth in California during the last two months of 2018.
Ed Keating is a co-founder of Cannabiz Media and oversees our data research and government relations efforts. He has spent his whole career working with and advising information companies in the compliance space. Ed has overseen complex multijurisdictional product lines in the securities, corporate, UCC, safety, environmental and human resource markets and focuses on workflow products. Ed has spent the last twenty five years in the information industry. During that time he has worked for both startup and established information companies where he has led marketing, product management and sales organizations. These companies include Wolters Kluwer/Commerce Clearing House, CT Corporation, EDGAR Online and Business & Legal Reports. At Cannabiz Media Ed enjoys the challenge of working with regulators across the country as he and his team gather corporate, financial, and license information to track the people, products and businesses in the cannabis economy. Ed graduated from Hamilton College and received his MBA from the Kellogg School at Northwestern University. He has been active with the Software & Information Industry Association for his whole career and managed the Content Division for six years. He’s was recently a Trustee at the Country School in Madison CT and a Little League Coach for seven years.
New Year, New Attorney General?
by Michelle Rutter, NCIA’s Government Relations Manager
Last month, the Senate Judiciary Committee began the confirmation hearing for William Barr, President Trump’s nominee for Attorney General. Barr served as Attorney General under President George H.W. Bush from 1991-1993 — a time when the War on Drugs was arguably at its peak. There was much concern that Barr’s position on cannabis would be reminiscent of the last Attorney General, Jeff Sessions, however, January’s hearings proved otherwise.
During the Senate confirmation hearing, Barr stated that he would respect state cannabis laws and legal businesses when it comes to enforcing federal marijuana statutes. In response to questioning from Sen. Cory Booker (D-NJ) and Sen. Kamala Harris (D-CA), Barr stated that if confirmed, his “approach to this would be not to upset settled expectations and the reliant interests that have arisen as a result of the Cole Memorandum.” Upon further questioning, he stated that he “is not going to go after companies that have relied on the Cole Memorandum.” (It’s also important to note that the two Senators who asked Barr about cannabis policy are both running for president).
Barr even put it in writing. In response to written questions, Barr wrote, “As discussed at my hearing, I do not intend to go after parties who have complied with state law in reliance on the Cole Memorandum… I have not closely considered or determined whether further administrative guidance would be appropriate following the Cole Memorandum and the January 2018 memorandum from Attorney General Sessions, or what such guidance might look like. If confirmed, I will give the matter careful consideration.” He also wrote to the committee, “I still believe that the legislative process, rather than administrative guidance, is ultimately the right way to resolve whether and how to legalize marijuana.”
The Cole Memo, issued in 2014, directed federal prosecutors not to use resources to target businesses or individuals that were in compliance with state cannabis laws and met a set of public safety criteria. That guidance, which gave many businesses and state governments the confidence to move forward with implementing regulated cannabis markets, was rescinded in January 2018 by then-Attorney General Jeff Sessions.
Several comprehensive cannabis policy reform bills that would allow states to determine their own laws without federal interference are expected to be considered this year. NCIA will continue to work with the Senate Judiciary Committee, Barr (should he be confirmed), and the Department of Justice on these critical issues.
Member Blog: 5 Mistakes New Cannabusiness Owners Make, And How to Avoid Them
by Ellie Herring, Marketing Director of Dime Bags, a subsidiary company of Head Choice Inc.
Advice from Dime Bags, a leader in the hemp space that’s been in the industry for over a decade.
Business is booming for those who are successful in the cannabis industry. With over $9 billion in sales reported for the marijuana industry in 2017, it’s no surprise entrepreneurs are looking to fill the needs of millions of new customers that join the market each year. While the cannabis industry may look like a fail-safe investment to some, those who’ve successfully established themselves in the market know that starting a cannabusiness is nothing short of an enormously challenging feat. Regulatory laws, unforeseen roadblocks with city stipulations and auxiliary businesses, and an oversaturation of the market are some of the many challenges new cannabis business owners face.
With over a decade of first-hand knowledge in the industry, Dime Bags has experienced the many ups and downs of starting and successfully running a business in the hemp market. To save new cannabusinesses the trouble of making these mistakes on their own, we’ve compiled a list of the top five mistakes new cannabis businesses make (and how to avoid them).
Creating Unrealistic Expectations
Inexperienced entrepreneurs look at the cannabis industry and assume that because the marketing is booming and continuing to grow, it’s a fail-safe investment. This couldn’t be further from the truth. Penetrating a saturated market takes substantial dedication to the product or business and a wealth of knowledge of both the industry and regulations. What may look like a fool-proof business plan could completely dissolve with one legality mishap. In addition, a business plan with no passion or knowledge of the industry can easily fall behind in the saturated market of cannabis aficionados who quite literally eat, sleep, and breathe cannabis.
Be passionate about the business you’re starting or investing in and set realistic expectations for growth. While the cannabis industry has plenty of potential for successful ventures, they don’t come without their fair share of complications.
Assuming Other Businesses Are Willing to Work with You
Even in recreationally legal states, cannabis-related products and businesses still constantly face roadblocks in every operational endeavor. Dime Bags creates protective bags for glass transportation and uses hemp to make the fabric of our products. The bags arrive at our warehouse in Colorado Springs already constructed. There is no raw hemp at our building and certainly no cannabis on the premises, yet we’ve faced backlash and pushback from many companies. We’ve been turned down by insurance companies, faced difficulties finding a bank, and even experienced direct pushback from the surrounded storefronts for the product we make and market. Even if you’re starting a business in a recreationally legal state, do not expect others to always welcome you with open arms.
Properly research banks, accounting firms, lawyers, insurance companies, the location of your business and every other possible partnership beforehand to find those who support and are willing to work with cannabis businesses. As long as cannabis remains federally illegal in the United States, cannabusinesses will experience some pushback from other industries who are unwilling to take the risk. However, as public perception shifts and more states become legal, there’s been a noticeable increase in cannabis-friendly ancillary businesses and finding the right partnership is no longer completely impossible.
Not Adapting
As with starting any business, not being adaptable will cause your business to fail. In an industry where everyone’s trying to get in while it’s on the rise — the effects are tenfold. The cannabis industry is constantly changing with the growing market and if you’re not fully committed to adapting with the industry, your business will fail. As the cannabis industry is still so new and not yet worldwide, changes in behavior, attitudes, interests, and trends are moving at a rapid rate.
Stay up-to-date on the latest discoveries in the industry so you can be ahead of the curve for the “next big thing.” Having a solid understanding of the plant itself and the interests of consumers will allow you to recognize trends before they take off. While Dime Bags originally only made bags with hemp, we adapted to expand our line to include smell-proof technology as we recognized the demand from consumers. While it’s important to have a vision and roadmap for your brand, be open to changes in the market and stay on top of trends so you can execute changes before the rest of the industry.
Breaking the Law
While acute knowledge of state and federal regulations is a critical part of any cannabusiness, breaking the law goes beyond the day-to-day operations. Be especially mindful of how your employees and company conduct themselves. While your business may operate according to state laws, that doesn’t always protect you from random searches or anonymous tips given to regulatory officers. If your business hosts a launch party or industry event, ask yourself if on-site consumption is worth losing your business over. That’s not to say that it can’t be done according to the laws for your state, but one underage person caught smoking or someone enjoying a joint outside the front door of your shop could spell serious trouble for you.
Clearly outline your expectations for your employees including how they should conduct themselves at industry events and define the laws and regulations for everyone so there’s a solid understanding of what is legal.
No Back Up-Plan
As Benjamin Franklin famously quoted, “by failing to prepare, you are preparing to fail.” Part of working in the cannabis industry is constantly preparing for the worst. Always have a back-up plan when executing your strategy. The city may revoke a permit for an event you sponsored due to public concern, your packaging may not hold up to new regulatory laws, the possibilities are endless.
While it’s impossible to predict every issue that may arise, have enough capital to handle sticky situations and plan for alternatives before it’s too late. As a general rule of thumb, have at least three months worth operating expenses saved to account for unexpected situations.
The cannabis industry is an exciting and lucrative field for those who prepare and fully dedicate themselves to learning the ins and outs. With national (and hopefully worldwide) legalization on the horizon, it’s set to be one of fastest growing industries over the next decade. By following the advice of those who’ve paved the way, we hope your business has a successful launch in one of the most exciting times for the industry.
Good luck!
Ellie Herring is the Marketing Director for Dime Bags, a Colorado Springs-based but globally recognized glass protection brand that specializes in hemp fabric, smell-proof carbon filtered technology, and everyday accessories for hemp and cannabis enthusiasts alike. Dime Bags is a subsidiary company of Head Choice Inc. For more information about Dime Bags, please visit DimeBags.com.
New Bill: VA Medicinal Cannabis Research Act
by Michelle Rutter, NCIA’s Government Relations Manager
The 116th Congress just recently began, but there’s already been a flurry of new cannabis bills filed. Let’s take a look at this new piece of cannabis legislation that was introduced simultaneously in both chambers:
Bill: H.R. 493/S. 179: VA Medicinal Cannabis Research Act of 2019 Introduced by: Rep. Lou Correa (D-CA) and Sen. Jon Tester (D-MT) Additional cosponsors: Reps. Steve Cohen (D-TN), Don Young (R-AK), Dina Titus (D-NV), Matt Gaetz (R-FL), Eleanor Holmes Norton (D-DC), Salud Carbajal (D-CA), Peter DeFazio (D-OR), Katie Hill (D-CA), Janice Schakowsky (D-IL) and Sen. Dan Sullivan (R-AK)
What it does: This bipartisan, bicameral bill requires research into the safety and efficacy of medicinal cannabis usage on veterans diagnosed with PTSD and chronic pain. This legislation would:
Require VA to conduct a double-blind clinical trial with varying forms of cannabis on specified health outcomes of veterans with PTSD and veterans with chronic pain
Authorize a long-term observational study of participating veterans
Require the VA to preserve all data collected or used for the purposes of conducting future research related to medicinal cannabis
Require the VA to submit annual reports to Congress on the implementation of this bill for five years.
NCIA is proud to have endorsed this legislation for two congressional sessions.
Many more (possibly dozens!) of cannabis bills are expected to be filed in the next few months. NCIA will continue to track these pieces of legislation and endorse critical cannabis reforms on Capitol Hill.
Member Blog: Advice for Surviving and Thriving in the New Era of Legal Cannabis From Those Who Have Climbed The Mountain (Part 1)
The challenges facing companies pioneering a new industry where each state deals with its own issues are numerous. The importance of strategic business planning and the ability to predict future problems are essential to survival.Colorado, Washington, and Oregon have each dealt with their unique issues and challenges but there are also common problems that every cannabis business experiences: burdensome regulation, unfair taxation, and banking prohibition to name a few. Building your company and brand is dependent on your ability to maneuver your company through the obstacles that will arise in your state market while also planning for a future of legal interstate commerce through a change in federal policy. To place your company in a position to be successful, you should understand the past to predict the future.
Quick Summary of Cannabis History
The history of cannabis is long and distorted, however a few basic points of what brought us to the current state of federal prohibition and individual state markets should be noted for context.
Cannabis use as medicine dates back to 2700 BC in China, and has been used throughout history. In 1850, it was added to the U.S. Pharmacopeia. Prior to state and then Federal prohibition, cannabis was an elixir/tincture used in many common household cough/cold syrups and other medications for stomach-aches, asthma, depression, and many others. In the 1930s, cannabis was regulated as a drug in all states, and in 1937, the passing of the Marihuana Tax Act regulated it federally. Then in 1970, the Controlled Substances Act determined cannabis to be a Schedule 1 drug meaning it has no medical benefit and a high risk for abuse. From 1970 to 1996 the manufacture, use, or possession of cannabis was illegal in all fifty states.
CALIFORNIA
In 1996, California became the first state to legalize the medical use of cannabis through Proposition 215. California was the first domino to fall and further background of the early days of California medical cannabis will be addressed in later blogs in this series focusing on California. Over the next twenty years, 37 states have joined California with medically legal cannabis, and nine states have passed and implemented legal “recreational” (now referred to as “adult use”) cannabis programs.
OREGON
Oregon was the second state to pass medical cannabis in 1998 and that was the start of this author’s journey through the cannabis industry. Prior to 1998, Oregon had been a bastion of black market cannabis cultivation due to its climate and wide open spaces especially in rural southern and eastern Oregon. After 1998, the state “protections” offered by medical cannabis state law allowed the cultivation industry to flourish. However, as opposed to California the state was more focused on growing weed and selling it around the country rather than setting up a distribution system to the medical patients of Oregon. This led to some of the early challenges of the medical cannabis program in Oregon. At this time, the Oregon population was relatively small compared to the state’s cannabis production. Oregon was on its way to being one of the largest cannabis producers in the country. But because cannabis was so easily accessible there was little effort put into a healthy distribution system to Oregon patients. Most patients either grew for themselves or had a designated “grower” and that is where I started in the industry.
OREGON: FORMATION OF RETAIL ESTABLISHMENTS
As a nurse who had self medicated with cannabis for ADHD, I began growing for patients because I wanted to provide others with access to the amazing health benefits of cannabis. This was the common way most patients accessed their cannabis. There were no dispensaries when the program started and patients who didn’t have a grower were relegated to barter trade types of acquisition. In 2005, the Oregon Legislature allowed growers to be reimbursed for the cost of production and in 2010, the first dispensaries began to pop up. However, it wasn’t until 2012 that legal retail entities were allowed. This lack of a retail access point for patients was one of the first impediments to the program and allowed states like Colorado and California to take the mantel on progress of a robust program of medical cannabis distribution.
COLORADO
In 2000, Colorado became the sixth state to allow medical cannabis with Amendment 20. Its medical program remained low key until 2010 when the Colorado Medical Marijuana Code was created, which provided for licensing of production and retail establishments. This change was a giant step to the progress of cannabis legalization.
Colorado followed the early model presented in California and began implementing licensed retail establishments for card carrying medical cannabis patients. Retails stores began to flourish and this laid the groundwork for the establishment of the Adult Use program. In 2012, Colorado became the first state to legalize what was originally referred to as recreational cannabis now called “Adult Use” cannabis, which allowed the sales of cannabis to all adults aged twenty-one and older and the boom began. Colorado’s medical program developed into a rapidly growing Adult Use system and with the new federal guidance of the Cole Memo in 2013 canna-businesses began growing rapidly.
COLORADO: SEED TO SALE TRACKING
The primary language of the Cole Memo highlights a “robust tracking system” of all products produced and sold. The Cole Memo did not provide protections for cannabis businesses but provided guidance that helped assure businesses of some safety from federal interference. With the advent and implementation of a tracking system we could now be assured of where products came from and be able to track them back to their origin.
COLORADO: LAB TESTING
Once tracking was in place, lab testing for the safety of the consumer came to the forefront of industry progress. This was one of the first problems Colorado realized it had with its blossoming industry. As opposed to Oregon which required all products sold through its immature dispensary system since 2012, Colorado had not required lab testing of all its products until 2016 after several large quarantines and destruction of unsafe contaminated products. Many Colorado producers struggled with new pesticide regulations and was an early sticking point to growth of the industry. Over the first years of Adult Use cannabis program, Colorado struggled with the infancy of a brand new industry and how to regulate it and consequently, businesses suffered.
Other early challenges that the first legal state dealt with were allowable dosages and changes to dosing, as well packaging changes and the look of products, specifically how or if the products were attractive or marketed to children. The obstacles of a new industry most directly affect the businesses and their bottom lines. These are important points to consider when strategizing your business model and planning for inevitable changes to regulations. The time spent preparing for a system that will change will go a long way to ensuring for success.
WASHINGTON
Now let’s talk about Washington.
Washington was the third state to approve medical cannabis but had problems with implementation due to legislative issues. As multiple pieces of legislation were offered, adopted, and repealed, the lack of clarity prevented the medical cannabis industry from launching. Washington passed its adult use cannabis program at the same time as Colorado in 2012. In Washington, the two major obstacles the industry faced were licensing issues and taxes. A previously existing strong medical program in Colorado allowed for a seamless transition to an adult use program, but that was not present in Washington and this added to difficulties with implementing an adult use program.
Because the industry was just getting off the ground, both states relied on their medical programs as a foundation to the adult use. However, Washington’s medical program was murky and disorganized which lead to complications, Washington also limited licenses and put unfair taxes on the industry. These two factors aided in keeping the black market as the primary driver of the industry, rather than pulling people or businesses into a controlled, tracked, and regulated system.
280E TAX CODE
This provides a nice segue to one of the challenges all cannabis business face: unfair taxes in the 280E tax code. Internal Revenue Code section 280E specifically denies a deduction or credit for any expense in a business consisting of trafficking in illegal drugs “prohibited by Federal law or the law of any State in which such trade or business is conducted” which translates to only “Cost of Goods Sold” as the only deductible expenses. This means administrative costs, executive salaries, marketing and advertising, banking fees, etc., are non-deductible expenses for any cannabis business and subjects them to much higher taxes as most normal business deductions are prohibited. This challenge is one all cannabis businesses deal with and must be factored into financial modeling.
BANKING
While we are on the the subject of taxes and non-allowable deductions, banking is the other major challenge all cannabis businesses face. Due to federal policy around an illegal substance, FDIC insured institutions force canna-businesses to operate in all cash for fear of prosecution under racketeering and money laundering laws. There are a handful of financial institutions, credit unions, or state banks that offer “Enhanced Monitoring Accounts” for cannabis companies. However, they are highly priced and rare. The average cannabis bank account is likely to run $1,000.00 a month, just to have access to banking services, not including additional fees. This $12,000 a year budget line item, while not only expensive, is not a tax write-off per 280E tax code.
One can quickly see from just these two major hurdles or challenges to the industry, normal operations can be difficult. These obstacles are not to be taken lightly; they can be addressed but it must be factored into operating procedures, financial planning/budgeting, and strategic vision.
NOW BACK TO STATE SPECIFIC ISSUES
As Washington and Colorado dealt with its issues, Oregon voted to approve “Adult Use” cannabis in 2014. Using Colorado and Washington as a guide, Oregon implemented their system with more deliberation and vision based on what had been experienced in the first two states. But as was seen with the unique challenges in the first two states, Oregon encountered an entirely different set of problems. Oregon currently faces a massive oversupply problem which has affected all facets of business across the industry. In normal business and supply and demand economics, if an area is oversupplied, business move their products to where the demand is higher or the supply is lower. However, cannabis remains a federally illegal product and therefore interstate commerce remains illegal.
Oregon’s unique problem originated from two main issues:
Oregon had already established itself as a cultivation mecca
The regulatory authority decided against a cap on licenses
This lack of license caps has allowed the number of licensees to explode and thereby allowed the oversupply issue to occur and continue to grow. As stated, this is not a problem exclusive to cultivator/producers. Because of a 75% drop in value, cannabis attorneys, electricians, HVAC, security companies and other ancillary businesses are not getting paid. The oversupplied market and decreased revenue has reverberated across the industry and driven otherwise thriving companies into bankruptcy.
As you can see, each state deals with its unique challenges when implementing its Adult Use cannabis program, while we all deal with some issues that affect us all. The key to thriving… or surviving is to prepare your company to deal with the current challenges shared by us all and predict the challenges that your business will face in your state while preparation is taken for a national and international market.
James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of CascadeHigh Organics with 20 years experience cultivating legal cannabis. James is a self-described organic minimalist cultivating in the most sustainable manner. James believes in clean cannabis and its use as a wellness drug. His Oregon licensed cultivation, Cascade High, has been featured in Dope Magazine and on the cover of Oregon Leaf’s Sustainability issue (March ‘18). James was featured as the Inaugural Stoner Owner by OR Leaf in Dec 2018. He has articles published by Dope Magazine about Cannabusiness and the Pharmaceutical Industry (May 2017), as well as a medical cannabis article in the Jan. 2019 Healthcare issue of OR Leaf. James is currently on the NCIA Cannabis Cultivation Committee and has presented Cannabis topics to multiple audiences at conferences including Cannabis Science Conference, PDX Hempfest, Cannabiz Convention, CBD Expo and Webinar series, Cannabis Collaborative Conference(CCC), Cannabis Nurse Conference, NCIA and educational industry mixers. His business, legal, medical, and agricultural knowledge provides a unique perspective on the industry. James has lobbied for Cannabis on both the national and state level with Oregon Cannabis Association and is a fierce advocate for the plant and all who use it.
WEBINAR: Michigan Voted to Legalize Adult-Use Cannabis – What You Need To Know Now
On Election Day, Michigan voters resoundingly approved Prop 1 to legalize and regulate adult-use marijuana under state law. It’s an exciting time with great possibilities, but what does this mean for the future state of Michigan’s legal cannabis landscape?
Watch this recording of the webinar from NCIA’s State Regulations Committee, presenting its first-ever interactive webinar designed to help you answer the pressing questions about Michigan’s new adult-use market.
Join NCIA’s State Regulations Committee members, including Chair Maureen McNamaraof Cannabis Trainers, Committee Vice Chair Michael Cooperof MadisonJay Solutions, and Barton Morris of Cannabis Legal Group, as they help us fill in the blanks for adult-use regulations in the state of Michigan. The webinar helps answer what we currently know about the laws, any key open questions that remain, and what potential market entrants should be doing now to get ready.
Watch the webinar “Michigan Voted to Legalize Adult-Use Cannabis: What You Need To Know Now” hosted by members of NCIA’s State Regulations Committee.
Three New Bills In The 116th Congress
by Michelle Rutter, NCIA’s Government Relations Manager
The 116th Congress just began, but there’s already been a flurry of new cannabis bills filed. Let’s take a look at some of the first pieces of legislation to be filed in the House of Representatives on the topic:
Bill: H.R. 420: Regulate Marijuana Like Alcohol Act Introduced by: Congressman Earl Blumenauer (D-OR) What It Does: This bill was introduced in the 115th Congress by now-Governor Jared Polis (D-CO). Filed in the 116th Congress by Rep. Blumenauer, this bill would remove cannabis from the Controlled Substances Act entirely. It would also transfer cannabis enforcement authority from Drug Enforcement Administration to a renamed Bureau of Alcohol, Tobacco, Marijuana, Firearms and Explosives. Both shipping or transporting cannabis into states that have not legalized it would continue to be prohibited. Last year, the bill garnered 26 cosponsors.
Bill: H.R. 493: Sensible Enforcement of Cannabis Act Introduced by: Rep. Lou Correa (D-CA) Additional cosponsors: Reps. Steve Cohen (D-TN), Don Young (R-AK), Dina Titus (D-NV), Matt Gaetz (R-FL), Eleanor Holmes Norton (D-DC), Salud Carbajal (D-CA), Peter DeFazio (D-OR), Katie Hill (D-CA)
What it does: This bipartisan bill seeks to enshrine the now-rescinded Cole Memo into federal law. The legislation directs the Attorney General, in enforcing the provisions of the Controlled Substances Act relating to cannabis, to focus on certain enforcement priorities that were outlined in the Cole Memo, such as:
Distribution of marijuana to minors.
Revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels.
Diversion of marijuana from States where it is legal under State law in some form to other States.
State-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity.
Violence and the use of firearms in the cultivation and distribution of marijuana.
Drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use.
The growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands.
Marijuana possession or use on Federal property.
This bill was previously introduced at the very end of the 115th Congress. NCIA is proud to have endorsed this legislation.
Bill: H.R. 127: Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2019 Introduced by: Rep. Steve Cohen (D-TN) Additional cosponsors: Reps. Don Young (R-AK) and Matt Gaetz (R-FL)
What it does: This bill would amend the Controlled Substances Act to state that regulatory controls and administrative, civil, and criminal penalties do not apply to a person who produces, possesses, distributes, dispenses, administers, tests, recommends, or delivers medical marijuana in compliance with state law. The bill also excludes “cannabidiol” (CBD) from the definition of “marijuana” and limits the concentration of delta-9-tetrahydrocannabinol (THC) in CBD to 0.3 percent on a dry weight basis. The bill also directs the Department of Health and Human Services (HHS) to terminate the Public Health Service’s interdisciplinary review process that is used to evaluate applications for medical marijuana research, opening up a multitude of research opportunities. The bill requires the DEA to license manufacturers and distributors of marijuana for medical research;, for HHS to register practitioners to conduct research, and for the Department of Veterans Affairs (VA) to authorize VA health care providers to provide recommendations and opinions to veterans regarding participation in their states’ cannabis programs.
Many more (possibly dozens!) of cannabis bills are expected to be filed in the next few months. NCIA will continue to track these pieces of legislation and endorse critical cannabis reforms on Capitol Hill.
Member Blog: Tiffany’s, Target, and Everything In-Between
I received a beautiful gift from Tiffany’s this holiday season. It was beautifully packaged in the signature Tiffany blue box, and placed in a Tiffany blue bag, along with wrapping paper embossed with the Tiffany logo. The packaging alone made me fall in love with the gift.
Everything about the Tiffany experience shouts quality. Yes, their items can be expensive, but as the saying goes, you get what you pay for, and when you shop at Tiffany’s, you can be assured that everything they sell will be of the highest quality.
Contrast this to shopping at Target. While I love Target, I wouldn’t want to purchase my jewelry there. Even if I received an identical item as the one from Tiffany’s, it just wouldn’t have the same appeal coming in the bright red-dot Target bag.
In other words, packaging matters. Branding matters. Presentation matters.
I know of a jewelry chain with stores across the United States. They are known for low-priced jewelry and they do very good business, with revenues of about $120 million per year. However, one of their biggest challenges is in convincing people that they also sell upscale items, such as flawless diamonds and rare gems.
One of the specific problems they had was in their packaging. Their low-cost boxes just did not have any panache or appeal. It’s hard to give an expensive gift in a cheap box. So, they eventually got some nicer boxes for their more expensive items.
But this did not fix the problem.
There were actually two challenges that this jewelry store faced. One was that their packaging was cheap. The other is that their brand was also cheap.
After years of becoming known as the low-price leader, it is a hard sell to try to become known for high quality as well.
Brands stick. So, you have to be careful with the path you choose.
Many companies have tried to attract new customers by changing the nature of their brand, but have failed. Oldsmobile is a textbook example.
Just a bit of history: Oldsmobile was legendary in the automotive industry. Founded in 1897, it was one of the five core brands manufactured by General Motors (GM) – the others being Chevrolet, Pontiac, Buick, and Cadillac – and helped lead the company to become the largest automotive manufacturer in the world.
For decades, Oldsmobile was a pioneering brand. However, in an effort to increase profits, GM decided that instead of preserving the unique identity of each of its brands, it would improve efficiencies through uniformity. As a result, Oldsmobile used the same parts and platforms as other GM cars, and soon they all began to look and perform alike, with only small cosmetic differences.
This resulted in a (predictable) slide in sales. Then in an effort to attract new customers, Oldsmobile fired its ad agency, and hired a new one that famously came up with the slogan: “It’s not your father’s Oldsmobile.”
The campaign failed because the brand did indeed appeal only to the older generation. Oldsmobile failed at attracting new buyers, and eventually the entire division shuttered.
Instead of changing their product, GM thought they could fool the public by changing its branding and marketing. No one was fooled.
In the cannabis industry, there will be room for low-priced brands that capture market share for those looking for a deal, and connoisseur brands that cater to a more discriminating or affluent customer.
But be careful which path you choose, because it can be difficult to change the public’s perception of your company once you have already built your brand.
My advice is simple: Build your brand in an authentic manner – meaning that your products and company support the promises made. If your products are meant to convey quality, then your packaging must be high quality as well.
You’ll have a hard time selling beautiful jewelry in a cheap box.
Remember that as you are thinking about rebranding, packaging, or launching a new product.
CEO Kary Radestock
Kary Radestock, CEO, launched Hippo Premium Packaging in March 2016 offering an array of services to the cannabis market, including: Marketing Strategy, Brand Development, Social Media, Public Relations, Graphic and Web Design, and of course, Printing and Packaging. Radestock brings over 20 years of award-winning print and packaging expertise, and leads a team of the nation’s top brand builders, marketers and print production experts. Hippo works with businesses looking for a brand refresh or an entire brand development, and specializes in helping canna-business get their products to market in the most beautiful and affordable way possible. Radestock’s Creative Collective of talent and experts, allows her to offer world-class solutions to support the unique needs of the Cannabis Industry.
Member Blog: Federal Authorities’ Current Position On Cannabis In 2019
Marijuana is anything but boring. And the politics of cannabis gets more and more interesting by the minute. On the tails of the 2018 Farm Bill signed into law, as we predicted, hemp-derived CBD leads as the most controversial subject in the pot trade. Politicians and lawmakers are divided. Federal government agencies, like state agencies, have separate and distinct enforcement and regulatory authority which lends itself to polar opposite view points.
U.S. Attorney General Nominee William Barr Takes A Favorable 360º Turn
In less than a month since the Act was signed into law, we have the nominated Attorney General William Barr taking a 360 from former U.S. Attorney General Jeff Sessions. In Senate confirmation hearings just recently, newly appointed Attorney General William Barr stated that he would “not go after” marijuana businesses operating in states where cannabis is legal. Barr reasoned that companies relied on the Obama-era Cole Memo (which Jeff Sessions rescinded) that kept federal authorities at bay from criminal prosecutions under Federal law. We are all aware Federal law prohibits the possession and sale of marijuana. A new bill was introduced into Congress last Friday that would revive the relaxed Cole Memo enforcement guidelines.
USFDA Commissioner Scott Gottlieb Announces CBD Product Sales Illegal
In stark contrast, USFDA Commissioner Scott Gottlieb issued a press release statement and didn’t mince words. Gottlieb expressly stated that introducing CBD/THC food products into interstate commerce is illegal “regardless of whether the substances are hemp-derived” – as we predicted and discussed in previous blogs. Despite the FDA’s foreseeable regulatory posture, we continue to believe there remains the open question:
“Can you produce and sell CBD food products – marijuana or hemp-derived – so long as you do not tout its medicinal benefits? A question that has yet to be specifically addressed by lawmakers. Ironically, the states’ legalization of marijuana all began with medical marijuana because of its medicinal benefits as an alternative treatment.”
Commissioner Gottlieb’s FDA Statement does not answer this question.
Stay Tuned – We’re Staying On Top Of Cannabis Politics For You
An experienced corporate litigator having worked in both the private and government sectors, Attorney Robyn Ranke has taken a modern business approach to the cannabis industry and in working with cannabis business startups. Throughout her legal career, Robyn has represented a diverse base of business clientele in a variety of industries involving both complex and novel legal matters. Her diverse experience as a business litigator provides a valuable legal platform from which she is uniquely postured to address the regulatory hurdles, costly pitfalls, unique business transactions, and business litigation risks that confront California cannabis business owners today and into the future as state regulations continue to evolve.
Member Blog: Tackling Oregon’s Cannabis Oversupply Problem
When Oregon’s recreational marijuana program launched in 2016, the state chose not to limit the number of cultivation licenses that would be awarded. It also opted not to limit the amount of cannabis that each licensed cultivator could grow. Over the first 12 months of adult-use sales, the state issued licenses and expanded the industry.
Things were going fairly smoothly until the 2017 cannabis harvest brought in more than 1 million pounds of cannabis. For a state with just 4.1 million residents who purchased one-third of that amount in 2016, it became clear quite quickly that Oregon’s cultivators had grown more cannabis than the state’s retailers could sell. As a result, prices for legal marijuana dropped.
Unfortunately, the state didn’t learn from its mistake and the 2018 harvest brought 5% more cannabis than what was harvested in 2017. An even bigger surplus caused prices to plummet further, and many licensed growers were forced to go out of business or sell their licenses to larger companies with deeper pockets at extremely deep discounts. Those big companies could withstand price drops while smaller licensees cannot.
One of the biggest problems Oregon faces as a result of its cannabis oversupply problem is exactly the opposite of what its lawmakers wanted to happen when the recreational marijuana program was developed – many growers returned to the black market where they could still sell cannabis for a profit.
Possible Solutions to Cannabis Oversupply
As prices continued to fall and the cannabis oversupply problem continued to grow, suggested solutions came from multiple sources. Three options rose to the top as the most commonly cited. First, Oregon could cap the number of cultivation licenses it granted. With a large number of applications waiting to be reviewed and licenses to be granted, the problem with growing too much marijuana was poised to get even worse.
Both Washington and Colorado had some success solving their cannabis oversupply problems when they stopped awarding new licenses. In 2017, Washington had a 60% larger supply of cannabis than it did in 2017, which caused marijuana prices to fall in 2018. Business owners were very vocal about the need for changes to the state’s canopy limits and cultivation facility sizes. The state decided to stop issuing new cultivator licenses to solve the problem.
As the graph from the Cannabiz Media License Database shows, the number of active cultivation licenses in both Washington and Colorado varied by only 1% between January 1, 2018 and December 31, 2018. Contrast that to Oregon where the number of licenses grew by more than 26% during the same time period.
The Oregon Liquor Control Commission (OLCC) argues that only the state’s legislature can create a cap on the number of licenses issued in Oregon, but it did stop reviewing applications and issuing licenses in June 2018. While the OLCC claims the reason is because it had a large backlog of applications, it can also be assumed that the moratorium on issuing new licenses would help to quell the surging supply of cannabis in the state.
The second possible solution to the cannabis oversupply problem in Oregon is to reduce the canopy size for each license. In April 2018, Oregon modified cultivation licensing rules so new cultivators would have more limited canopy space for immature plants than existing cultivators.
The third suggested solution is to do nothing and let the market adjust and correct itself. For the most part, this appears to be the approach that Oregon is taking. While it did implement a rule in 2018 that required cultivators to notify the state of their harvests, which could bring an inspector to verify that the cultivator is adhering to cultivation rules, the state’s cultivators are still in a wait-and-see situation.
What’s Next in Oregon?
The OLCC has been doing research related to its oversupply problem and is expected to present its findings to the Oregon legislature this year. Many people assume placing caps on cultivation licenses will be on the table during those discussions.
In the near future, Oregon’s lawmakers will need to develop a strategy to deal with the oversupply problem, and it will likely include a combination of the suggested solutions. For example, a license or canopy cap and improving accessibility to marijuana products combined with allowing some consolidation to happen in the market should help to curb the oversupply problem.
Susan Gunelius, Lead Analyst for Cannabiz Media and author of Marijuana Licensing Reference Guide: 2017 Edition, is also President & CEO of KeySplash Creative, Inc., a marketing communications company offering, copywriting, content marketing, email marketing, social media marketing, and strategic branding services. She spent the first half of her 25-year career directing marketing programs for AT&T and HSBC. Today, her clients include household brands like Citigroup, Cox Communications, Intuit, and more as well as small businesses around the world. Susan has written 11 marketing-related books, including the highly popular Content Marketing for Dummies, 30-Minute Social Media Marketing, Kick-ass Copywriting in 10 Easy Steps, The Ultimate Guide to Email Marketing, and she is a popular marketing and branding keynote speaker. She is also a Certified Career Coach and Founder and Editor in Chief of Women on Business, an award-winning blog for business women. Susan holds a B.S. in marketing and an M.B.A in management and strategy.
As 2018 came to an end, the FINAL proposed text of the permanent regulations for California cannabis were submitted to the Office of Administrative Law (OAL) by the three regulatory agencies – the California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and the Bureau of Cannabis Control (BCC). The cannabis regulations submitted to the OAL are currently undergoing a 30-day administrative review to ensure alignment with MAUCRSA and statutory requirements. These “final’ regulations shall become effective immediately upon approval/adoption which should be on/before January 16th 2019.
What “final” means in this evolutionary process of California cannabis regulations is debatable, as there are already several Assembly and Senate bills queued up to be put through the legislative tango and all three of the regulatory agencies have indicated that there will be further clean-ups and clarifications of the “permanent” regulations. Although there will assuredly be changes ahead, this is a highlight reel of where California Cannabis stands now.
For those that dug into the October redrafts, much of the substantial changes that occurred in that version carried over into the final proposed text. Here we will highlight the top eight changes impacting cannabis businesses in California.
The Final Statement of Reasons from the BCC, which also included responses to pertinent comments received during the previous 15- and 45-day comment periods, is where some greater clarity about the regulatory changes and intents can be found. It is by spelunking into these deeper caverns of reasoning where the sweet ore of further clarity can sometimes be extracted.
Here are 8 highlights for anyone interested in California cannabis.
1. Ownership and Financially Interested Parties
In October we saw the expansion of the definition of ownership and financially interested parties that clearly sought to capture the identification of any and all warm bodies that stand to direct, control, or financially benefit from commercial cannabis. While there were some changes in sections §5003 and §5004 between the previous and current version, the scope and intent remained the same. One particularly vague line §5003.b.6.D “Any individual who assumes responsibility for the license.” was removed from the BCC’s definition of owner, this very line turned up over the in the CDPH’s update in §40102.a.4.D.
The Ownership and Financially Interested Parties disclosures dovetail into the White Labeling issues (See #2) in that “Brand Owners” that may be licensing IP to contract manufacturers have been impacted by the prohibition on non-licensees conducting commercial cannabis business with licensees. In the response to comments in the FSOR was this gem of insight, “In response to commenter’s questions, if a licensee includes as one of their owners a brand-owner, the licensee can produce the branded products because in this case the licensee is not engaged in commercial cannabis activity on behalf of an unlicensed person. Because the owner of the brand is an owner of the licensee, there is no unlicensed person involved.” Of course, before everyone runs off and adds brand-owners as owners of their contract manufacturing business, let’s take a moment to reflect on the value and critical importance of a well-drafted contract.
2. §5032 (b) The So-Called “White Label Prohibition”
5032.b shall go down in infamy as one of the more talked-about sections of the BCC’s regulations. This simple sentence, “Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person that is not licensed under the Act,” brought with it a level of confusion and white-hot panic regarding the inferred white label prohibition contained therein. October’s version had more explanatory examples for the types of “on behalf of, at the request of, or pursuant to” activities that the BCC was talking about, such as, “procuring or purchasing cannabis goods from a licensed cultivator or licensed manufacturer. Manufacturing cannabis goods according to the specifications of a non-licensee, Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee, Distributing cannabis goods for a non-licensee.” This language was removed in the final version submitted to the OAL and is one of the examples of where the FSOR is enlightening.
From the BCC’s FSOR: “Initially, the Bureau determined that it was necessary to assist licensees with determining what types of activities may or may not be allowed under the Act and its implementing regulations. The initial proposed change identified certain transactions that would generally be considered commercial cannabis activities under the Act. However, the Bureau has determined that inclusion of the clarifying example transactions is causing more confusion. Accordingly, the Bureau has decided not to move forward with the proposed changes which identify examples of specific commercial cannabis transactions.” The definition of “commercial cannabis activities,” therefore, is an important one, and we can refresh ourselves on that one (Business and Professions Code §26001.k) “‘Commercial cannabis activity’ includes the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products as provided for in this division.”
This has been a hot, hot topic, and there have been some great analysis articles of this provision that dig further into solutions and scenarios related to this section. Get thee to Google and find out more!
3. Option to label THC/CBD post-final testing by Distributor
This was a big win for the industry! A substantial percentage of testing failures for “label claims” are due to products, previously required to be labeled with THC/CBD content prior to final testing (the one test that counts!) not falling within the 10% allowable variance threshold. It’s common knowledge that the science of cannabinoid testing is still getting dialed in, and the labs have some serious challenges in hitting the same tiny target twice. Especially when they are dealing with the vast array of cannabis product matrices, and an industry that it still learning about important things such as homogenization. The good news is, the CDPH now allows products to be labeled for THC/CBD content after that all-important final test, which should eliminate well-upwards of 50% of the product failures in California and ensure a steadier supply chain.
4.Regulation of Technology Platforms
The cannabis industry has always been a place of innovation and loophole-finding. These regulations are an attempt to close some of those loopholes that seem to have created a situation where unlicensed tech platforms were enjoying the privileges of licensed commercial cannabis without undergoing the slings and arrows of local/state licensure and regulation. Seeing themselves outside of the regulatory purview, certain business claimed that agencies such as the BCC had no dominion over their activities. Well, they may have wanted to wait until the ink dried on the final regs before making such an assertion, as now it seems the BCC has expanded its reach to embrace all kinds of advertising, facilitating, and delivery platforms.
5. Delivery to a Physical Address
This was (potentially) a huge win for patient access, however, it remains to be seen how this truly shakes out. When the BCC added the line that “a delivery employee may deliver to any jurisdiction within the State of California” it caused some serious outrage from municipalities that have banned commercial cannabis activity, the League of Cities, law enforcement, and others that saw this as a huge overstepping of the local authority ensured by Prop 64 and MAUCRSA. The LOC even launched a “wandering weed” campaign, in response to which it seems that a subsection that includes “a restriction on delivering cannabis goods to a school providing instruction in kindergarten or any grades 1 through 12, day care center, or youth center” was added to the regulations, for clarity. Whether the OAL will approve as is, and how this interacts with local bans, tax requirements, and law enforcement, and lawsuits… stay tuned! While the BPC (§26090.e & 26080.b) explicitly prohibits a local jurisdiction from preventing delivery, and transportation, of cannabis goods on public roads, it does not prevent localities that have banned commercial cannabis in their area from adopting ludicrous tax rates for deliveries that would in effect ban via taxation delivery in their area.
6. Sale of Non-Cannabis Goods (aka No Hemp)
While the seeming victory of the Farm Bill has folks leaping with joy for the future of hemp, statements from the FDA and other agencies have certainly rained on the parade of many a CBD vendor. Add to that the collections of California cannabis regulations that in effect eliminate hemp-derived CBD from cannabis dispensaries and products.
“In addition to cannabis goods, a licensed retailer may sell only cannabis accessories and any licensee’s branded merchandise.” (BCC §5407)
This limitation for retail (and retail delivery) is further clarified in the BCC’s FSOR in their responses to comments:
“Cannabis retailers are licensed to sell cannabis goods. The definition of cannabis within the Act explicitly excludes industrial hemp products. Industrial hemp is regulated by the California Industrial Hemp Program under the California Industrial Hemp Farming Act.”
“A retail license from the Bureau authorizes the retailer to sell cannabis goods and cannabis accessories. A retail license from the Bureau does not authorize licensees to sell items that are unrelated to cannabis.”
Combined with the retail prohibition on non-cannabis products, this trifecta from the CDPH extends that prohibition to manufacturers:
“A manufacturer licensee shall only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator.” (CDPH §40175.c)
“Except for cannabis, cannabis concentrate, or terpenes, no product ingredient or component shall be used in the manufacture of an edible cannabis product unless that ingredient or component is permitted by the United States Food and Drug Administration for use in food or food manufacturing, as specified in Everything Added to Food in the United States, or is Generally Recognized as Safe (GRAS) under sections 201(s) and 409 of the Federal Food, Drug, and Cosmetic Act.” (CDPH §40305.a)iii. “Except for cannabis, cannabis concentrate, or terpenes, topical cannabis products shall only contain ingredients permitted for cosmetic manufacturing in accordance with Title 21, Code of Federal Regulations, Part 700, subpart B (section 700.11 et seq.) (Rev. March 2016), which is hereby incorporated by reference.” (CDPH §40306.a)
For now, it seems, non-cannabis derived CBD is DOA in CA.
7. Child Resistant Packaging (CRP) Requirement
Heads continue to spin (and cannabis business’ cash to hemorrhage) in response to the changes in the packaging requirements. As of July 1, 2018, all cannabis products were to be in child-resistant packaging, and retailers had converted back to the statutory requirement that all exit packaging was to be “opaque,” allowing them to use reusable totes and paper bags to satisfy this requirement. In the October regs, we saw a pivot that allowed for a seeming “grace period” for the child-resistant requirement to return to being able to be satisfied by the retail via CR exit bag. Some confusion remained as to whether products that were already IN child-resistant packaging would have to be put INSIDE of child-resistant packaging for the next year. The addition of the statement from the CDPH, “Until the date specified [1/1/20] the child-resistant package requirement [§26120] may be met through the use of a child-resistant exit package at retail sale.” (CDPH §40417.d) suggests that the significant ecological impact of CR packaging within CR packaging MAY be avoided, however, most legal counsel will probably be advising retail clients to use the CR exit bag to avoid potential liabilities. Viva Kafka!
In the CDPH’s Statement of Reasons, they said “This is necessary to comply with the packaging requirements in Business and Professions Code section 26120 while providing licensees with time to comply with packaging requirements.” Compliant operators were left somewhat confused, as they had been required to comply with these packaging requirements since July!
8. OSHA Training for Everyone!
All three regulatory agencies added the following requirement for OSHA training:
“For an applicant with more than one employee, the applicant shall attest that the applicant employs, or will employ within one year of receiving a license, one supervisor and one employee who have successfully completed a Cal-OSHA 30-hour general industry outreach course offered by a training provider that is authorized by an OSHA Training Institute Education Center to provide the course.”
This will be an additional training requirement, on top of existing state and local training requirements for cannabis operators. And remember, all that training documentation must be kept, like all other records, for seven years!
As with everything in life, more will be revealed as we get deeper into 2019.
Juli Crockett is a member of the NCIA’s State Regulations Committee and is Director of Compliance at MMLG. Slides from Juli’s recent Workshop on this topic are available for download here. You can also watch the workshop video in its entirety on MMLG’s Facebook page.
The 116th Congress – What To Expect
by Michelle Rutter, NCIA Government Relations Manager
As the 116th Congress begins, the momentum behind cannabis reform has reached an unprecedented level. Let’s take a look at the top three things you can expect from cannabis legislation in the newest congressional session:
Successes in the House of Representatives, but an uphill climb in the Senate. The 116th Congress is the first time in eight years that Democrats have held control of the House of Representatives. As a result, it is expected that cannabis legislation will garner hearings, appropriations amendments will be expanded, and a bill could even be reach the Floor and be voted on! That being said, it’s important to remember that the Senate is still controlled by the more conservative Republican battle, and any cannabis amendments or legislation that reaches that chamber will have a very serious uphill battle prior to passage.
More cosponsors. In the 115th Congress, the House’s SAFE Banking Act (H.R. 2215) had a record breaking 95 cosponsors, while the Senate version (S. 1152) had 20. That’s nearly a quarter of the House of Representatives and a fifth of the entire Senate! Bills to reform IRC Section 280E saw a similar spike– at the end of 2016, the House’s Small Business Tax Equity Act had a mere 18 cosponsors, while the Senate version had four. At the end of December, the Small Business Tax Equity Act (H.R. 1810) has 46 cosponsors, while the Senate’s version (S. 777) has six. In the 116th Congress, you can expect these bills and others to continue to gather record-breaking numbers of cosponsors- in both the House and Senate.
New bills. There are cannabis bills that are introduced every session, like the banking bill, 280E bill, and various pieces of states’ rights legislation. In the 115th Congress, advocates saw multiple new cannabis bills get introduced, like the Marijuana Data Collection Act, the Marijuana Justice Act, and the MAPLE Act. As the 116th Congress continues, you can expect almost all of the cannabis related bills from last session to get reintroduced, but will likely also see a plethora of new legislation be filed that will address many different issues.
While the opportunities for cannabis reform are numerous, one thing is for sure: the 116th Congress will be one for the history books.
Join us on May 21-23, 2019 for NCIA’s 9th Annual Cannabis Industry Lobby Days in Washington, D.C., to make our voices heard on Capitol Hill! This event is complimentary and exclusive to NCIA members. Registration opens February 11.
Member Blog: News Flash – Quirky Cannabis Regulations Unchecked
California Bureau of Cannabis Control (BCC) Proposed Final Regulations:
There are some quirky cannabis regulations seldom discussed by industry professionals which have a hidden impact on your business operations. Most business owners are, as they should be, preoccupied with the more prevalent draconian-styled regulations, like license fees, taxation, and testing.
Obviously the state has public safety concerns with the legalization of marijuana, but has the state overreached in its mission to craft “robust regulations” for the industry. Upon review of 142 pages of proposed regulations, we opted to shine light on what we consider to be quirky cannabis provisions that have gone unnoticed by cannabis business owners. Some are laughable, others insulting; and as to the remainder, the state’s regulation of your cannabis business simply never ends.
The California Bureau of Cannabis Control BCC proposed final cannabis regulations are currently under review of California Office of Administrative Law AOL to complete the rulemaking process. After considering the following, one might ask, what exactly were the rule-makers thinking when they wrote these provisions?
California Quirky Cannabis Regulations
No. 1No Naked Employees
5806 Attire and Conduct
No licensee shall employ or use the services of any “host or other person to mingle with the patrons” … “in the sale or service of cannabis goods in or upon the licensed premises while such person is unclothed or in such attire, costume, or clothing as to expose to view any portion of the male or female breast below the top of the areola or of any portion of the pubic hair, anus, cleft of the buttocks, vulva, or genitals.” Nor shall the licensee encourage or permit any person “to touch, caress, or fondle the breasts, buttocks, anus, or genitals of any other person.”
– Cannabis Strip Club?
No. 2Beware Of Fake Buyers
5805 Minor Decoys
“Peace officers may use a person under 21 years of age to attempt to purchase cannabis goods, for the purposes of enforcing the Act, and to apprehend licensees, employees, or agents of licensees who sell cannabis goods to minors.”
– Entrapment?
No. 3Your Coffee Cup Is Regulated
5041.1 Branded Merchandise Approval
If a licensed distributor, retailer, or microbusiness “wishes to sell branded merchandise” – goods other than cannabis such as clothing, hats, pencils, pens, keychains, mugs, water bottles, beverage glasses, notepads, lanyards, cannabis accessories – “the licensee must receive written approval from the Bureau.”
To obtain a approval, the licensee must submit a written request and provide a photograph to the Bureau. Notably, there appears a discrepancy in the language of the regulation 5041.1 as to whether or not approval is required for all items listed in §5000(b) definition of “branded merchandise.”
Is this kindergarten?
No. 4$500 State Fee To Modify Your Reception Area
5014 Licensing Fees
An application and licensing fee of $500 is charged for “Physical Modification of Premises.”
Alterations or modifications to the premises include, but are not limited to: “the removal, creation, or relocation of a wall or barrier; or changing the activities conducted in or the use of an area identified in the last premises diagram provided to the Bureau.”
Hidden fee for commercial lease space improvements?
No. 5Cannabis Goods Intended For Disposal Must First Be Destroyed On The Premises Except Vape Cartridges Filled With Cannabis Oil
5054 Destruction of Cannabis Goods Prior To Disposal
Cannabis goods intended for disposal must remain on the licensed premises until destroyed into cannabis waste. The licensee must restrict access to the cannabis goods intended for disposal, store the disposal goods separate from the other goods, and first destroy the goods “on the licensed premises.” This includes separating the cannabis goods from any packaging, or container rendering it “unrecognizable and unusable.”
However, the licensee is not required to empty vape cartridges of cannabis oil prior to disposal, “provided that the vape cartridge itself is unrecognizable and unusable at the time of disposal.”
Statutory rhetoric?
No. 6 You Get One Chance, With One Lab, To Test Your Cannabis
5305.1 Re-sampling
Once a cannabis sample has been obtained for testing by the laboratory employee – which sampling must be “video recorded with the batch number stated verbally or in writing on the video at the beginning of the video and a visible time and date indication on the video recording footage” (§5305) – a licensed distributor may not have another licensed testing laboratory sample or re-sample the same batch for regulatory compliance testing without the Bureau’s blessings, e.g. you must first making a written request to, and obtain, the Bureau’s written approval to re-sample the same batch (§5705(g).)
Unnecessary barrier to quality control leading to heightened chance for product recall?
No. 7 Unfettered Discretion To Audit Your Business 24/7 Without Notice
5037 Record Retention
Licensees shall keep and maintain all business records related to commercial cannabis activity for at least 7 years to and including (a)(9) “all other documents prepared or executed by an owner or their employees or assignees in connection with the licensed commercial cannabis business.”
(d) All records are subject to review by the Bureau anytime . . . . Prior notice by the Bureau to review records is not necessary. The Bureau may review records outside of the licensee’s standard daily business hours.”
– Something Unconstitutional About This, Right?
No. 8 Ultimate Veto Power Over Renewal Of Your Retail License
5019 Excessive Concentration
Even if you satisfy all licensing regulatory requirements on both the local and state levels – the Bureau maintains the exclusive discretion to deny you a license and/or deny renewal of your license if the Bureau determines that (a) “an excessive concentration exists in the [geographical] area” where you operate.
Excessive concentration applies when either of the following conditions exist: “(1) the ratio of licensees to population within the census tract or census division in which the applicant premises is located exceeds the ratio of licensees to population in the county in which the applicant premises is located . . . . (2) The ratio of retail licenses or microbusiness licenses to the population within the census tract, census division, or jurisdiction exceeds that allowable by local ordinance . . . .”
Should the Bureau deny your license on this basis, the burden is on the you, the applicant licensee, to (f) “provide reliable evidence establishing, to the satisfaction of the Bureau, that a denial of a license would unduly limit the development of the legal market so as to perpetuate the illegal market for cannabis goods.”
Unreasonable evidentiary burden and extraordinary cost on applicant licensee to conduct an economic field study on an illegal market that is, in effect, a legal impossibility to achieve under any circumstances.
The list goes on. While the California BCC has clearly satisfied its commitment to promulgate “robust state regulations” for the industry, one wonders about the state’s definition of robust.
An experienced corporate litigator having worked in both the private and government sectors, Attorney Robyn Ranke has taken a modern business approach to the cannabis industry and in working with cannabis business startups. Throughout her legal career, Robyn has represented a diverse base of business clientele in a variety of industries involving both complex and novel legal matters. Her diverse experience as a business litigator provides a valuable legal platform from which she is uniquely postured to address the regulatory hurdles, costly pitfalls, unique business transactions, and business litigation risks that confront California cannabis business owners today and into the future as state regulations continue to evolve.
Member Blog: Hiring New Budtenders – Keep Your Eyes Out For These Red Flags
The success of your dispensary relies on many things – your location, the quality of the products you sell, and the people who work for you. While it might seem as if you can put just about anyone behind the counter and have them ring up transactions, the art of being a budtender is a completely different animal. Managers and owners who are in the position of needing to replace or expand their current staffing may not fully realize how their employees can make or break their business, so let’s go through a few important considerations.
It goes without saying that anyone can end up unintentionally hiring someone they shouldn’t have, so if any of the following scenarios have happened to you, don’t feel bad. This information can help in many types of businesses and will specifically save you a headache if you work in the cannabis industry.
Cannabis Knowledge
On-the-job training is certainly something that every dispensary manager should provide, as it’s impossible for someone to walk right in and run the show on their very first day. However, it’s another situation entirely if your new hire doesn’t know the first thing about cannabis. Not only is a basic understanding required pertaining to strains, methods of consumption, and weed culture in general, but if they bring knowledge to the table that impresses you, they’re a keeper.
Anyone who can’t answer simple questions about cannabis or CBD may not be the best choice for your operation unless you have the time and patience to teach someone from the ground up. Ultimately you want your customers to feel as if they’re consulting with experts, not the other way around.
Don’t Neglect Background Checks
This tip can take a two-fold approach, as the person you end up hiring is going to be trusted with access to tons of product, money, and maybe even the store keys someday. Reference checks are a must in today’s day and age, so if they don’t readily have people available for you to chat with, you may want to dig a little deeper.
Aside from simply calling previous employers, it doesn’t hurt to run a full background check on your potential new employee. You never know if people are representing themselves truthfully and it’s always better to be safe than sorry. Again, if your prospect is uncomfortable with this idea, you don’t simply want to brush it off and continue hiring them anyway. That’s not to say that you should instantly dismiss them either as some people have a criminal record they are embarrassed by but have changed.
Common Sense And Intuition
When it comes down to it, working as a budtender does require a specific set of skills but in general isn’t that much different than many other professional retail occupations. Take some time to consider everything a person brings to the table, listen to your gut, and above all else, let common sense guide you. If something doesn’t feel right about your new hire, pay attention to that notion or else it could cost you your business.
Courtney Elder is a cannabis and CBD expert. She’s a mother of 2 from Portland, Oregon and has done countless hours of research around both cannabis and CBD benefits. She’s written for some of the industries top authority sites and is the lead content creator at CBD Nerds.
VIDEO: NCIA Policy Webinar – Looking Ahead to 2019
As 2018 comes to a close, it’s a great time to sit down and reflect on the successes and challenges of 2018 for cannabis reform. We’re excited to present to you the first installment of our new quarterly Policy Webinar Series with NCIA’s Director of Government Relations Michael Correia, and Policy Council Chair Steve Fox. Watch the webinar and learn more about the successes our industry has had on Capitol Hill this year, the challenges that may be in store in 2019, and what you can do to take action.
Member Blog: Tax Court Decision for Harborside Health Center
The Tax Court’s recent decision in Harborside Health Center v. Commissioner is more bad news for the cannabis business community. The taxpayer, a prominent California dispensary, was assessed approximately an additional $30 million in tax by the IRS for the years 2007 to 2012, years in which Harborside had total revenue of approximately $102 million. Harborside lost, so it will have to pay that amount plus also pay another 20% of the tax owed in accuracy-related penalties – the Tax Court did not decide the penalty issue and left it for a later opinion. At this point, Harborside can either pay the tax (plus possibly penalties) or appeal to the Ninth Circuit Court of Appeals.
GROUNDS OF THE DECISION
The court decided against Harborside on every single argument made by its counsel. Three of the issues are straightforward:
The doctrine of res judicata didn’t apply, so the fact that a civil forfeiture case against Harborside had been dismissed with prejudice did not prevent the IRS from assessing a tax liability.
The language in Section 280E of the Tax Code that deductions are disallowed to a trade or business that “consists of trafficking in controlled substances” applies to businesses that have more than the one activity of trafficking. Harborside argued that “consists of” means the business must ONLY be trafficking for the disallowance to apply, and the Tax Court rejected that interpretation.
Harborside had only one trade or business so it could not deduct any expenses related to a separate trade or business. The taxpayer had argued it had multiple lines of business, but the opinion held that Harborside didn’t make significant profits from any of the other claimed lines of business so there was only one business.
MOST IMPORTANT CONSEQUENCE OF DECISION
The holding in the case that has the widest applicability to the cannabis community regards what Harborside may include in its cost of goods sold. The increase in tax owed by Harborside mostly comes from reclassifying expenses from cost of goods sold to ordinary business expenses and then denying deductions for those expenses under Tax Code Section 280E.
The taxpayer argued that the broader cost of goods sold rules under Code Section 263A applied in addition to the earlier (and narrower) definition of cost of goods sold under Section 471 However, the Tax Court endorsed the reasoning in IRS Chief Counsel Advice Memorandum 201504011 (2015) regarding the interaction of Section 263A and Section 471 with respect to cannabis-related cost of goods sold calculations. It is the IRS view that a clause of Section 263A prevents allocating indirect cannabis-related costs into cost of goods sold because the deduction for those costs would be denied under Section 280E.
Harborside contended that the Sixteenth Amendment to the Constitution compels using Section 263A rules in addition to the Section 471 cost of goods sold rules. The Tax Court was very dismissive of the argument, pointing out that “Section 471 wasn’t found unconstitutional during the many decades when it was the only means of calculating COGS [cost of goods sold], and it wouldn’t be unconstitutional now if Congress repealed Section 263A.”
It is also worth noting that the Tax Court held that Harborside was a reseller, not a producer, and that producers are subject to a different set of regulations under Section 471 that allow additional expenses to be included in cost of goods sold.
WHAT NOW?
Harborside is important because it is the first Tax Court case to squarely address the interaction between Sections 263A and 471 in the context of a cannabis business. However, there are other courts that can hear federal tax cases besides the Tax Court, and there are other arguments that can be made besides the one made by taxpayer’s counsel (even in Tax Court). While the best option for relief for cannabis taxpayers is to change the law, even if the law is changed, there will still be years of audits under the current law, so the questions raised by the Harborside decision will continue to be litigated. For further discussion, please see our blog on our website.
James B. Mann is a partner with the Tax practice group of Greenspoon Marder LLP. Mr. Mann has over 25 years of experience serving as a trusted advisor to a broad range of stakeholders in the energy and financial services industries. He counsels clients on the new changes in the tax law, as well as cannabis tax issues and cannabis tax controversy proceedings. Mr. Mann has a law degree from Harvard Law School and an MBA from Columbia University.
Rachel Gillette is among the first attorneys in the nation to dedicate her practice to the cannabis industry. Since 2010, Ms. Gillette has helped marijuana/cannabis businesses with licensing and regulatory compliance, business law and transactions, contract drafting and review, tax litigation, corporate formation, and tax matters, including audit representation. She works with startups and entrepreneurs, investors, and ancillary industry businesses to help develop the cannabis innovation ecosystem, and is a zealous advocate for the industry.
Ms. Gillette regularly represents clients before the IRS’s Examinations, Appeals, and Collections Divisions, including marijuana businesses facing the challenges of IRS adjustments under 280E. She has successfully protested local, state and federal tax deficiencies on behalf of her clients, having prevented hundreds of thousands of dollars in incorrectly assessed taxes, interest, and penalties. She can assist individual and business taxpayers in 280E proposed assessments, offers in compromise, audit examinations, innocent spouse claims, sales, use, and employment tax matters, trust fund tax penalty assessments, penalty abatement’s, and levy releases.
For several years, Ms. Gillette was the executive director of the Colorado state chapter of NORML, the National Organization to Reform Marijuana Laws. She was a founding member of Women Grow and the National Cannabis Bar Association. She an advocate as well as an attorney, and is committed to helping change laws – and perceptions – relating to cannabis and ensuring state licensed and legal marijuana businesses are fairly taxed and regulated.
Ms. Gillette received her Juris Doctorate from the Quinnipiac University School of Law in Hamden, Connecticut, where she served as Associate Editor of the Quinnipiac University Probate Law Journal. During law school, she interned with the New Haven Public Defender’s office, where she developed her commitment to advocacy for those facing the many challenges of the criminal justice system.
The 2018 Farm Bill and the Return of Hemp to American Farms
by Michelle Rutter, NCIA Government Relations Manager
HISTORY
Farming and agriculture has long been a part of North American history. When the Great Depression hit in the 1930’s, both President Franklin Delano Roosevelt and Congress knew that the United States would struggle until the agriculture industry became prosperous again. As a result, many New Deal programs dealt with farming, but arguably the most notable agriculture related legislation was the Agricultural Adjustment Act of 1938, which was the first version of what we know today as simply the “Farm Bill” that is updated roughly every five years.
TODAY
Now, for the first time since the end of World War II, states are slated to soon be able to create federally legal hemp programs under the 2018 Farm Bill, which President Trump is expected to sign into law any day. The bipartisan legislation, which passed overwhelmingly in the Senate and House last week, would allow states to submit plans created by their respective Secretaries of Agriculture in coordination with their governors and chief law enforcement officers to the Department of Agriculture to grow and process hemp and hemp-derived products.
SEED TO SALE
As the law is written, state applications would need to include methods for tracking land used for hemp production and audit producers to make sure that the hemp they are growing contains less than 0.3% THC. Programs would also need to be approved by the Secretary of Agriculture, Sonny Perdue, in consultation with the Attorney General within 60 days of being submitted. Additionally, states would not be permitted to ban the transportation of hemp and hemp products through their jurisdictions, but production and sales would only be permitted in states with approved programs. The bill also contains a number of directives for research on hemp and hemp cultivation.
SCHEDULING
Hemp-derived cannabidiol (CBD) would be exempted from the Controlled Substances Act (CSA) in states with approved programs, but CBD will remain a Schedule 1 substance under the CSA and illegal at the federal level. The Farm Bill also does not impact the current Food & Drug Administration ban on CBD products or its ability to regulate the substance in the future.
INDUSTRY EMPLOYMENT
The law prevents anyone with a drug-related felony from working in legal state hemp industries, preventing many people who have been impacted by the unequal enforcement of cannabis prohibition from participating in the economic opportunities created by new programs. However, a late compromise led to the inclusion of a ten-year sunset period from either the date of conviction or the start of the state program, whichever is more recent.
THE FUTURE
Marijuana’s “cousin,” hemp, is generally barred because it is part of the cannabis plant, despite the fact that it contains very little of that drug’s key psychoactive ingredient, THC. In 2014, Majority Leader McConnell (R-KY) secured a hemp pilot program in that year’s farm bill. Since then, at least 35 states have taken up the offer and developed industrial hemp programs, and those states will be eligible to pursue a legal, regulated market when the bill is signed into law. The passage of this provision will surely bring about a new era for the agricultural industry, and the cannabis industry — when hemp returns to American farmlands.
Member Blog: 2018 Farm Bill – What Does This Mean For Hemp-Derived CBD?
For marijuana businesses, the 2018 Farm Bill is landmark legislation. Congress passed the Bill yesterday awaiting the President’s signature into law.
Transportation Of Hemp Across State Lines Allowed
Federal legalization of Hemp will be astounding for the cannabis industry nationwide. Drafted into 807 pages of law is Sec. 10113 [Hemp Production] and Sec. 10114 [Interstate Commerce] of Title X. Sec. 10113 adds “Hemp” to the list of “agriculture commodities” among other things. Sec. 10114(a) allows for “the interstate commerce of hemp or hemp products” and “the transportation or shipment of hemp or hemp products produced in accordance with [section 10113] . . . through the State or the territory of the Indian Tribe, as applicable.” [Sec. 10114(b)]
Hemp Means CBD
Federal Legislators defined “Hemp” as:
“[T]the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”
States May Regulate Hemp Production, But Not Interstate Commerce
The bill allows States and Indian Tribes to regulate Hemp and expressly provides for “No Preemption” of any law of a State or Indian tribe that “regulates the production of hemp” and is “more stringent” than federal law [Sec. 10113.]
However, Federal lawmakers went on to expressly provide for interstate commerce of Hemp and Hemp products [Sec. 10114] – the express language of the bill further states that “No State or Indian Tribe shall prohibit the transportation or shipment of hemp or hemp products produced in accordance with [Sec. 10113.]”
While the Federal government occupies the field of interstate commerce under any circumstances, it will be interesting to see what happens in light of existing state cannabis regulations which make illegal the transport of marijuana across state lines.
Either way, when the President signs this landmark legislation into law, the entire cannabis industry, and commerce alike, will finally have breathing room. For marijuana businesses, hemp would be fully legal according to the Federal Government. Every barrier to entry in banking, commercial real estate, intellectual property and everything in between will lift – advancing the industry one monumental step further to social acceptance of marijuana as simply a commodity just like any other commodity – like cabbage perhaps.
If you would like a highlighted copy of the legislative text for the hemp sections under the 2018 Farm Bill, contact Eskaton Law.
An experienced corporate litigator having worked in both the private and government sectors, Attorney Robyn Ranke has taken a modern business approach to the cannabis industry and in working with cannabis business startups. Throughout her legal career, Robyn has represented a diverse base of business clientele in a variety of industries involving both complex and novel legal matters. Her diverse experience as a business litigator provides a valuable legal platform from which she is uniquely postured to address the regulatory hurdles, costly pitfalls, unique business transactions, and business litigation risks that confront California cannabis business owners today and into the future as state regulations continue to evolve.
Member Blog: Hemp & CBD Legalization, Regulation & Compliance – Key Language in the Farm Bill
Few developments in the world of cannabis — whether marijuana or hemp — could match the impact of the 2014 Farm Bill. But the 2018 Farm Bill, approved by the House and the Senate this week, promises to do just that.
As a quick reminder, the 2014 Farm Bill created an exception to the federal laws that prohibit the cultivation and sale of cannabis. To simplify, to the extent that a state created a pilot program to study hemp cultivation and the plants were of a sufficiently low level of THC, the resulting plant would be considered “Farm Bill hemp” and not subject to the prevailing federal prohibitions. To state the obvious, this was a very significant change. In fact, as a result of a combination of the magnitude of the change and the narrowness of the exception, apparent confusion led to periodic enforcement actions and court challenges.
As 2018 draws to a close, Congress must once again reauthorize the Farm Bill. It’s worth noting that the periodic reauthorization has nothing to do with hemp policy, and everything to do with the federal legislative process.
And the relatively narrow “exception” for hemp in the 2014 Farm Bill is on the cusp of significant expansion. Hemp, defined as cannabis plants and all their parts, extracts, “cannabinoids,” and derivatives with a THC concentration of less than 0.3%, will be subject to a regulatory scheme devised by the federal Department of Agriculture and will be removed from the federal Controlled Substances Act. States that wish to regulate hemp may propose regulations that the state “shall submit to the Secretary” of Agriculture. Notably, no state “shall prohibit the transportation or shipment of hemp or hemp products” produced in compliance with these new rules.
So, inquiring minds might wonder, what happens if 2018 Farm Bill hemp turns out to have a THC concentration of 0.31% instead of the permissible 0.3%? To the extent that higher THC concentration is the result of an honest mistake, Section 297B(e)(2) provides the answer: if the state has developed hemp regulations, and the state concludes the violation was the result of “negligence” (e.g., an unintentional oversight), the producer will be required to take corrective action. If that happens 3 times in a 5-year period, the producer will be ineligible to produce. If the state has not developed hemp regulations, the same standard will be applied by the federal Secretary of Agriculture pursuant to Section 297C(c)(2).
That is, a “negligent” mistake should not place the cultivator at risk of being placed outside of the protections of the Farm Bill (discussion of the reach of those federal laws is fascinating, but beyond the scope of this post). As a result, it will remain advisable for hemp cultivators to implement sufficient compliance efforts to avoid any potential inference that they are intentionally seeking a higher THC concentration.
Barring the unexpected, the 2018 Farm Bill will have a seismic impact on the hemp and hemp-derived CBD industry. With the nation watching, a smooth, well-regulated transition can only help to bolster calls for broader cannabis reform. As a result, once the 2018 Farm Bill becomes law, the industry will undoubtedly be paying close attention to the regulations promulgated by federal and state hemp regulators. And they will be working hard to demonstrate that they are staying within those guidelines.
Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, a leading regulatory advisor to the adult-use cannabis industry that helps businesses understand the latest rules and build effective compliance infrastructure to address risk. He is the Vice Chair of the NCIA’s State Regulations Committee, and publishes and speaks frequently on cannabis regulation.
He is a graduate of Harvard College and Harvard Law School, and previously served as General Counsel of MHW, Ltd. and in the litigation department of Cravath, Swaine & Moore LLP. He began his legal career as a law clerk on the U.S. Court of Appeals for the Fifth Circuit. He can be reached at mcooper@madisonjaysolutions.com.
Top Five Memorable Marijuana Moments In 2018
by Michelle Rutter, NCIA Government Relations Manager
As 2018 draws to a close, our Government Relations team in Washington, D.C. is feeling especially thankful this year – both for all of our members, and for all of the strides forward that cannabis policy made this year! Before 2019 begins, let’s take a look back on marijuana’s top five most memorable moments of 2018:
Cannabis wins big at the ballot box
There’s no doubt about it: America experienced a green wave on election night as voters all over the country cast their votes in favor of reforming cannabis laws and electing candidates that share those values. Voters in Michigan cast their votes for the legalization of adult-use cannabis, increasing momentum of our movement. At the same time, voters in Missouri and Utah were successful in legalizing medical cannabis, becoming the 32nd and 33rd states to do so, and despite significant hurdles. In addition to the ballot initiatives that were passed, Democrats took control of the House of Representatives, while Republicans maintained their control of the Senate. While this development surely means that cannabis policy will progress further than ever in the House in 2019, it also means that anything passed through that chamber will face significant hurdles in the more conservative Senate.
Shake-up at the Department of Justice and the rescission of the Cole Memo
On January 4, then-Attorney General Jeff Sessions announced the Department of Justice’s decision to rescind the “Cole Memo” and two additional memos related to marijuana enforcement policy. These memos, issued in 2013 and 2014, helped to clarify the Department’s response to state-legal cannabis activity. The rescission of the memo has not resulted in any major change in enforcement policy, rather, this continues to be a matter of prosecutorial discretion. On November 6, the day after the midterm election, Jeff Sessions resigned as Attorney General at the President’s request.
Congressional banking and 280E bills gain record co-sponsorship
As the momentum for cannabis reform grows, so has the number of cosponsors on marijuana bills in Congress. Most notable is legislation that would provide safe harbor to financial institutions that choose to service the cannabis industry. At the end of the 114th Congress in 2016, the House’s Marijuana Businesses Access to Banking Act had 39 cosponsors, while the Senate version had just 10. As we finish the 115th Congress, the House’s SAFE Banking Act (H.R. 2215) has 95 cosponsors, while the Senate version (S. 1152) has 20. That’s nearly a quarter of the House of Representatives and a fifth of the entire Senate! Bills to reform IRC Section 280E have seen a similar spike. At the end of 2016, the House’s Small Business Tax Equity Act had a mere 18 cosponsors, while the Senate version had four. Today, the Small Business Tax Equity Act (H.R. 1810) has 46 cosponsors, while the Senate’s version (S. 777) has six.
Canada implements adult-use cannabis laws
In October, Canada’s laws making marijuana legal for adults went into effect and licensed retail stores opened throughout the country. This move made Canada the second country in the world, after Uruguay, to formally legalize the recreational use of the plant. Canada is the first G7 and G20 nation to do so. Federal prohibition has effectively locked American cannabis companies out of legitimate financial markets and, in doing so, has provided a significant advantage to publicly traded Canadian firms. Changes to federal law are needed to enable American small businesses to compete on the emerging multi-billion-dollar global cannabis market. Without legislative action, U.S. cannabis entrepreneurs will miss out on opportunities to develop innovative new products, attract global investment funding, and expand their reach to capitalize on expanding international business opportunities.
NCIA’s 8th Annual Cannabis Industry Lobby Days
This year, 225 cannabis industry professionals descended on Washington, D.C. to lobby congressional offices on some of the issues they and their businesses are facing. In total, NCIA members met with nearly 300 offices on Capitol Hill! The cannabis industry has seen exponential growth in the mainstream support for regulated cannabis markets from both sides of the political aisle. This progress is a direct result of the uncountable number of personal stories told by our members each year at our annual Lobby Days events in Washington, D.C., so don’t forget to mark your calendars for May 21-23, 2019, so that you can join us for our largest event yet!
The 116th Congress will arrive in Washington, D.C. in January. With the change in leadership in the House of Representatives and the momentum at our backs, 2019 is shaping up to be one of the cannabis industry’s best years yet. Our Government Relations team looks forward to all of the opportunities we will be faced with in the new year, and we wish you a very happy holiday season!
Allied Association Blog: Nevada County Cannabis Alliance Update
The Nevada County Cannabis Alliance is a trade association in California whose mission is to Advocate, Educate, and Connect. The Alliance advocates for reasonable local policies and a fair county ordinance. We believe in empowering community success through education, and connecting stakeholders with opportunities to participate and collaborate in the industry.
Nevada County has a renowned history of heritage cannabis cultivation that has played a crucial role in the community and economy over the past decades. Our community is well known for high quality, craft cannabis farming as well as for our unique quality of homesteading life. The Alliance seeks collaborations with organizations that value high quality, craft, California cannabis, grown by farmers with a unique history and story.
What issues are we working on?
Completing the comprehensive Environmental Impact Report necessary prior to the final completion of our local cannabis ordinance.
Providing essential education to the farmers throughout the regulatory transitions to assist with permitting and licensing.
Developing relationships with distributors and partners to bring our farmers to market.
Challenges
One challenge we face as a member based organization is maintaining and continuing to grow our membership numbers. The quintessential financial sustainability quagmire. Ever changing regulations and market uncertainty has caused reluctance from many small farmers. The Alliance works hard to reinvigorate and provide hope throughout the local cannabis community, but the reality is that there has been a decline in membership. Maintaining and continuing to grow our membership numbers, business sponsorships and financial stability is a constant need in order to continue working for a thriving cannabis industry for our region.
Another challenge is connecting our small- batch (10,000 sq ft farmers) into the supply chain with distributors who are interested in craft product.
What’s happening that’s important?
Ensuring that permitted local farms have access to the market via various distribution channels.
Decreasing barriers to entry for farmers within our local policy and ordinances. For example, local farmers are restricted to holding only 3 cultivation permits and local farmers also MUST have a permitted residence on the land to which they farm cannabis.
What advice or education do you have for others?
To counties that may still have complete cultivation bans, hang in there. Policy work is thankless, not pretty, and not why anyone began farming and living off of the land. Celebrate each and every small victory and step in the right direction, they truly add up. It is crucial for the greater community to support those that are willing to do the policy work and for there to be consistent representation with local officials. These relationships are everything, so continue to build bridges and nurture every community relationship. Nevada County worked its way out of a 2016 ban and we will be home to a thriving cannabis community and industry. It is important to organize and show strength in numbers.
VIDEO: The Benefits of Legalizing Cannabis
In this third installment of NCIA’s animated educational video series, we explore the benefits of legalizing cannabis nationwide and beyond. Learn how ending federal prohibition can improve public safety and add economic opportunities to our communities, and how you can help.
From our first-hand experience raising capital, as well as second-hand experience talking to investors, one of the biggest challenges is quickly and efficiently identifying a good match on industry vertical, business focus, traction, and values. Beyond these foundational considerations, the next round of challenges revolves around product-market fit, growth potential, and deal terms.
Henry Finkelstein, CEO & Founder of Cannabis Big Data, empowers colleagues and clients by spinning data into gold with intuitive, actionable insights. After working in e-commerce, consulting, healthcare and government contracting, Henry saw the opportunity to create a modern-day data toolkit for cannabis businesses that connects the data dots with one-click reports & dashboards that help companies earn more and stress less. 
During the Senate confirmation hearing, Barr stated that he would respect state cannabis laws and legal businesses when it comes to enforcing federal marijuana statutes. In response to questioning from Sen. Cory Booker (D-NJ) and Sen. Kamala Harris (D-CA), Barr stated that if confirmed, his “approach to this would be not to upset settled expectations and the reliant interests that have arisen as a result of the Cole Memorandum.” Upon further questioning, he stated that he “is not going to go after companies that have relied on the Cole Memorandum.” (It’s also important to note that the two Senators who asked Barr about cannabis policy are both running for president). 
James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of 
James B. Mann is a partner with the Tax practice group of Greenspoon Marder LLP. Mr. Mann has over 25 years of experience serving as a trusted advisor to a broad range of stakeholders in the energy and financial services industries. He counsels clients on the new changes in the tax law, as well as cannabis tax issues and cannabis tax controversy proceedings. Mr. Mann has a law degree from Harvard Law School and an MBA from Columbia University.
Ms. Gillette regularly represents clients before the IRS’s Examinations, Appeals, and Collections Divisions, including marijuana businesses facing the challenges of IRS adjustments under 280E. She has successfully protested local, state and federal tax deficiencies on behalf of her clients, having prevented hundreds of thousands of dollars in incorrectly assessed taxes, interest, and penalties. She can assist individual and business taxpayers in 280E proposed assessments, offers in compromise, audit examinations, innocent spouse claims, sales, use, and employment tax matters, trust fund tax penalty assessments, penalty abatement’s, and levy releases. 
One challenge we face as a member based organization is maintaining and continuing to grow our membership numbers. The quintessential financial sustainability quagmire. Ever changing regulations and market uncertainty has caused reluctance from many small farmers. The Alliance works hard to reinvigorate and provide hope throughout the local cannabis community, but the reality is that there has been a decline in membership. Maintaining and continuing to grow our membership numbers, business sponsorships and financial stability is a constant need in order to continue working for a thriving cannabis industry for our region. 