Member Blog: How to Avoid Compliance Issues with Your Cannabis Business

By Jo-Anne and LaKia, Greenspace Accounting

All businesses must adhere to tax rules and regulatory compliance, but for cannabis companies, the laws are significantly more challenging to navigate. The cannabis industry has specific tax rules that differ from other sectors, and failing to follow them can result in severe financial and legal implications.

At Green Space Accounting, we know that managing your finances as a cannabis company can be much more complicated than the average start-up. Keeping a compliant financial system in place is not always easy with constantly changing state laws and regulations.

Here are a few tips on how to avoid compliance issues with your budding cannabis business.

Have Your Business Documentation in Order

One of the first steps to staying compliant is to have all the appropriate financial information and licensing for your business on hand.

Always be prepared with copies of your cannabis license, information from your seed-to-sale tracking system, and your point of sale software records. Having this paperwork, along with legal documents like operating agreements, Articles of Incorporation or Organization, and EINs will ensure that you have a fully compliant relationship with your bank, as well as local and state government.

It’s also a good idea to have detailed records on all sales transactions within your business, especially ones dealing with cash. Cash is used more frequently in cannabis dispensaries than in other retail industries. Having proper cash-handling procedures in place can save you from theft and keep you ready for any unexpected auditing.

Stay up to Date with State and Local Regulations

It’s important to remember that regulations surrounding cannabis change over time, so monitoring your state legislature and all applicable state and local agencies is crucial to keeping your business compliant. By making yourself aware of the rules for the cultivation, manufacturing, and distribution of cannabis, you can avoid the risk of fines or legal action and build a better relationship with your local government, law enforcement, and, most importantly, customers.

One way to stay up to date with regulatory compliance laws is to consume state and industry news surrounding cannabis daily. Not only do these publications keep you informed on business and consumer trends, but they also avoid complicated legal jargon, speaking directly to business owners in a way that’s easy for them to understand.

Here are a few recommended industry news sources:

Another great way to stay on top of state and local cannabis laws is to network and build relationships with your local regulators. While maintaining compliance internally is the biggest goal, creating an ongoing relationship with the regulators in your area can help you better understand the changes within the industry and the steps you can make to conduct business more transparently.

Develop SOPs, Training, and Reporting Systems

Think of these SOPs as a set of rules that all employees need to abide by to keep your company’s production, sales, and accounting processes consistent and safe. Having a set of standard operating procedures can help you recognize potential compliance issues and fix them before they occur. These procedures can include an employee handbook on proper handling and storage of cannabis consumables to installing a seed-to-sale tracking system for inventory management purposes.

The best way to stay on top of your SOPs is to create reports, checkbooks, and logs in all aspects of your operations to show regulators that you are a transparent business that has a complete understanding of your state’s compliance laws. Frequent compliance training sessions are also an effective way to educate your entire team on the legal and tax regulations associated with your business.

Cannabis Payroll

To avoid issues concerning payroll, installing time tracking software for employees is also a great way to keep your staff organized and stay on top of the 280E tax code. The 280E law denies cannabis businesses federal income tax deduction for operating business expenses, which means that the wages for some employees may be deductible, and some may not be. By introducing software where employees can specify the tasks they’re doing and track the salaries they’re receiving, you’ll stay compliant with the tax code and better understand the productivity your team is generating.

Frequently Audit your Business

Hiring an outsourced accounting team to audit your cannabis business is a great way to avoid any potential risks regarding compliance. Auditors serve as an additional, unbiased set of eyes that will examine all areas of your organization and identity aspects that might need improvement.

If you are looking to stay on top of the legal and tax regulations for your cannabis business on a tight budget, self-auditing your company is a great way to check whether or not your training, bookkeeping, and SOPs are being appropriately implemented.

Entrepreneurs who belong to the National Cannabis Industry Association can receive discounted access to an acclaimed compliance management platform created by Simplifiya, which gives licensed operators a self-audit checklist that helps them identify, track, and mitigate potential issues before it’s too late. The platform also provides templates for creating SOPs customized for each license type and tied directly to your state regulations.

The Bottom Line

Whether you are a start-up, a growing business, or a multi-state operator, complying with federal and state compliance laws is essential. By following the above tips and staying transparent with your employees, partners, and investors, you’ll be ready for any audit that comes your way.

Whether you’re looking for cash flow management, business planning, or internal controls, our team is dedicated to helping you achieve peace of mind when it comes to your company’s finances and compliance. We understand that the financial side of your business can be daunting, complicated, time-consuming, and most of all: stressful. You don’t need to go through it alone. Our team is prepared to help you achieve your financial goals. Whether you’re looking to earn more revenue, scale your business or achieve a little peace of mind, you can trust Green Space Accounting to guide you.

Video: NCIA Today – September 3, 2021

NCIA Deputy Director of Communications Bethany Moore checks in with what’s going on across the country with the National Cannabis Industry Association’s membership, board, allies, and staff. Join us every Friday here on Facebook for NCIA Today Live.

Member Blog: Commercial Property Assessed Clean Energy (C-PACE) – A Competitive Funding Source for the Cannabis Industry

by Dr. Teresa Smith, Ebee Management Group

The state-by-state level of legalization and expansion of cannabis continues to pick up momentum across the United States, however, the adoption at Federal level is a much slower movement. The absence of federal legalization has created a situation where federally insured lending institutions like banks and traditional investment capital markets are prohibited from funding cannabis projects. The direct result of this restriction in capital has historically forced the cannabis industry to rely exclusively on private loans and individual investors as the primary sources of development and operating capital. These sources of capital are limited in capacity and can garner interest rates from 15-25%. While the legalized cannabis industry has made great strides in removing much of the negative stigma surrounding the products and their uses, resulting in the opening of some additional funding sources such as crowdfunding and angel investors, the cost of these capital sources is still significantly above the conventional market rates. At Ebee Management Group, we would argue that the most underutilized yet best financing tool presently available for the cannabis industry is the Commercial Property Assessed Clean Energy (C-PACE).

C-PACE is an innovative financing tool that gives owners of commercial, industrial, and multi-family properties access to long-term fixed-rate financing for energy efficiency, water conservation, and renewable energy projects. The C-PACE legislation authorizes municipalities or counties to partner with private capital providers to deliver financing options to commercial property owners for energy qualified improvements with the collection of the debt repayment through a special assessment on the property’s tax bill. The C-PACE funds provide upfront capital with 100% financing for qualified improvement often with terms up to 20 years. The resulting energy savings and reduced operating and maintenance costs typically exceed the amount of the assessment payment and often contribute to a positive cash flow to the operating budget.

The primary caveat to the use of C-PACE for cannabis is that the property must be in a state that has passed the legislation that empowers local municipalities to provide C-PACE as a funding tool. C-PACE can be funded directly by the municipality through a bond issuance; however, most projects are presently being funded by the private equity markets. Typical terms on a C-PACE-funded cannabis transaction are 100% financing, fixed for a term up to 20 years at interest rates ranging from 7%to 9%. The maps below illustrate the current enactment of state-level policy for both cannabis and PACE.

NCIA Cannabis State Policy Map

Map provided and maintained on the NCIA website

PACENation Map

Map provided and maintained on the PACENation website

C-PACE can be utilized for any improvement that saves energy with maximum lending limits influenced by individual state legislation and program guidelines. Typically, the maximum loan amount is capped at 20-25% of the completed appraised value and restricted to funding only qualifying improvements. Typical qualified improvements include lighting, HVAC systems, and building controls, doors, windows, roofs, and alternative power generation like wind and solar. PACE can be used for retrofitting an existing building, new construction, and in some states, refinance of existing debt. For the established cannabis market, the refinance option is an extremely attractive tool because it can be utilized to pay off higher-cost investor debt and is non-recourse to the owner. The debt is tied to the physical facility as a special assessment, not a mortgage lien, and is thus fully transferable at sale. You heard me right. If you have a short-term hold strategy for a facility, any remaining obligation you have associated with your PACE assessment does not have to be paid off at closing. The balance of the debt follows the tax bill and transfers directly to the new owner like any other existing tax-based assessment.

The table below outlines the benefits and features of C-PACE

Owner Benefits

Financing Features

Qualified Equipment

• Lower cost capital

• Non-recourse to owner

• Preserves owner’s capital

• Debt transfers at sale

• 100% financing of qualified improvements

• Long-term fixed-rate up to 20 years

• Competitive interest rates ranging from 6.5%-9.5%

• Debt securitized by a special assessment on the property

• Lighting

• HVAC

• Controls

• Roofs

• Doors & Windows

• Insulation

• Power factor conversion

• Alternative energy generation

The future of a wider array of funding options for the cannabis industry will clearly be impacted by both the ongoing adoption on a state-level and the possible federal-level legalization. Presently the pressure from states like New York and Chicago that house the two largest capital markets in the United States is leading to the expanded conversations about tapping into some of these sources of capital. That being said, arguably the best real-time solution for structuring a cannabis capital stack is C-PACE. New construction, building retrofit, or refinance, C-PACE can fill a gap or serve as a lower-cost replacement of other investment capital or equity.

Dr. Teresa Smith leads the Strategic Growth & Development for Ebee Management Group where she is recognized as an industry expert in sustainable development, leveraging PACE financing solutions for qualified energy efficiency projects throughout Ohio and Michigan. Prior to joining Ebee in 2019, Teresa was the Business Development Manager for the Toledo-Lucas County Port Authority where she built a robust growth process that delivered a 280% annualized increase in Property Assessed Clean Energy (PACE) loan transactions, driving loan balances from $3 million in 2011 to $47 million in 2019. Teresa obtained a Bachelor Degree in Economics from Eastern Michigan University, a MBA in Executive Management from the University of Toledo and a Doctorate Degree in Business Management with a specialty in Leadership from Capella University.

Ebee Management Group is a full-cycle construction, finance, and energy management firm, offering our clients the most cost-effective and appropriate development strategies — never compromising integrity and quality. We oversee every aspect of the project with a proprietary process and unique energy financing programs, delivering a custom designed, state-of-the-art energy savings solution with a guarantee to save you time, energy, and money. Ebee offers a wide array of financing solutions for the Cannabis Industry that reduce equity requirements and replace much more expensive sources of capital. Our flagship financing tool for new construction, renovation and refinance of commercial facilities is Commercial Property Assessed Clean Energy (C-PACE). This financing tool makes it possible for owners and developers of commercial properties to obtain low-cost, non-recourse, long-term financing which is paid back through an annual assessment on the organization’s property tax bill. For more information, contact Teresa Smith at 419.340.0420, tsmith@ebeeco.com or visit our website at https://www.ebeeco.com/

Committee Blog: Successful Retail Outcomes of SAFE Banking

By NCIA’s Retail Committee

Have you ever wondered where or how a cannabis retail business banks? You should know that it’s complicated because of federal prohibition. So what do you do? Some are finding workarounds and loopholes, others are able to obtain services with smaller financial institutions for exorbitant costs, while many others struggle to maintain an expensive, risky, and dangerous cash-only ecosystem.

The 2020 elections set the creation of four new regulated state cannabis markets in motion, and four more state legislatures followed suit in the first half of 2021, making the last year arguably one of the most consequential and momentous periods for the cannabis industry and policy reform.

However, cannabis is still illegal at the federal level, classified as a Schedule I substance under the Controlled Substances Act, despite state-level regulated cannabis markets in more than half the country. This prevents banks from doing business with cannabis companies because of fear of prosecution or reputational risk, as these businesses aren’t viewed as legal under outdated federal laws.

The cannabis industry is optimistic about the future, though, thanks to an increasing interest in cannabis, public safety, and economic development in Congress. Lawmakers in both chambers are actively debating comprehensive legislation to remove cannabis from the schedule of controlled substances and regulate it federally while repairing some of the harms caused by prohibition, but there are also incremental reforms in play that have a track record of success in the House as well as bipartisan support. Chief among them is the Secure and Fair Enforcement (SAFE) Banking Act, which would provide safe harbor for financial institutions that wish to work with state-legal cannabis businesses and allow them to provide services to the industry without fear of prosecution. This legislation originally passed the House in 2019 and was the first piece of standalone cannabis policy reform legislation ever to receive a vote or be approved by a full chamber vote.

Since then, cannabis banking has been approved in the House three more times in various forms, mostly recently when it passed the SAFE Banking Act again – and with record bipartisan support – earlier this year. The bill is now awaiting consideration in the Senate, but has yet to be taken up by the Senate Banking Committee.

So, what does the SAFE Banking Act mean for retail cannabis businesses?

Loans, capital markets, and credit card processing are common interests for cannabis companies. Access to traditional lending is particularly important for small businesses that usually lack connections to angel investors and venture capital. However, some of the benefits of this legislation are of special interest to cannabis retailers. Check out what some of the Retail Committee members are considering to be important aspects of broadened access to banking and financial services:

Safety

“As a retail cannabis business operator, safety is of our top priorities as it directly affects our staff, our patrons, and our bottom line,” said Larina Scofield, director of retail operations at Lucy Sky Cannabis Boutique dispensary chain in Colorado and vice-chair of NCIA’s Retail Committee. “We are required to operate as a predominantly cash business in a high-risk industry that can sometimes lead to criminal targeting; this can put not only our business at risk but also the potential individuals on-site if a targeted crime were to take place.

“There is also no doubt that operating a cannabis business is costly, due in part to the fact that we do not receive the same benefits and protections that other businesses have; cannabis companies are also subject to higher fees in order to get similar services, if those services are available at all. Lucy Sky is fortunate enough to have banking and armored services, as well as a cashless ATM service to allow for safer money handling, but this does not come without a price… a high price. Our company pays top dollar every year in order to have banking and secured payment delivery (something that is not seen in traditional businesses), in order to provide safety for our business and to the individuals who frequent our facilities.

“SAFE Banking would mitigate that and allow for retail cannabis companies to operate without having to “constantly look over their shoulders” so to speak. It would provide an enormous sense of security in an already high-risk business, it would allow for small business owners to receive proper funding to allow for safer operations, and it is truly crucial in the progression of the industry as a whole.”

Less Cash on Premise

“Less cash during COVID-19 is always a plus. The goal is to limit contact, and we all know cash is constantly being passed from person to person. There are plenty of studies highlighting how many germs really are on physical cash. Researchers found plenty of questionable microbes on $1 bills in a more recent study. In a world where we are all concerned about our physical health, the time is now to reduce physical cash in cannabis businesses. Or at least, give people the choice to go cashless if they want to. Let’s also not forget the security benefits of carrying less cash on the premises”, said Byron Bogaard, CEO of Highway 33, a cannabis dispensary in Crows Landing, California, and chairperson of NCIA’s Retail Committee.

Contactless Delivery for Retail

“Golden State Greens had a spike in deliveries during the COVID pandemic but were still forced to collect cash and signatures from customers. When online orders can process card transactions we can make a true contactless delivery where both payment and signature are managed from the customer’s device. This will increase the safety of our drivers by maintaining safe distancing practices and allow new types of deliveries to drop boxes or to customers’ homes similar to Amazon,” said Gary Strahle, chief growth officer for California dispensary Golden State Greens.

Beyond these major issues, there are a number of potential outcomes that could impact retailers as well.

Revamping the relationship between cannabis businesses and banks will likely trigger higher competition for banking services, resulting in lower fees. This would clearly benefit small businesses but could also have an impact on the frequency and nature of mergers and acquisitions in the cannabis space.

Regulatory frameworks will certainly change, and outstanding litigations will most definitely become more complex. Chargebacks from credit transactions will be a constant problem, due to the level of surveillance and data collection they will more easily be disputed.

Better access to banking also positions technology companies for success, as there will be a high demand for mobile wallets, online ordering, and automatic recurring memberships. We can’t predict everything, and there might be more hurdles to cross than we realize, but the technologically-agile retailer may benefit most. Studies show that most of the Top Fortune 500 Companies use software platforms such as Salesforce to manage their enterprise, however many of the canna-specific solutions are missing much of the integration and scalability needed to immediately handle broadly increased access to the banking system.

Speak your voice.

The SAFE Banking Act is critical to the cannabis industry’s success, and your voice will tip the scales. Reach out to your members of Congress, especially your Senators, and tell them what safe banking means to you as a cannabis retailer. Remember, policy needs to support logic over emotion. Emotions are important, but remind Senators of the logic behind implementing safe banking solutions for cannabis businesses:

Reducing the risk of robbery & theft with less cash on the premises
Supporting the demand cannabis businesses receive, which in turn supports the local and national economy and helps minimize the unregulated market
Reduce pathogen transmission by limiting physical cash transaction

If your senator already supports the SAFE Banking Act, please politely ask them to prioritize this legislation in the current session.

Member Blog: We’re Out of the Weeds – CRC Releases Initial Rules & Regs for New Jersey’s Adult-Use Marketplace

by Genova Burns, LLC

New Jersey recently passed the Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act (“CREAMMA”). Among other things, CREAMMA permits adults 21 years and older to consume cannabis and allows New Jersey residents to operate six types of cannabis businesses within the state. The new adult-use marketplace, as well as the already established medicinal marketplace, will be administered by the Cannabis Regulatory Commission (“the CRC”). The CRC is a panel of five appointed members who will oversee the development, regulation, and enforcement of the use and sale of all legal cannabis in New Jersey.

The CRC recently approved its first set of rules and regulations on August 19, 2021. This will enable the start of the licensing process for personal adult-use cannabis operations in New Jersey. Here are the 15 takeaways from the initial rules and regulations:

What type of license can I apply for?

There are six different license types:

Class 1 – Cannabis Cultivator License
Class 2 – Cannabis Manufacturer License
Class 3 – Cannabis Wholesaler License
Class 4 – Cannabis Distributor License
Class 5 – Cannabis Retailer License (also includes consumption lounges)
Class 6 – Cannabis Delivery License

Businesses may also apply for a license to operate a cannabis testing facility or medical cannabis testing laboratory. License-holders may hold multiple licenses concurrently; however, there are limitations on the number and type of licenses that may be held concurrently.

Are there any caps on the number of licenses that may be awarded?

The State only placed a cap on Class 1 licenses for cultivators. In particular, there will be a statewide cap of a total of 37 cultivators until February 22, 2023. Keep in mind that state limits aren’t the end of the inquiry; municipalities may set restrictions on the number of businesses in their jurisdiction.

What are the fees to apply for one of the adult-use licenses?

In an effort to make the application fee reasonable, the CRC will require applicants to only pay 20% of the application fee at the time of application, and the remaining 80% will only be collected at the time the license is approved. The initial application cost may be as low as $100 but successful applicants should be prepared to pay additional fees ranging from a total cost of $500 – $2,000.

Are there any fees other than the initial application fee?

Yes. There are annual licensing fees, which can range from $1,000 for a microbusiness to $50,000 for a cultivator, with up to 150,000 square feet of cultivation capacity. This fee range only applies to the adult use marketplace. There is a different licensing fee schedule for the medicinal use marketplace.

Will anyone be given priority in the application process for a cannabis license?

Yes. The CRC will prioritize applicants who live in specifically defined economically disadvantaged areas of New Jersey or who have past convictions for cannabis offenses (“Social Equity Applicants”). It will also prioritize applications from minority-owned, woman-owned, or disabled veteran-owned businesses that are certified by the New Jersey Department of the Treasury (“Diversely Owned Businesses”). Businesses in impact zones will also take priority (“Impact Zone Businesses”).

What do you mean by “priority review?”

Applicants meeting the criteria described above will have their applications reviewed before other applications, regardless of when they apply. Remember, however, that priority review doesn’t guarantee selection.

When will the CRC begin to review applications?

No date has been announced, but the CRC promises that it will be soon . The CRC will publish notice in the New Jersey Register announcing its intent to review applications and submissions will be reviewed, scored, and approved on a rolling basis (pun intended), subject to the required priority review for certain applicants.

What should I expect from the application?

Applicants will be expected to submit a detailed application that includes specific details for the proposed site for the business (which must be owned or leased), municipal approval, and zoning approval. Applicants must also submit an operating summary plan detailing the applicants’ experience, history, and knowledge of operating a cannabis business. The scoring of applicants and awarding of licenses will be based entirely on the application materials.

What if I don’t have all of the materials to submit a complete application?

Don’t worry, you can apply for a “Conditional License.” A Conditional License is a provisional award that gives the holder 120 days to become fully licensed by satisfying all the requirements for full licensure, including finding an appropriate site, securing municipal approval and applying for conversion to an annual license.

What are the requirements to be considered for a Conditional License?

Conditional License applicants must submit a separate application for each cannabis business license requested, along with a background disclosure, a business plan and a regulatory compliance plan to the CRC. At the time of the application, all owners with decision-making authority of the conditional license applicant will need to prove that they made less than $200,000 in the preceding tax year, or $400,000 if filing jointly.

Are there any advantages in being awarded a Conditional License?

Conditional License holders that convert to an annual license will not have to submit the sections of the application that, under statute, require applicants to demonstrate experience in a regulated cannabis industry. This flexible option offers an opportunity for newcomers to get into the cannabis industry.

What is a Microbusiness License?

Microbusiness licenses are for applicants who want to run a relatively small operation. Applicants may apply for a microbusiness license for any of the six license types. A microbusiness license limits the business to 10 employees; a facility of no more than 2,500 square feet; possession of no more than 1,000 plants per month; and/or a limit of 1,000 pounds of usable cannabis per month.

Can I rely solely on my local municipality for a license?

No. The state must award the cannabis license. Municipalities play a critical role, however, in the licensing process. For example, applicants will only be licensed by the CRC if the applicant has demonstrated support from the municipality, zoning approval, and has been verified to operate in compliance with any other local licensing requirement.

Can municipalities ban cannabis businesses from operating within their jurisdiction?

Yes. Municipalities may ban certain businesses from operating within their borders if they enact an ordinance regulating or banning cannabis businesses by August 21, 2021. Municipalities may update their ordinances at any time to remove any restrictions that they previously placed.

What happens if I don’t follow the CRC’s rules and regulations?

The CRC is authorized to inspect cannabis businesses and testing laboratories, issue notices of violations for infractions and issue fines. Standard fines can be no higher than $50,000, while fines for infractions implicating issues of public safety or betrayal of public trust can be as high as $500,000. Licenses may also be suspended or revoked. Don’t take the risk!

These 15 key points present only a quick summary of the CRC’s initial set of rules and regulations. We anticipate there will be a second set of rules released later this year, which will likely resolve issues that weren’t addressed in the initial set of rules and regulations, or CREAMMA. We expect the second set of rules and regulations to focus mainly on the needs of distribution and delivery service, and preparing for the acceptance of applications, before the Garden State is in full bloom…

Charles J. Messina is a Partner at Genova Burns LLC and Co-Chairs the Franchise & Distribution, Agriculture and Cannabis Industry Groups. He teaches one of the region’s first cannabis law school courses and devotes much of his practice to advising canna-businesses as well as litigating various types of matters including complex contract and commercial disputes, insurance and employment defense matters, trademark and franchise issues and professional liability, TCPA and shareholder derivative actions.

Jennifer Roselle is a Partner at Genova Burns LLC and Co-Chair of Genova Burns’ Cannabis Practice Group. She has unique experience with labor compliance planning and labor peace agreements in the cannabis marketplace. In addition to her work in the cannabis industry, Jennifer devotes much of her practice to traditional labor matters, human resources compliance and employer counseling.

Daniel Pierre is an Associate at Genova Burns and a member of the Cannabis and Labor Law Practice Groups. In addition to labor work, he likewise assists clients in the cannabis industry, from analyzing federal and state laws to ensure regulatory compliance for existing businesses to counseling entrepreneurs on licensing issues.

For over 30 years, Genova Burns has partnered with companies, businesses, trade associations, and government entities, from around the globe, on matters in New Jersey and the greater northeast corridor between New York City and Washington, D.C. We distinguish ourselves with unparalleled responsiveness and provide an array of exceptional legal services across multiple practice areas with the quality expected of big law, but absent the big law economics by embracing technology and offering out of the box problem-solving advice and pragmatic solutions.

Given Genova Burns’ significant experience representing clients in the cannabis, hemp and CBD industries from the earliest stages of development in the region, the firm is uniquely qualified to advise investors, cultivators, processors, distributors, retailers and ancillary businesses.

Committee Blog: Safety – Terpene Limits in Cannabis Manufacturing

by NCIA’s Cannabis Manufacturing Committee

From the taste of your fruits and vegetables to the aroma that travels from trees and flowers in bloom, terpenes are the organic compounds that play a vital role in the flavors and smells we experience daily. Terpenes are common ingredients that are used in many industries such as food, cosmetics, tobacco, and pharmaceuticals. Therefore, the information on the safety of terpenes in these industries can be used for determining the safe use of terpenes in a wide range of product applications.

Terpenes are currently being introduced into a variety of adult-use and medical cannabis preparations across the U.S. and hemp-CBD markets around the world for both flavor and functional purposes. Much research has been and still is being conducted on the therapeutic effects of terpenes and their synergistic effects when used in conjunction with cannabinoids. The strong research background supports the benefits of infusing terpenes into cannabis extracts, both in reference to endogenous terpenes found naturally in the plant and those terpenes that have been added back into preparations from other botanical sources. Therefore, almost every manufactured cannabis product contains a percentage of terpenes. However, the clear lack of understanding of the full potential of the terpene profiles, and misuse of these volatile, fragile compounds bring up various misconceptions regarding terpene safety versus their efficacy in creating an elevated user experience.

As terpenes make a significant contribution to the quality of cannabis products, which varies from one consumption method to the other, it is highly important to utilize the most advanced knowledge regarding terpenes in order to maximize their potential while maintaining product safety.

Inhalation

Bioavailability

Terpenes are a naturally occurring constituent in resin cannabis extracts. Terpenes have been incorporated into vaporizable formulations in the form of pre-filled cartridges. These terpene formulations are designed to produce specific effects based on the creator’s intentions, or the terpenes are simply reintroduced to mimic the source material since the extracts are often refined to the point that they have little or no taste (i.e., lost their original essence).

Inhalation of these volatile molecules leads to quick absorption of the compounds via the lungs and directly into the bloodstream. The high solubility of monoterpenes in the blood and hydrophobic medium suggests a high respiratory uptake and accumulation in fat tissues ( Falk 1990a). This was confirmed by recent studies of uptake and elimination of a-pinene and 3-carene in humans (Falk 1990b, Falk 1991b). The bioavailability range via inhalation of alpha pinene, camphor and menthol has been studied and reported to be 54-76% (Kohlert 2000) which is relatively high compared to oral bioavailability. Therefore, terpenes via inhalation are an efficient route of administration which allows low dosage of terpenes.

General Guidelines

When examining terpene infusion, the points below should be taken into consideration:

From accumulated knowledge within the cannabis industry and considering terpenes’ natural ratios in cannabis (1 – 5%) and data on safety, it is suggested not to exceed a concentration of 10% in the final product.
As terpenes are volatile molecules, the final terpene-infused product is recommended to be used only with adjustable temperature vaporizers such that the oil will not be heated to high temperatures to prevent unnecessary heat-derived toxin production.
Aerosol testing for the final product is recommended to test for heavy metals leaching into the vaporizable product.
Terpenes are recommended to be used within their defined expiration date labeled on the suppliers’ bottle. The final vaporizable product must be tested in a certified lab under the requirements of the authority having jurisdiction to make sure it meets all quality and regulatory requirements.

Terpene Limits

By using position papers such as the ANEC Position Paper on E-cigarettes and e-liquids, suggestions regarding terpene limits can be made for cannabis inhalable products. It is important to mention that the final decision on added terpene amounts and determination of product safety is the sole responsibility of the manufacturer based on their assessments, internal procedures, and local regulations.

The following numbers are the suggested infusion percentage of specific terpenes in E-liquid. This suggestion was calculated by using DNEL (Derived No Effect Level) levels in inhalation as well as frequency of puffs a day.

On average, E-liquid users take 500 puffs a day (ANEC position paper), whereas cannabis users take around 9 puffs a day. Therefore, the suggested terpene limit percentage in cannabis inhalables may be higher than E-liquid due to the lower daily usage.

Substance	Suggested Terpene Limit in E-liquid According to ANEC
Linalool	0.34%
Menthol	7.8%
Beta Pinene	0.7%
Alpha-Terpineol	1.1%
Geranyl Acetate	7.4%
Carvone	0.14%

Ingestion

Bioavailability

Terpene presence in foods of plant origin and in herbs with functional properties has led to further exploration of their bioavailability following oral consumption. The research on terpenes’ bioavailability is commonly done through medicinal plants since they are subjected to digestion within the mouth and stomach before accessing the small intestine. Bioavailability through oral ingestion is affected by mechanical actions, enzymatic actions, and different pH conditions, Transformations into usually more water-soluble and more readily excreted in the urine compounds affect this process as well. These transformations appear mainly in the liver, but also in the gastrointestinal tissue, lungs, kidneys, brain, and blood ( Furtado 2017) Several studies have shown that terpenes consumed orally are absorbed through the gastrointestinal tract and are bioavailable as soon as 0.5 h after intake, reaching their peaks between 2 and 4 h (Furtado 2017, Papada 2018).

General guidelines

Terpenes are commonly used as flavor ingredients and their usage guidelines are clear when used in foods, such as the FEMA values table below. However, when terpenes are used for therapeutic purposes, the suggested dose in food is not fully researched, and the balance between flavor and functionality is still yet to be determined. Basing the dosing according to flavor guidelines is a good place to start. Upper limits should be defined by safety limits such as the DNEL values table found below. It is important to use natural, Food Grade terpenes that are backed up with certificates of analysis and are safe to ingest.

Terpene Limits

The Flavor and Extract Manufacturers Association of the United States (FEMA) has developed an innovative program utilizing the GRAS concept to evaluate the safety of flavoring substances. The FEMA GRAS program began in 1959 with a survey of the flavor industry to identify flavor ingredients then in use and to provide estimates of the amounts of these substances used to manufacture flavors. This database provides information on all ingredients that have been determined to be “generally recognized as safe” under conditions of intended use as flavor ingredients. According to The FEMA GRAS assessment – aromatic terpenes used as flavor ingredients are ubiquitous throughout the food chain; and therefore, not surprising that they serve as effective flavoring ingredients.

The below table presents the average maximum usage levels of terpenes used as flavors in several product types as provided by FEMA.

Product	Lime Terpenes Average Max (ppm)	Orange Terpenes Average Max (ppm)	Grapefruit Terpenes Average Max (ppm)	Limonene Average Max (ppm)	Myrcene Average Max (ppm)	Linalool Average Max (ppm)
Beverages, Nonalcoholic	750	1,550	500	31	4.4	7
Beverages, Alcoholic	1,000	1,000	1,000	NA	NA	50
Chewing Gum	20,000	20,000	20,000	2300	NA	200
Hard Candy	5,000	5,000	5,000	49	13	400
Soft Candy	5,000	5,000	5,000	NA	NA	10

ppm is an abbreviation for “parts per million” and it also can be expressed as milligrams per liter (mg/L) or in a percentage where 10,000 ppm is 1%. For example, the maximum suggested infusion for orange terpenes in chewing gum is 2%, where the suggested infusion in hard candy is 0.5%.

*Point of thought*: Since terpenes in the cannabis industry are mostly infused in cannabis-based products, the frequency of usage of such products is lower than regular food products.

Additional safety data can be gathered from reviewing reports from governmental agencies such as European Chemicals Agency (ECHA). The following data about the DNEL (Derived No Effect Level) in the category of General Population was collected from ECHA website. These numbers may be used as a guideline for maximum daily intake via oral administration:

Substance	DNEL (Derived No Effect Level)	Calculated Daily DNEL for 70kg subject (mg/day)
Linalool	0.2 mg/kg bw/day	14
Menthol	4.7 mg/kg bw/day	329
Beta Pinene	0.3 mg/kg bw/day	21
Alpha-Terpineol	no hazard identified	no hazard identified
Geranyl Acetate	8.9 mg/kg bw/day	623
Carvone	69.4 µg/kg bw/day	4,858

For example, a 70 kg person consumes a 1g cookie that is infused with 1% Pineapple Express terpene formulation and Linalool constitutes 10% of the formulation, then there will be overall 10mg of terpene formulation in the cookie, out of the 10mg there is 0.1mg of Linalool which doesn’t exceed the DNEL level.

Topical

Bioavailability

Terpenes are lipophilic, small, and nonpolar molecules that are considered to be the largest group of natural fragrances. Terpenes can easily penetrate the skin and enhance transdermal delivery (Aqil 2007) and can potentially aid cannabinoid transdermal delivery. Terpenes are also known to have several dermal benefits including anti-inflammatory (Maurya 2014), wound healing (d’Alessio 2014) and anti-acne (Yuangang 2010). Terpene bioavailability via transdermal delivery ranges between 3-12% depending on the type of terpene, medium and application (Brain 2007, Gilpin 2010). Following topical application, maximum plasma levels of terpenes are reached within 10 minutes (Kohlert 2000).

General guidelines

While some terpenes are known as dermal irritants, the severity of the irritation may depend on their concentration. These should not be used on any inflammatory or allergic skin condition and should always be appropriately diluted. The oxidation of terpenes can increase risk of causing skin reactions because the oxides and peroxides formed are more reactive. This can be seen with (+)-limonene, δ-3-carene and α-pinene and arise due to the formation of oxidation products, some of which are more sensitizing than the parent compound. For this reason, proper storage of terpenes is required to preserve their effectiveness and decrease the risk of adverse reactions.

The table below lists commonly known allergenic terpenes, and for this reason, should be declared on the packaging or in the information leaflet if the concentration of these allergenic fragrances is higher than the permissible concentration of 0.01% in shower gels and baths (rinse-off products) and higher than 0.001% in body oils, massage oils and creams (leave-on products)

Allergenic Terpenes

Citral

Citronellol

Eugenol

Farnesol

Geraniol

Isoeugenol

D-Limonene

Linalool

Terpene Limits

The International Fragrance Association (IFRA) defines which compounds represent a potential allergy risk and determines their maximum concentration to produce safe cosmetic products. IFRA also issues recommendations for the safe use of fragrance ingredients, which are published in the IFRA Code of Practice and its guidelines. In the below table, there can be found specific infusion recommendations for specific terpenes.

Substance Name	Restriction Limits in the Finished Product (%) according to IFRA:
Substance Name	Lip Products	Body Lotion, Cream & Oils	Hand Sanitizer & Hand Cream	Body Wash
Citronellol	2.20%	12.00%	3.20%	24.00%
Citral	0.11%	0.60%	0.15%	1.20%
Farnesol	0.21%	1.20%	0.29%	2.30%
Eugenol	0.45%	2.50%	0.64%	4.90%
Geraniol	0.85%	4.70%	1.20%	9.20%
Alpha Bisabolol	0.42%	2.40%	0.60%	4.60%

Testing of terpenes in dermal products can be achieved safely by making a sample product with terpene formulation infused at 0.5% to 5% concentrations in petrolatum. Patch testing can be a useful technique to detect and avoid skin reactions.

Member Blog: Cannabis Legalization in Mexico

by Claudia Della Mora, Black Legend Capital

While marijuana has been around in Mexico since the 1600s, the real story begins in the 20th century during the Prohibitionist Era. After Mexico news outlets widely reported stories of cannabis users committing violent crimes, a cannabis stigma was created, resulting in Mexico banning the production, sale, and use of cannabis in 1920, followed by a ban of exports in 1927. The movement of cannabis was first regulated by the three U.N. conventions on narcotic drugs, beginning with the Single Convention on Drugs in 1961. The prohibition gave rise to the cartel’s involvement in the illegal cannabis industry in the ’80s, and these cartels have consistently supplied the U.S. market since. After the war on drugs significantly increased violence in Mexico and gave the cartels more power than before, Mexico began to alter its stance. In 2015, the country decriminalized cannabis use, and in 2017, legalized medical cannabis containing less than 1% THC. In 2018, the Mexican Supreme Court deemed the prohibition unconstitutional, and in December 2020, the U.N. Commission on Narcotic Drugs transferred cannabis from a Schedule 4 to a Schedule 1 drug under the Single Convention. As of now, Mexico is on the edge of legalizing recreational cannabis use. This bill, “The New Federal Law on the Regulation of Cannabis,” is awaiting approval by the Senate and then only needs to be signed by the President to be passed into law.

With a population of 130 million and over 10 million regular cannabis users, Mexico will generate $1.2 billion in annual tax revenues while saving $200 million annually in law enforcement and creating thousands of new jobs. One estimate has cannabis legalization bringing up to $5 billion to the economy annually. One issue Mexico will face will be keeping the cartels from transitioning to the legal cannabis market. While those with criminal records can’t obtain any cannabis license, cartels have a deep network, and Mexican officials can’t always determine whether someone is connected to a cartel. Mexico’s legislators believe the cartel will be forced to operate legally over time as they won’t be able to compete in the illegal market and keep as much power as they currently have.

There are also many questions regarding how Mexico’s cannabis legalization will affect the U.S. market. The USMCA, formerly known as NAFTA, currently does not include cannabis, raising the question of whether Mexican producers will be able to import cannabis into the U.S. for a much lower price than the U.S. can produce domestically. However, the U.S. will likely implement trade barriers to protect domestic companies. Currently, the U.S. places trade barriers on tomatoes in Mexico, and many see similar actions being placed on cannabis.

*The United States will likely place a trade barrier on cannabis from Mexico to protect domestic companies*

There’s no doubt that cannabis legalization in Mexico will create investment opportunities in the U.S. It mostly comes down to whether the U.S. creates trade barriers with Mexico regarding cannabis. If they don’t, the U.S. cultivation and manufacturing sectors will be hurt badly as Mexico can produce much cheaper. The absence of trade barriers will also hurt testing labs as cultivation moves out of the country and uses testing labs in that same country. However, U.S. companies with distribution networks, retail operations, or strong brands will benefit from Mexican legalization through lower costs of goods sold. One solution that would benefit U.S. companies would be legalizing interstate commerce in the U.S. without federally legalizing cannabis. This means other countries wouldn’t export finished products or raw material with THC above 0.3% into the U.S., and the U.S. industry would develop and consolidate. Once the U.S. federally legalizes cannabis, they must create tariffs or some trade barriers against all the developing countries legalizing cannabis, or the U.S. companies will suffer.

Companies are also greatly affected by banking laws. Currently, companies touching the flower in countries where it is not federally legal cannot access regular banking and can’t list publicly on the NASDAQ or NYSE. However, Canadian companies touching the flower can list in the U.S. since it is federally legal in Canada. These laws mean companies operating in Mexico will also be able to list in the U.S publicly. However, the SAFE Banking Act recently passed the House of Representatives in April 2021 and is up for debate in the Senate. Passage of this act would grant banking access to cannabis companies touching the flower and open the door for these companies to list in the U.S publicly. This would create a large flow of money into U.S. cannabis companies and allow them to scale at a much quicker pace than previously available. One important thing to note is that the large U.S. stock exchanges are technically able to accept cannabis companies’ listings if they meet the exchange requirements. However, they don’t accept them to avoid punishment from the federal government. Therefore, as the government moves towards allowing these companies federal banking access, the main question regarding U.S. companies is raised. In absence of government pressure, will these exchanges allow U.S. companies to list and access their own public markets?

*The SAFE Banking Act would reduce risk for cannabis companies transacting with only cash*

Overall, companies and investors looking to take advantage of the booming cannabis market need to stay up to date on the fast-changing cannabis legalization process in many countries. Those that truly understand it will position themselves to benefit from what is projected to be one of the fastest-growing industries over the next decade.

Ms. Della Mora is the Co-founder of BLC, a financial advisory and investment firm based in Los Angeles with satellite offices in Houston, New York, London, Hong Kong, and Melbourne. During her tenure at BLC, she successfully invested, assisted in the capitalization, and helped business develop small cap oil companies in Kentucky, Texas, Louisiana, Illinois, Colorado, California, Wyoming, North Dakota, and Alaska. She has also structured oil & gas partnerships in several U.S. states, and in Ecuador, Central America. Ms. Della Mora has been involved in many LNG (Liquid to Natural Gas) projects in the U.S., as well as many commodity trades worldwide. She has personally advised also Chinese conglomerates in their U.S. oil & gas investments.

Black Legend Capital is a leading Merger & Acquisition boutique advisory firm based in California with offices worldwide. Black Legend Capital was founded in 2011 by former senior investment bankers from Merrill Lynch and Duff & Phelps. We provide M&A advisory services, structured financing, and valuation services primarily in the cannabis, technology, healthcare, and consumer products industries. Black Legend Capital’s partners have extensive advisory experience in structuring deals across Asia-Pacific, Europe, and North America.

Crazy for Cannabis Administration and Opportunity Act (CAOA)

By Michelle Rutter Friberg, NCIA’s Deputy Director of Government Relations

Last week was undoubtedly one of the most exciting weeks in federal cannabis policy ever! On July 14, Senate Majority Leader Chuck Schumer (D-NY), along with Sen. Cory Booker (D-NJ) and Senate Finance Committee Chair Ron Wyden (D-OR), unveiled long-awaited draft legislation that would remove cannabis from the schedule of controlled substances while allowing states to determine their own cannabis policies. Let’s take a look at what we know:

What is it?

You’ll recall that back in February, the trio of Senators announced that they were working on a comprehensive cannabis bill. Since then, NCIA and other advocates have (im)patiently been waiting to see what shape that would take – I was calling it the best-kept secret in Washington! However, at long last, the discussion draft of the Cannabis Administration and Opportunity Act (CAOA) was released.

A discussion draft is exactly what it sounds like – prior to introducing this language as formal legislation, the Senators have shared it in this form, allowing stakeholders, the public, and others the opportunity to weigh in and provide their expertise and feedback.

What’s in it?

As I mentioned above, the CAOA removes cannabis from the list of controlled substances, effectively legalizing it at the federal level while still allowing states to set their own policies. According to the bill’s detailed summary, it has a few goals:

“… [it will] Ensure that Americans – especially Black and Brown Americans – no longer have to fear arrest or be barred from public housing or federal financial aid for higher education for using cannabis in states where it’s legal. State-compliant cannabis businesses will finally be treated like other businesses and allowed access to essential financial services, like bank accounts and loans. Medical research will no longer be stifled.”

The bill also includes:

Restorative measures for people and communities who were unfairly targeted in the war on drugs.
Automatic expungements for federal non-violent marijuana crimes and allows an individual currently serving time in federal prison for nonviolent marijuana crimes to petition a court for resentencing.
An “Opportunity Trust Fund” funded by federal cannabis tax revenue to reinvest in the communities most impacted by the failed war on drugs, as well as helping to level the playing field for entrepreneurs of color who continue to face barriers of access to the industry.
An end to discrimination in federal public benefits for medical marijuana patients and adult-use consumers.
Respect for state cannabis laws and a path for responsible federal regulation of the cannabis industry. Like with federal regulations on alcohol, under CAOA, states can determine their own cannabis laws, but federal prohibition will no longer be an obstacle. Regulatory responsibility will be moved from the U.S. Drug Enforcement Agency (DEA) to the Alcohol and Tobacco Tax and Trade Bureau (TTB), the Bureau of Alcohol Tobacco Firearms and Explosives (ATF), as well as the Food and Drug Administration (FDA) to protect public health.
A federal tax structure – CAOA would impose an excise tax on cannabis products in a manner similar to the tax imposed on alcohol and tobacco. The general rate of tax would be 10 percent for the year of enactment and the first full calendar year after enactment. The tax rate would increase annually to 15 percent, 20 percent, and 25 percent in the following years.

What’s next?

The discussion draft comment and feedback process will be ongoing until September 1. Until then, NCIA will be working with our board, Policy Council, committees, and our members (particularly our Evergreen members!) to solicit their expert input on some of the areas the Senators have expressed interest in. After that deadline, the Senators will take their time to review submissions and subsequently formally introduce the revised language later this year. Stay tuned via our newsletter, blog, and upcoming events to learn the latest on this and how you can actually submit your thoughts to us!

Even With So Much Progress, We Must Remain Diligent

By Rachel Kurtz-McAlaine, NCIA’s Deputy Director of Public Policy

What a time to be in the cannabis industry! Federal legalization feels like it is finally on the horizon, especially with the big news that tomorrow will be a press conference to introduce a draft discussion bill that has been promised by Senate Majority Leader Chuck Schumer Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ).

When I first started cannabis reform advocacy 25 years ago, cannabis legalization seemed unattainable in my lifetime, given the stigma we were, and still are, up against. But medical cannabis was just starting to pass and more of us were coming around to believing in the potential of the plant and being horrified at the war on drugs to the point that we devoted our lives to ending it. That includes the founders of this organization and many who went on to start businesses that are now members of NCIA.

Running a business in the cannabis industry can be a daily challenge, from banking to text messaging to supply chain issues, so it may be hard to notice the sea change happening with cannabis bills around the country. Four state legislatures legalized cannabis just within the first six months of this year, for a total of 18 states and Washington, D.C., that have legalized cannabis for adult use over 21 years of age. (You can check out our state policy map to learn more about the status of different states.)

Believe it or not, that sea change is happening in Congress, too, and we want to make sure we’re doing everything we can to inform you about what is happening and to hear you.

As Michelle wrote about previously in the Government Relations blog, Give Us MORE, the MORE Act of 2021 was reintroduced at the end of this Spring in the House of Representatives. Read Michelle’s excellent summary, but more importantly, read the bill! An almost identical version of the MORE Act passed the House last Fall, only to be held up by a GOP-led Senate, but showed the real momentum happening in Congress.

Despite the hold up in the Senate, there is some bipartisan support. A Republican bill was even introduced in the House, the “Common Sense Cannabis Reform For Veterans, Small Businesses, and Medical Professionals Act,” that would have similar legalization efforts to the MORE Act, such as descheduling cannabis from the Controlled Substances Act and punting on regulations to federal agencies, but would not have any of the provisions that address industry equity and retribution from the years of harm caused by cannabis prohibition.

Support for legalization is now so mainstream that even Amazon is now backing cannabis legalization, expressing support for the MORE Act, although it remains to be seen if they will continue supporting MORE or get behind Sen. Schumer’s bill.

The SAFE Banking Act of 2021 is still in play and remains a crucial bill given that it could have the highest likelihood of passing the soonest. It can be overlooked given the trajectory of descheduling bills, but NCIA’s Government Relations team remains committed to SAFE and continues lobbying for it because, even though we’re planning what descheduling looks like now, it could take a few years to get there. In the meantime, banking is in emergency status.

As federal descheduling appears on the horizon, I encourage you to read the bills, including the Schumer bill, and consider how they will affect you and your business. I’m not saying legislation will necessarily pass this year, but right now is when ideas are being discussed, amendments are being drawn up, decisions are being made.

Consider how much we need to do federally versus getting the states to standardize their regulations versus having a set of voluntary self-regulatory measures that shows we are a self-aware industry and want to be safe for our customers. Keep in mind that much of the alcohol industry is self-regulated, and why would we purposely advocate to regulate ourselves more than the alcohol industry when cannabis is demonstrably safer? I appreciate the thriving alcohol market, the innovation and craft, but I know we can do even better while minimizing harm and acknowledging the past harm, but we have to be diligent.

NCIA is proud and honored to be representing the broad spectrum of the industry, from multi-state operators, to small legacy farmers, to those that have been hurt by past prohibition and want to be part of this thriving industry – all of the industry. That means hearing from you, your concerns, your ideas, your insights. Please feel free to contact me at Rachel@TheCannabisIndustry.org.

I encourage you to read the bills, including Sen. Schumer’s draft discussion bill being released tomorrow, keep reading blog posts, watching webinars, checking out NCIA’s industry buzz, and stay informed because a new day is dawning, but it’s going to be a long day, so we better be prepared for it.

Mid-Year Update on 280E and its Impact on the Cannabis Retail Sector

by Beau R Whitney, NCIA’s Chief Economist

The first half of the year was a strong one for cannabis revenues. After a strong first quarter, with $5.9 billion in revenue, cannabis retailers are experiencing continued growth in Q2 with preliminary results coming in at $6.2 billion to $6.5 billion.

If this trend remains in the second half of the year, the cannabis retail sales are projected to be $24.5 to $25 billion for the year. This would reflect another cycle of 35% year-over-year growth.

Source: Whitney Economics, Leafly

Strong growth in the first half of the year, does not necessarily mean huge profits for the cannabis industry.

While the industry has seen strong growth over the past year, this does not necessarily mean that the industry as a whole is in good shape. Retailers are struggling to make profits due in a large part to federal taxation. IRC 280E does not allow entities conducting business in federally illicit trade, such as cannabis, to write off common and ordinary deductions from their federal taxes. As a result, cannabis operators pay significantly more taxes than other businesses. This has long been an issue with the cannabis industry and organizations such as NCIA has been working tirelessly to address this, but as long as it remains a federal policy it will be negatively impacting the industry.

Cannabis retailers are taking the brunt of federal tax policy.

With over $12 billion in first-half revenues, cannabis retailers will be on the hook for $1.2 billion in federal taxes for the first half of the year alone. This is $756 million more than what “normal” businesses would pay. Cannabis retailers are forecasted to pay over $1.5 billion more in taxes in 2021 and, when combined with the rest of the supply chain, will pay over $2.2 billion in additional taxes in 2021.

280e Example of Impact on Retail	Normal Business	280E Business	Comment
Retail mid-Year Revenue	$12,000,000,000	$12,000,000,000	Based on data from Whitney Economics
Cost of Goods Sold (COGS = 50%)	$6,000,000,000	$6,000,000,000
Ordinary and Necessary Expenses (30%)	$3,600,000,000	$3,600,000,000	Not allowed under 280e
Real Pre-Tax Profit w/o 280e	$2,400,000,000	$2,400,000,000
*Taxable Profit*	*$2,400,000,000*	*$6,000,000,000*	Big difference in taxable rates
Fed Tax @21% *	$504,000,000	$1,260,000,000	Retailers pay 150% more
*Effective tax rate*	*21.0%*	*52.5%*	Some effective tax rates approach 60%-70%
*Net Annual Profit (Before State Tax and Debt Service)*	*$1,896,000,000*	*$1,140,000,000*	A difference of $201,000 per year per retailer

Source: Whitney Economics
*Assumes taxed at C-corporation rates

The effective tax rate is forecasted to increase with corporate tax increases.

The effective tax rate increases significantly for retailers and in many cases exceeds 60% to 70%. The level of additional taxes that cannabis operators pay, over the course of the next five years, will increase by an average of $630 million per year for the industry if the business tax rates increase from 21% to 28%. Depending on how corporate tax policy negotiations are settled, things may go from bad to worse for cannabis retailers.

Cannabis retailers are struggling to make ends meet.

Based on sales data from 2020, there were over 7,550 licensed cannabis retailers in the U.S. with each retailer generating an average of $2.4 million per year. This is right around the amount of revenue required to be a sustainable retail business. In 2021, there have been roughly 1,000 more retailers licensed and even with an increase in sales, retailers are only forecasted to average $2.7 million per year.in sales. In fact, in 13 states, retailers are not projected to average the $2.4 million per year to remain viable. While retailers in some states may be OK, other retailers are not able to make ends meet.

What do these numbers tell us?

IRC 280E will reduce cannabis retailers cash flow by $200,000 in 2021 and that $200,000 would go a long way in shoring up the finances and provide retailers with the breathing room they need to remain viable. 280E reform would allow retailers to pay for health care for more employees, hire more workers and expand their business. However, in the current environment, many cannabis operators will continue to struggle.

The key message here is that retailers are under duress due to 280E and policy reform in the area of federal taxes may make the difference between success and failure. The time for reform is now, before it is too late.

Learn more in a recent NCIA Fireside Chat webinar with an all-star panel of accounting experts and operators to dive deep into all things 280E.

Supreme Court of Cannabis?

By Michelle Rutter Friberg, NCIA’s Deputy Director of Government Relations

While it’s become commonplace to hear cannabis come up in the halls of Congress, and increasingly so in the White House, there’s one branch of government that has been quieter on the topic: the Supreme Court (SCOTUS). However, this week, conservative Justice Clarence Thomas changed that when the court actually declined to weigh in on a 280E case.

Towards the end of 2020, a Colorado medical cannabis dispensary decided to ask the U.S. Supreme Court to review a lower-court decision that allowed the IRS to obtain business records in order to apply the 280E provision of the tax code. (Fun fact: NCIA member Jim Thorburn, of the Thorburn Law Group, was actually the counsel on record for this appeal!) According to the filings, the IRS overstepped its authority and also violated the company’s Fourth Amendment privacy rights. Some of the questions the company took to the highest court in the land:

Does the Fourth Amendment protect taxpayers from having confidential information released to the IRS and federal law enforcement authorities?
Does the application of Section 280E to state-legal marijuana businesses violate the federal constitution?

Again, while SCOTUS declined to consider this appeal, Justice Thomas took issue with the underlying state/federal discrepancy in the country’s cannabis laws and issued a searing statement. He specifically discussed a 2005 ruling by SCOTUS in a case called Gonzales v. Raich. In this ruling, the court narrowly determined that the federal government could enforce prohibition against cannabis cultivation that took place wholly within California based on its authority to regulate interstate commerce. Check out a few excerpts from Justice Thomas’ statement below:

“Whatever the merits of Raich when it was decided, federal policies of the past 16 years have greatly undermined its reasoning. Once comprehensive, the Federal Government’s current approach is a half-in, half-out regime that simultaneously tolerates and forbids local use of marijuana. This contradictory and unstable state of affairs strains basic principles of federalism and conceals traps for the unwary.”
“Given all these developments, one can certainly understand why an ordinary person might think that the Federal Government has retreated from its once-absolute ban on marijuana. See, e.g., Halper, Congress Quietly Ends Federal Government’s Ban on Medical Marijuana, L. A. Times, Dec. 16, 2014. One can also perhaps understand why business owners in Colorado, like petitioners, may think that their intrastate marijuana operations will be treated like any other enterprise that is legal under state law.”
“As things currently stand, the Internal Revenue Service is investigating whether petitioners deducted business expenses in violation of §280E, and petitioners are trying to prevent disclosure of relevant records held by the State. In other words, petitioners have found that the Government’s willingness to often look the other way on marijuana is more episodic than coherent.”
“This disjuncture between the Government’s recent laissez-faire policies on marijuana and the actual operation of specific laws is not limited to the tax context. Many marijuana-related businesses operate entirely in cash because federal law prohibits certain financial institutions from knowingly accepting deposits from or providing other bank services to businesses that violate federal law. Black & Galeazzi, Cannabis Banking: Proceed With Caution, American Bar Assn., Feb. 6, 2020. Cash-based operations are understandably enticing to burglars and robbers. But, if marijuana-related businesses, in recognition of this, hire armed guards for protection, the owners and the guards might run afoul of a federal law that imposes harsh penalties for using a firearm in furtherance of a ‘drug trafficking crime.’”
“Suffice it to say, the Federal Government’s current approach to marijuana bears little resemblance to the watertight nationwide prohibition that a closely divided Court found necessary to justify the Government’s blanket prohibition in Raich. If the Government is now content to allow States to act “as laboratories” “‘and try novel social and economic experiments,’” Raich, 545 U.S., at 42 (O’Connor, J., dissenting), then it might no longer have authority to intrude on “[t]he States’ core police powers . . . to define criminal law and to protect the health, safety, and welfare of their citizens.””

Just to be clear, these statements don’t change the law of the land, nor do they indicate formal policy developments. They do, however, show that the constantly shifting public perception of cannabis is affecting the way we as a society think about marijuana, which will, at some point, translate into policy. It’s no small feat that one of the most conservative justices on the Supreme Court has weighed in so substantially on this topic. Continue the momentum and join the movement with NCIA!

States Still Leading The Way, With Some Stirrings In Congress

By Morgan Fox, NCIA’s Director of Media Relations

As has been so often true in the history of cannabis policy reform (but is starting to change with your help), the biggest news and progress made this week is at the state level. After a long and arduous legislative session, Connecticut lawmakers approved an adult-use bill, which Gov. Lamont signed on Tuesday!

The new law makes adult possession of up to 1.5 ounces legal and will establish a regulated licensing system. Half of all licenses are reserved for social equity applicants, who will also be able to access training, technical assistance, and startup funding. Limited home cultivation will be permitted in stages (medical first, then adults), and limited social consumption will not just be allowed – it will be mandated in municipalities with more than 50,000 residents.

Let’s put this in a national perspective. If you do not include all the years of foundation-building, activism, and lobbying that go into changing cannabis laws, it took two years for voters to approve adult use in the first four legal states starting in 2012. At that time, passing such laws through elected representatives was unheard of. Now in 2021, four state legislatures have approved adult-use bills in the first six months of the year! We’ve come a long way in terms of state policy reform and momentum is only increasing, but we still have a long way to go.

Now let’s move to Congress, where things tend to move a bit more slowly but are nevertheless picking up speed.

Earlier this month, NCIA endorsed the Drug-Impaired Driving Education Act. This bill, introduced by Reps. Kathleen Rice (D-NY) and Troy Balderson (R-OH), would provide grants and resources to states and organizations to engage in evidence-based impaired driving education. NCIA supports this bill because impaired driving is a serious issue that is most effectively combatted through early and consistent educational outreach, which this legislation promotes to the exclusion of unscientific per se limits and unproven chemical testing technology.

In somewhat related news, a massive transit bill is now awaiting a vote in the House of Representatives after recently passing a key committee. This legislation contains a number of provisions related to impaired driving education, the most important cannabis-related item is a provision that would allow researchers to access and study cannabis products that are available to consumers in state-legal markets rather than depend on federally-approved sources. While the DEA has announced that it will begin granting research production licenses to applicants – many of whom have been waiting for years for approval – there is currently only one legal federal cannabis source, and researchers have consistently complained that it is practically useless due to poor quality and contamination.

Moving on to the SAFE Banking Act, Senate sponsors Jeff Merkley (D-OR) and Steve Daines sent a letter to Banking Committee Chairman Sherrod Brown (D-OH) and Senate leadership urging them to take up the bill for consideration as soon as possible. After overwhelmingly passing in the House in April with a bipartisan vote, the bill has been awaiting review in the upper chamber, with some Democrats wanting to wait until a more comprehensive bill is introduced there.

Advocates and congressional supporters are eagerly awaiting the introduction of that legislation from Senate Majority Leader Chuck Schumer, who has been working closely with Sens. Ron Wyden (D-OR) and Cory Booker (D-NJ) since announcing that this effort would be a priority early this year.

The Senate has quite a bit on its plate at the moment, but we expect things to keep ramping up over the coming weeks and months. Stay tuned!

Video: NCIA Today – June 4, 2021

Give Us MORE

by Michelle Rutter Friberg, NCIA’s Deputy Director of Government Relations

Last week, a long-awaited and much-anticipated piece of cannabis legislation was finally unveiled. On Friday, H.R. 3617, known as the Marijuana Opportunity, Reinvestment, and Expungement Act, or the MORE Act, was reintroduced by House Judiciary Committee Chairman Jerry Nadler (D-NY). You’ll remember that back in December 2020, the House of Representatives made history when they passed the MORE Act by a vote of 228-164. Let’s take a look at the bill and break it down:

What:

H.R. 3617, the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act

Who:

House Judiciary Committee Chairman Jerry Nadler (D-NY) is the lead sponsor, along with Reps. Lee (D-CA), Blumenauer (D-OR), Jackson Lee (D-TX), Jeffries (D-NY), and Velazquez (D-NY).

Status:

Just like the last session, the bill has been referred to a number of committees: In addition to Judiciary, it was also passed on to the Committees on Energy and Commerce, Agriculture, Education and Labor, Ways and Means, Small Business, Natural Resources, Oversight and Reform, and Transportation and Infrastructure.

Summary:

The MORE Act would remove cannabis from the federal Controlled Substances Act and attempt to undo the damage caused by racially and economically disproportionate enforcement of prohibition. It would also eliminate the conflict between federal law and states with regulated cannabis systems, and would require the expungement of past federal cannabis convictions. The bill would establish a Cannabis Justice Office to administer a program to reinvest resources in the communities that have been most heavily impacted by prohibition, funded by a graduated tax on state-legal cannabis commerce. It would also prevent discrimination based on cannabis consumption during immigration proceedings, and permit doctors within the Veterans Affairs system to recommend medical cannabis to patients in accordance with applicable state laws.

Background:

As I mentioned previously, during the 116th Congress, the MORE Act passed the House but was not taken up by the Senate. Now, during the 117th Congress, the calculus has changed a bit – on both the House and Senate sides. On the House side, the chamber is more Republican than the last time the bill was passed – meaning that advocates will have to work hard to ensure no more votes are lost and that support increases. On the Senate side, Democrats now maintain the majority by the skin of their teeth, but all legislation effectively needs 60 votes to pass – a difficult threshold. It’s also important to note that the MORE Act has not been introduced in the upper chamber as all eyes focus on Leader Schumer (D-NY) and Sens. Booker (D-NJ) and Wyden’s (D-OR) upcoming comprehensive bill.

Notable Changes & Provisions:

When the MORE Act passed out of the House back in December 2020, it contained a small but impactful section that was included at the last minute. This contentious provision related to discrimination against victims of cannabis prohibition in the permitting process. A section that pertained to applications for a federal cannabis permit stated that an application may be rejected and a permit denied if the Secretary of Treasury finds that the legal person (including in the case of a corporation, any officer, director, or principal shareholder) is “by reason of previous or current legal proceedings involving a felony violation of any other provision of Federal or State criminal law relating to cannabis or cannabis products, not likely to maintain operations in compliance with this chapter,” which would be a major blow to the intent of the legislation to undo the harms caused by prohibition. NCIA brought this provision and our concerns to the bill sponsors’ attention, resulting in them publicly committing on the House Floor to revisit and improve this section. That language was not included in the 117th Congress’ recently reintroduced version.

Also of note, the MORE Act includes tax language. When the bill was first introduced in 2019, it contained a tax section that set up a flat 5% sales tax on cannabis products at the federal level. That was later amended to be a graduated tax, beginning at 5% and increasing up to 8% in subsequent years post-legalization. The soon-to-be-reintroduced MORE Act has the same graduated tax levels.

What’s Next:

The bill has a long path ahead: as I pointed out, there are multiple committees of jurisdiction that will want to weigh in on this important legislation – I’d venture to say that both the Ways and Means (tax writing) and the Energy and Commerce Committees will have substantive edits. Another consideration is one I’ve mentioned in passing, and that’s the impending introduction of new, comprehensive cannabis reform legislation that will (hopefully) soon be unveiled in the Senate. It’s also important to note that the MORE Act is missing one critical thing: regulations, and we at NCIA believe that those can make all the difference when looking at what’s next for this legislation.

We applaud Chairman Nadler and the other cosponsors of this legislation for tackling this topic, and congratulate them on the bill’s reintroduction! We look forward to continuing to work with their offices to improve and build support for this critical piece of legislation. Stay tuned on our blog, our NCIA weekly newsletter, and NCIA Connect to find out the latest on MORE!

Hurry Up And Wait: Descheduling, DEA Licenses, And Other Reform Legislation to Watch

By Morgan Fox, NCIA’s Director of Media Relations

The cannabis world is still eagerly awaiting the introduction of Senate Majority Leader Chuck Schumer’s comprehensive descheduling legislation, but that doesn’t mean things haven’t been moving on the policy front in recent weeks!

First up, the DEA announced that it was finally moving forward with approving applications to cultivate cannabis for research purposes, which would effectively end the federal government’s stranglehold on research production. The agency spent years fending off lawsuits from applicants, who correctly asserted that not only was the monopoly limiting research, but the cannabis being grown at the single licensed facility at the University of Mississippi was basically unusable for research purposes anyway. This announcement comes several years after the DEA publicly stated that it would begin the licensing process. Better late than never.

Of course, we don’t think the DEA should be involved in cannabis research whatsoever, seeing as how they are a law enforcement organization and not, you know, scientists.

Next, Sen. Ron Wyden, who is also working closely with Majority Leader Schumer on descheduling along with Sen. Cory Booker, introduced S. 1698 last week. While text of this bill is currently not publicly available, the name suggests that this legislation would direct the FDA to allow hemp-derived CBD, made legal under the 2018 Farm Bill, to be used as a dietary supplement or in food. Some perceive this bill as necessary to get some regulatory clarity from the FDA, which has been dragging its feet and missed several deadlines for CBD regulations. Many in the industry blame this lack of regulation for larger retailers staying out of the CBD market, which has led to massive supply gluts of the substance and has been hypothesized to be a leading cause for the recent boom in Delta 8 THC production.

And earlier this month, Rep. David Joyce, an Ohio Republican who co-chairs the Congressional Cannabis Caucus, introduced a narrowly tailored bill to remove cannabis from the schedule of controlled substances. The bill assigns regulatory responsibilities to the FDA and the Alcohol and Tobacco Tax and Trade Bureau and gives them a one-year deadline to come up with a regulatory structure similar to alcohol. It also contains provisions similar to the protections that exist in the House-approved SAFE Banking Act, calls for studies on how cannabis impacts pain and driving, and improves access for veterans. Notably, this bill does not contain any social equity or restorative justice language.

While the chances of such legislation passing in the Democrat-controlled House are slim, it could serve as a doorway to get fence-sitting Republicans into the debate. It could also be a tool to identify those members of the GOP who are steadfastly opposed to any legalization bill and out of touch with their constituents, many of whom would directly benefit from cannabis policy reforms and who are increasingly in support of ending federal prohibition.

We’re also getting word that the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act is getting reintroduced in the House this week (and may have already been at the time of this publication). This legislation made history last December when it became the first descheduling bill to receive a floor vote – and pass – in either chamber of Congress. We are hopeful that there will be some revisions from the previous bill, including the removal of a provision that would allow federal licensors to deny applications for cannabis business licenses based on prior state or federal felony convictions, and the inclusion of a more sensible and robust regulatory framework.

We are less than halfway through the calendar year, and it is shaping up to be a momentous one for cannabis advocacy! Stay tuned for more updates from Capitol Hill.

P.S. On the state side, Alabama became the latest state to approve an effective medical cannabis law. Yes, Alabama. That brings the count of medical states to 36, after unfortunately losing Mississippi to a shameful court decision. So far in 2021, four states have approved adult-use or medical cannabis legislation, and more are expected to do so in the coming weeks and months.

Committee Blog: Fundraising Basics in the Cannabis Industry — Part 3

By Deborah Johnson, MCA Accounting Solutions & James Whatmore, MAB Investments
NCIA’s Banking & Financial Services Committee
Part 3 of a 3-part series

In our first two blogs we took you from early concept, legal formation and early efforts through the early angel rounds. You have production in place with some equipment financing, getting you to early-stage revenues. Hopefully a smart angel investor is available to you for questions or direction. In the final part of this blog on funding your business, we will present some formal round structures, how you can best prepare for those finance rounds, and some ways to bring your friends along for the ride.

Everything you have done to date is going to be considered in a Series A round. What you have done and who you have surrounded yourself with will be looked at by potential investors. You have put in the work and built strong social capital. You have a diverse and strong team with expertise in your sector. The next level of investor will want to see how you tie it all together. These factors will be considered in light of your Total Addressable Market (TAM), valuation, use of funds, jurisdiction, and many other metrics. At this level a solid accounting team can produce Canna-GAAP (Generally Accepted Accounting Principles) financials to build a credible financial model. Having this current as you move through funding will give investors some level of comfort. As we have discussed, preparation is particularly important.

Alain Bankier, an active Angel investor, points out, “If you have brought on the right group of Angel investors, they are a prime source of excellent feedback, as you prepare your deck, your financials, and your pitch for the next round. Angel investors have seen 100’s if not 1000’s of company pitches and they can help you craft the most compelling presentation and they are your natural allies, as they have already invested and are motivated for you and the company to succeed!”

Long-term planning will help you define the total amount of funding you will need for certain milestones of development. A series of capital raises has some advantages over a single funding event. Each milestone you pass signals a value add to the company, and each subsequent round will be less dilutive. And the investor may see the project as de-risked, increasing their commitment through the follow-on rounds.

For each round there are several types of funding instruments: SAFE agreements, convertible debt, and preferred equity to name a few. Simple Agreement for Future Equity (SAFE) may be an option early in the funding plan. A SAFE note is a convertible security that allows the investor to buy shares at a future priced round. It has no maturity date and no interest rate. As such they are not debt and therefore do not accrue interest. But it also requires C-Corp status as the note goes on the cap table just like stock options. A convertible note is a common way to kick off a formal funding cycle and is dependent on future rounds as a trigger event. As a note it has a term of maturity and an interest rate; often there will be a cap on conversion value and a discount on valuation below that threshold. Once triggered, both of these may convert into shares of the company (or units of an LLC); what those shares are is described in the offering documents, usually summarized in a term sheet outline. These shares can have any number of rights or preferences attached to them. The fact that these are triggered by further rounds makes them a good part of an overall funding strategy.

The alphabet soup of rounds starts after the convertible note. The first equity A round will essentially sell some of the company to your investor; there will be a price, your valuation, and terms. As long as you are executing on the vision you have communicated to investors, each additional round will reflect your progress with a higher valuation and less attractive rights. The business put forth by you and your PowerPoint pals from the first blog in the series was worth a couple thousand dollars. Now you can apply many metrics on your sales, balance sheet, or milestone for a multimillion-dollar value.

Convertible debt and equity rounds are part of your long-term funding plan; so are new target investors. As you hit milestones and rise in valuation, the company becomes attractive to new investor classes. Certain funds have a minimum milestone they need to see before considering an investment. Pre-revenue, post-revenue, cash flow positive, market share, and total sales all have relevant hurdles for certain groups. Seed and angel investors may participate in a convertible note getting you to revenues, while an investment fund will only lead the A round with those revenues in place. If all is right, they will participate in B and C rounds as well; with larger and more sophisticated investors looking at the milestones you are currently achieving. The investors who value your milestone wins will take notice and start to circle.

As the investment in your company grows, the pool of investors shrinks. Although this may change in the near future, the traditional investment landscape is limited in cannabis; fortunately, there are several new and non-traditional sources of funding. Crowdfunding is a trend that has not escaped cannabis; however, the stigma has limited the platforms those in the industry have access to. Crowdfunding via Reg CF is the use of small amounts of capital from a large number of individuals. It is legal to be part of a cannabis business by investing up to $2,000 in exchange for ownership of a portion of the company. Through this method, a company can raise up to $5 million. Sites such as Fundanna, CannaFundr, Start Engine, Kickstarter, Crunchbase, Mazakali, Useed, Indiegogo, and SeedInvest provide platforms to market opportunities. There are various hurdles encountered here as well. Platforms can have banking issues as well. For example, 420fundme was shut down after their bank decided not to work with them. Also, some require the business to be in a U.S. state where cannabis is legal, or they only promote those businesses that impress them. So be sure to understand the sites’ rules and stay on top of regulations.

The REG A(+) is crowdfunding’s big sibling. This is an investment vehicle that is exempt from registration with the SEC that allows the general public and not just accredited investors to join the round up to $50 million in a 12-month period. GAGE, a Michigan vertical, successfully funded their recent expansion with a Reg-A. If you are talking to investment banking firms, this could be a good late-stage option to secure a large round of capital.

As you prepare to fundraise and have a clear understanding of where your business is in its lifecycle, you can put together the best capital raise for your project. Cannabis is a relatively new industry, and its murky legality means that roadblocks are likely. Be prepared to exercise all of your financing options. When raising funds for equity, all of the investors are looking for a liquidity event. So, whether your company eventually goes public or there is a merger or acquisition, they are not looking to invest in a so-called “lifestyle” company. As legality is resolved, many companies that are now on the sidelines looking in will be looking for opportunities to acquire and appear “established”. This is your window of opportunity to build a great brand, gain traction and be ready for when that happens.

Member Blog: How Cannabis Legalization In Minnesota Can Further Equality

By Mell Green, CBD Oracle

Medical cannabis hasn’t always had a smooth go in the United States. Thankfully, as time has slowly started to change and viewpoints have shifted, cannabis legalization is finally gaining traction state-wide. While this is an incredible feat for so many different reasons, many states see long-term benefits of cannabis legalization much further reaching than anyone could have imagined.

Today, we’re talking about how cannabis legalization in Minnesota may actually help further equality and break down barriers that have long been deeply rooted. Let’s get started.

FIRST GLANCE:

Cannabis has a rocky history in the United States, with most negative stigma being racially charged.
This ideology lasted for decades until some states started decriminalizing and legalizing medical cannabis in the 80s and 90s.
Now, as cannabis legalization spreads, the divide between white Americans and POC in the industry is more prominent than ever.
Legalization can help further equality in states like Minnesota, but it requires holistic change from within communities.
With legalization may come fewer victimless crimes, resulting in lessened police presence, effectively leaving targeted communities feeling safer and more comfortable.
By supporting local Black or minority-owned dispensaries and working with local organizations, cannabis equality may progress in the ways that community members need — but the change will start with you!

Cannabis’s Rocky History

Quickly, it’s essential to understand the tumultuous history behind marijuana and just how far we’ve come as a society. However, seeing this rocky past also helps illuminate how much further we still have to go.

The cannabis plant has existed for millennia on planet Earth. Its therapeutic benefits have supported civilizations in spiritual, religious, and medicinal ceremonies across the globe. As this idea spread to Western societies, the plant was, at first, welcomed with open arms. At the start of the 20th century, all of this changed entirely in the United States.

During the Mexican Revolution from 1910-1920, many Mexican citizens fled their war-torn home country in search of a safer, more promising future. With this, the U.S. saw an influx of Mexican immigrants.

Throughout Mexico, enjoying cannabis for its recreational effects wasn’t a new idea. So, when citizens began migrating North, they also brought more normalized recreational cannabis use. At first, for those in the U.S. who already adored cannabis, this was incredibly exciting. But, for many in positions of power, class, and wealth, this type of cannabis use wasn’t going to fly. Thus came the Reefer Madness film and decades-long racially charged cannabis persecutions.

The Impact of Legalization and Equality

It took way too long, but the United States finally started getting on board with cannabis decriminalization and legalization back in the 80s and 90s. With this, the exposure to cannabis science became more extensive, and it was easier to see that the plant did (and still does) have some serious medicinal benefit. Seeing these facts caused a lot of opinions to change, resulting in an almost domino-like effect of cannabis legalization across the country.

Now, 36 states have legalized medical cannabis, allowing more people than ever access to the precious plant they love. But has this legalization impacted the people most disproportionately punished? Not really.

Still today, we see Black men arrested for cannabis crimes at disproportionately high rates, even though cannabis is legal in most states across the U.S. If anything, these legal changes have made the divide all the more evident, allowing the country to see just how horrific the cannabis industry can be for people of color. At the same time, it simultaneously celebrates white American consumers. This may help boost PR for big business, but it doesn’t help local (black-owned or otherwise) businesses on the ground. Legally or economically.

So, what can we do to change this? How can cannabis legalization help to further the progress we’ve made?

Legalization in Minnesota: How To Further Equality

I know, it sounds like we’re a bit cynical, but it’s crucial to bring up these divides before discussing how we can move further. The country often loves to praise all the beauty that the cannabis industry brings, forgetting the intense harm it has caused so many communities.

Let’s talk about Minnesota, for example. In May, it looks as though the state is going to vote to pass adult-use cannabis use. If this happens, here’s what could potentially occur in terms of furthering equality — but, at the end of the day, this change is up to you.

Realistically, the legalization of cannabis should help reduce the number of victimless crimes in the area, helping the community feel more at ease. With this, you would also expect a lowered number of consistent police presence in areas where cannabis use was a previous “problem.” Often, when communities of color experience increased and frequent police presence, this does not provide a sense of safety. Typically, it provides the opposite. Thus, legalizing cannabis in places like Minnesota may be able to create an environment that not only feels safer but feels more accepting of all residents. Feeling safe is great for business, big and small – but especially small. Reduction of victimless crimes and less police presence could really boost the state economy, and additionally enhance everyone’s sense of community and unity.

Furthering equality through the legalization of cannabis can be done, but the work goes much deeper than just on a legal level. As we’ve seen, just because the law says one thing, that doesn’t mean it applies to all groups of people. So, once legalization happens in Minnesota — or your state — the next steps are in your hands.

What’s Still Left To Do

Take the time to research Black and minority-owned dispensaries in your area and support these shops.
See if you have any local cannabis equality organizations that specialize in helping those who have been wrongly affected.
Educate others on the history of cannabis and why the subject can still be painful for POC.

With this, you’ll also understand how legalization is not an end-all-be-all solution. If we want to erase cannabis’s racially charged stigma, the answer is holistic: it starts with a community.

Mell Green is a content creator who believes that cannabis can help anyone achieve a life-enhancing experience. Her participation in the advocacy of the plant for the last several years has not only allowed her to create solid relationships with the world’s leading cannabis companies, but it has also helped her to educate and spread awareness on the power of alternative medicine.

CBD Oracle is a California-based online magazine dedicated to cannabis and CBD education. The company has made it its mission to provide specialized, expert advice to those who need it, publishing detailed, informative, and entertaining articles, guides, and reviews, all backed by the latest scientific studies and research.

Video: NCIA Today – April 30, 2021

Victories and Challenges For Cannabis Policy Reform

By Morgan Fox, NCIA’s Director of Media Relations

On April 19, the House of Representatives approved legislation once again that would provide legal protections for financial service providers to work with cannabis businesses that are in compliance with state laws. The Secure and Fair Enforcement (SAFE) Banking Act, or H.R. 1996, was reintroduced in March by a bipartisan group of sponsors and had 177 total cosponsors by the time of the vote.

The legislation was approved by a vote of 321-101 and included 106 Republicans voting in favor of the measure, a small majority that represents a growing trend of increasing conservative support since the last time this bill was approved in the House in 2019. No Democrats voted against the bill. This is the fourth time that the House has approved the language of the SAFE Banking Act, initially as the first standalone cannabis policy reform bill ever passed by either chamber of Congress two years ago and two more times last year as part of pandemic relief packages that were not approved in the Senate.

In the time that elapsed between the last vote on the SAFE Banking Act and this one, a number of factors have added momentum and boosted the pressure on federal lawmakers to more seriously consider cannabis policy reform generally and bills like the SAFE Banking Act.

First, cannabis businesses were nearly unanimously declared essential in states with regulated markets during the pandemic, adding to the legitimacy of the industry in the eyes of many while providing uninterrupted healthcare, jobs, and tax revenue in a very challenging economic and public health environment. However, despite increased sales over the last year, the operational costs required to keep employees and customers safe have taken their toll, compounded by the added costs and other challenges associated with limited access to banking services or traditional loans.

These obstacles were felt even more keenly by cannabis businesses because they could not avail themselves of the federal stimulus packages approved by Congress, such as PPP or funds available through the Small Business Administration. Helping to ease the worsening financial burdens facing the cannabis industry during such a difficult time was a major reason for the inclusion of SAFE Banking language in the House-approved aid bills. Recently, standalone legislation has also been reintroduced by Small Business Committee Chair Nydia Velazquez to allow direct and indirect cannabis businesses to be able to access SBA-backed loans and other assistance programs.

Unfortunately, the inclusion of cannabis language in House stimulus packages was used as a political attack tool in the leadup to the election by some lawmakers, likely leading to a postponement of a House vote on the MORE Act, which would remove cannabis from the schedule of controlled substances and help repair the damage done by prohibition. Those attacks significantly died down in November, however, when five states approved adult-use or medical cannabis ballot initiatives by heavy margins, including the red states of Mississippi, Montana, and South Dakota. These victories paved the way for the historic passage of the MORE Act in the lower chamber in December. Three additional state legislatures have passed adult-use laws since then, including the first Southern state of Virginia.

This combination of political will, the feasibility of passing cannabis policy reform measures both comprehensive and incremental, and the introduction of eight new regulated cannabis markets in just a few short months has lawmakers of all stripes taking a much closer look at this issue than ever before. Even staunchly opposed legislators are being forced to reexamine their positions on bills that would directly benefit their constituents and businesses in their states, particularly in light of the urgent need for jobs and taxes as the pandemic response begins to pivot toward economic recovery. This is on top of record public support nationally for legalization. It is becoming increasingly clear to lawmakers that standing in the way of reform is a losing proposition.

With the passage of the SAFE Banking Act, it is likely that the House will move its attention to amending and approving the MORE Act for a second time, as well as considering several other pieces of cannabis-related legislation. The fate of the SAFE Banking Act now lies with the Senate. Senate Majority Leader Chuck Schumer said recently that he would prefer to wait for further consideration of that or other incremental reforms until after the introduction of his much-anticipated comprehensive descheduling bill in the coming weeks. We are confident that debate and progress on these bills is not mutually exclusive, and moving both pieces of legislation through the upper chamber simultaneously is both possible and likely, especially given the broad bipartisan support that the SAFE Banking Act enjoys.

Video: NCIA Today – April 23, 2021

SAFE Banking Act Passes House AGAIN

by Madeline Grant, NCIA’s Government Relations Manager

The Secure and Fair Enforcement (SAFE) Act, or H.R. 1996, passed the U.S House of Representatives with a final recorded vote of 321-101. This is the first floor action on a cannabis reform bill this Congress. This is not the first time we’ve seen movement on this bipartisan piece of legislation that would protect banks that service state-legal marijuana businesses from being penalized by federal regulators. The bill was reintroduced in March by Reps. Ed Perlmutter (D-CO), Steve Stivers (R-OH), Nydia Velazquez (D-NY), and Warren Davidson (R-OH), and had 177 total cosponsors by the time of the vote. The bill was taken up under a process known as suspension of the rules, which requires a 2/3rd supermajority to pass and does not allow for amendments. This is the fourth time that the House has approved the language of the SAFE Banking Act, initially as the first standalone cannabis policy reform bill ever passed by either chamber of Congress in 2019 and two more times last year as part of pandemic relief packages that were not approved in the Senate.

What does the SAFE Banking Act do, exactly?

The SAFE Banking Act would protect financial institutions from federal prosecution for providing banking and other services to cannabis businesses that are in compliance with state law, as well as help address serious public health and safety concerns caused by operating in predominantly cash-only environments. The legislation would improve the operational viability of small businesses by helping them reduce costs associated with lack of access to banking and increasing options for traditional lending that many small businesses in other fields rely upon. It would also mandate a study on diversity in the cannabis industry.The SAFE Banking Act seeks to harmonize federal and state law by prohibiting federal banking regulators from: threatening or limited a depository institutions access to the Deposit Insurance Fund, discouraging, prohibiting, or penalizing depository institutions from dealing with the cannabis industry, taking any action against a loan made to a covered business and forcing a depository institution to halt providing any kind of banking services.

Let’s take a look at the history of SAFE Banking in Congress…

2013-2015

Legislation to provide safe harbor for financial institutions that choose to service the cannabis industry was first introduced in 2013 and was called the “Marijuana Businesses Access to Banking Act.” When the bill died in Congress, it had 32 cosponsors and no Senate companion legislation. The bill was reintroduced in 2015 with the same name and 39 cosponsors and a Senate companion with 11 cosponsors.

2017

In 2017, the bill was reintroduced and renamed the Secure and Fair Enforcement (SAFE) Banking Act. By the end of that session, the bill had 95 cosponsors and the Senate companion bill had 20 cosponsors.

2019

On March 7, SAFE Banking was introduced in the House by Rep. Ed Perlmutter (D-CO) and was referred to the Judiciary and Financial Services Committees. On March 28, 2019, the Financial Services Committee voted 45 to 15 to advance the bill to the full House. The bill had broad bipartisan support with 153 cosponsors, over a third of the entire House, at the time of the committee vote (a major jump from 2017). On April 1, Senator Jeff Merkley (D-OR) introduced a companion bill to the Senate and the bill was referred to the Senate Banking, Housing, and Urban Affairs Committee. On June 6, the House bill moved out of committee and was placed on the Union calendar for a vote. The bill then passed the House by 321-103.

2020

Congress spent 2020 legislating relief legislation for Americans as the coronavirus took a toll across our nation. SAFE Banking language was also included in two coronavirus relief packages that the House approved, but unfortunately, did not make it through the Senate.

One thing is abundantly clear, states are continuing to legalize cannabis and the federal government must mitigate the state and federal conflict that legal cannabis businesses are facing. Access to banking is not only essential for any business to function, but a necessary measure for public safety. Laws making cannabis legal for adults have been passed in 18 states as well as the District of Columbia and the territories of CNMI and Guam, and 36 states, as well as several territories, have comprehensive medical cannabis laws. As the House of Representatives, again, has passed SAFE Banking, we will turn our focus to the Senate and keep up the momentum. Make sure when you have a few minutes call your senators and urge them to support the SAFE Banking Act, S. 910. You can look up your senators’ information HERE.

SAFE Banking Act Passed by House of Reps. Again in Bipartisan Vote

Legislation would allow state-legal cannabis businesses fair access to financial services

Today is fourth time the House has approved cannabis banking reform

The House of Representatives approved legislation again today that would provide safe harbor for financial service providers to work with cannabis businesses that are in compliance with state laws. The Secure and Fair Enforcement (SAFE) Banking Act, or H.R. 1996, was reintroduced in March by Reps. Ed Perlmutter (D-CO), Steve Stivers (R-OH), Nydia Velazquez (D-NY), and Warren Davidson (R-OH), and had 177 total cosponsors by the time of the vote. The legislation was approved by a vote of 321-101, including a majority of voting Republicans.

This is the fourth time that the House has approved the language of the SAFE Banking Act, initially as the first standalone cannabis policy reform bill ever passed by either chamber of Congress in 2019 and two more times last year as part of pandemic relief packages that were not approved in the Senate.

“We are incredibly grateful to the bill sponsors who have been working with us for the last eight years to make this sensible legislation become law and have shepherded it through the House time and again,” said Aaron Smith, co-founder and chief executive officer of the National Cannabis Industry Association. “The SAFE Banking Act is vital for improving public safety and transparency and will improve the lives of the more than 300,000 people who work in the state-legal cannabis industry. It will also help level the playing field for small businesses and communities with limited access to capital. It is time for the Senate to start considering the companion legislation without delay.”

Advocates are hopeful that Senate Banking Committee Chair Sherrod Brown (D-OH) will take up the bill in the near future so that it can begin to move through the upper chamber as soon as possible and become law before the end of the year.

Laws making cannabis legal for adults have been passed in 18 states as well as the District of Columbia and the territories of CNMI and Guam, and 36 states as well as several territories have comprehensive medical cannabis laws. The substance is legal in some form in 47 states.

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Committee Blog: Fundraising Basics in the Cannabis Industry – Part 2

by Deborah Johnson, MCA Accounting Solutions & James Whatmore, MAB Investments
NCIA’s Banking & Financial Services Committee
Part 2 of a 3-part series

In our first part of this blog, we discussed the very beginnings of a company; an idea, gathering a team around you, self-funding, opening a bank account and forming an LLC or incorporating. Now you are ready to take a big step, bring on some more people, purchase more equipment and explore partnerships. You have a path with real milestones. This is the time to plan a funding strategy.

If you are not plant-touching, or you are directly ancillary, you might be able to secure a bank loan or an SBA loan. As the SAFE Banking Act is being considered in Congress (at time of writing) the reality of greater access to cannabis banking services may be getting brighter. However, traditional banking sources may still be an issue. These challenges have blended into some ancillary activities. There are a few other debt instruments including venture debt, an accounts receivable (AR) line, or an asset loan. Some of these instruments can be originated with specialty firms or other investment sources.

“While debt has traditionally been scarce in our industry, the relatively recent arrival of lenders has fortunately changed the construct of cannabis company balance sheets. Industry normalization, low rates, relatively high equity capital costs and supply-demand imbalances have attracted capital pools into credit and provided companies with the ability to further normalize their blended cost of capital,” said Sumit Mehta, founder and CEO of Mazakali and chairperson of NCIA’s Banking & Financial Services Committee.

Recently Harborside Inc. (CSE:HBOR) (OTCQX:HBORF) in California landed a historic $12 million revolving line of credit with a bank, marking the first time a cannabis touching company has secured this kind of access. Granted it is secured, but it is a commercial loan from a traditional lender. If you have real estate involved many investors will do a sale leaseback on the property to provide some liquidity. Equipment may also secure a loan; this is often a choice to outfit a capital-intensive production. When evaluating your debt options consider what is happening at this point in your life cycle. For an early-stage company, a revolver may not be the right fit; however, having the right equipment getting you to revenues might be worth investigating.

There are also grants available. Especially with COVID-19, many local jurisdictions are providing small business grants, or you might find one aligned with your demographic or target market niche. Many startups find an accelerator or incubator to help both fund and scale the company. In cannabis, the accelerators have historically been targeted to the ancillary market. Several exist, including Canopy Boulder, Momentum, Gateway, Hood Incubator, The Initiative, Cannabiziac, and even traditional market accelerators such as Y Combinator are addressing the needs of the cannabis market. Accelerators will invest in the companies they are providing guidance to and are generally hosted over a short period of time like 3-4 months, whereas an incubator provides resources, networks, and services over an 18+ month time and might charge a fee to participate. This early mentoring is a great resource for social and personal capital as well. If you have participated in an accelerator or incubator environment you should be exposed to early-stage investors; if you haven’t been exposed to them, this is the time for a solid PowerPoint deck and to polish your presentation.

Next on the list are angel investors. Angels are those individual investors that provide early-stage funding for a startup usually in exchange for convertible debt or ownership equity but are not locked into a funding structure. Banks make loans, angels can do as they please. They can be sophisticated or unsophisticated as they technically just need to qualify as an accredited investor. Most are drawn to investing in something familiar, so either they have a direct professional background in your industry or have felt the pain point you are addressing personally. Some want to roll up their sleeves and be engaged in helping your company grow, others just want to diversify their investment portfolio and take a more passive role. They can invest in the idea and direction of the company and a good angel will understand the timing of the investment. This means that early-stage investors like angels and funds should understand that this is a long-term investment that might take 5-8 years to see liquidity.

The greatest challenge to an entrepreneur is where to find them. Sometimes it’s as easy as looking around your network. With some work you can attract attention to your business idea by either presenting/speaking or pitching at a conference. Over the years, many opportunities to do so have developed. NCIA hosts CannaVest and Cannabis Business Summit, one of the longest running is The Arcview Group, Benzinga, IC3 by IMN, CWCBExpo and many cut their teeth at MJ Biz. Angels are individuals, but often belong to a group of angels to assist with deal sourcing and due diligence. With the normalization of cannabis, you can find many groups via the Angel Capital Association. We’d suggest reviewing market transactions and see who is announcing that they secured funds and with whom. You can find this information through keywords and press releases, consolidating sites such as New Cannabis Ventures or Viridian Capital Advisors, or even Pitchbook. This is the hard part of fundraising: connecting with the right investors.

You can also gain exposure to investors by sharing your expertise. Whether it’s articles on LinkedIn or podcasts and panels, exposing your knowledge of your niche is critical to gaining their confidence in your ability to execute. The conferences above may host your presentation as well furthering your investor engagement. One word of caution, there is a new platform being used by millions – even though it’s still in beta – called Clubhouse. There have been many people that are running pitch rooms on that platform and they are running up against the SEC and rules for fundraising. We encourage an extra dose of caution when pitching where you don’t understand who your audience is and if they adhere to qualifying factors. Many times, the later investors (Series B or C rounds) have to do a lot of work to clean up the cap table from earlier investment rounds. That can be a hurdle that an investor might walk away from. So, the more you can do to assure you are running a clean and efficient fundraising round, the better.

Given that we are in the cannabis industry, it is of particular importance to be an advocate. Access to this plant is still restricted for many, people are still going to jail or are still in jail, and businesses have a disadvantage to all other industries given the repercussions of federal illegality. So being an advocate, aligning and engaging with advocates like the National Cannabis Industry Association (NCIA), Marijuana Policy Project (MPP), Students for Sensible Drug Policy (SSDP) and others, can also expose you to investors who recognize your understanding that there is much work to be done to assure fair access. Expertise, Advocacy, and Engagement will build your social capital. The early rounds can hinge on these factors. While you will need a proforma, other financials and a solid plan, an angel is investing in you as much as in your current project. With enough social capital, your relationship with the early angel investor will survive major setbacks.

Once past these early rounds, your focus will turn to more formal investment groups and businesses in private equity, venture capital and then the public market. Currently those companies touching the plant are able to be hosted on the OTC (over-the-counter) market or the CSE (Canadian Stock Exchange) with a growing number of ancillary companies listing on the traditional exchanges. Here there will be a deep dive into the numbers and execution, pre/post revenues with a clear runway to real revenue. This requires an adaptive corporate culture with some loss of control expected.

In our final piece of the series, we will review crowdfunding, tips on angel and fund investors, and types of funding.

Committee Blog: Fundraising Basics in the Cannabis Industry

by Deborah Johnson, MCA Accounting Solutions & James Whatmore, MAB Investments
NCIA’s Banking & Finance Committee

Part 1 of a 3-part series

So, you discovered a pain point in the cannabis industry while brushing your teeth. You go on to craft a business plan and begin to execute on a minimal viable product to prove your hypothesis and test the market interest in your product. To date, you have funded this by volunteering your time and convincing some other contacts to contribute their time as well. You still have your full-time job, but it’s time to create a formal entity and grow this thing. How are you going to fund this? Well, there are some options and some of them have greater odds depending on your demographic. Are you considered ‘touching the plant” or not? Are you male or female? Are you a person of color or not? Do you have a track record of building businesses and raising funds?

Unfortunately, the data shows that it’s much more difficult to raise funds from angel and VC investors if you are a female or person of color. The following statistic is actually based on the traditional market, so level up the challenge if you are in cannabis:

“Venture dollars invested in sole female founders in 2020 represented 2.4 percent of overall venture funding… the percentage of U.S. venture dollars that went to sole female founders in 2020 dropped dramatically by stage. At the seed stage, 7 percent of VC dollars went to startups with only female founders. At the early stage, that figure was 4 percent, and at the late stage, a mere 1 percent.” – Crunchbase News.

Fortunately, the cannabis investment industry has approached this issue with several new funds and structures. We will touch on that later in this series.

Does your idea involve ‘touching the plant’? Currently, cannabis is illegal at the federal level. This comes with a whole host of challenges and opportunities. With federal illegality comes the opportunity for a startup to solve a problem before the more established, traditional market entities are willing to enter the industry. If you build it well enough, you are likely to be acquired once the market opens up. But you will have to deal with lack of access or restricted access to banking and processing, the IRS and 280E, the certainty of audits, and working within the boundaries of your state’s regulatory structure.

Now you have an idea, so, how to fund? Well, the first thing anyone considering investing in you wants to know is, what is your investment in yourself? Do you have savings, credit cards, personal real estate? For the earliest stages, this is often the first step. This is the “three peeps and a PowerPoint stage” — ideas and iteration come fast. There is no real cost for you to walk away. It is on your dime. You are living off of your day job and every resource you can apply for This shows commitment and the effort will be a key to demonstrating value in the future. Be scrappy.

You will also need to establish a banking relationship. If you are touching the plant this can be quite the struggle. Federal banks have to comply with the KYC – or Know Your Customer – rules and most are unwilling to take on the extra tasks and time it takes to manage a cannabis account and file Suspicious Activity Reports (SARS). Be ready to navigate the business world in cash – which includes security and safety and paying your taxes. Many local-based credit unions are rising up to the challenge, but that often involves extra, costly fees. And even if you are ancillary, if you choose a “green” enough name you are exposing yourself to having your account closed. This goes for processing too. It really behooves you to be as honest and clear about what you are doing and establish a relationship with your banker. NCIA has successfully advocated for the SAFE (Secure and Fair Enforcement) Banking Act (S. 1200, H.R. 2215) which provides a safe harbor to financial institutions doing business with state-legal cannabis providers. It sits in the Senate after having passed the House twice now, although now a new House version will still need to be approved.

As your concept solidifies, its demands of capital increase, with personal, social, business, and financial needs starting to grow past what you can provide alone. You need help. If you have a buddy willing to put an LLC together for you, that’s bootstrapping. If she wants something in return, you are at friends and family time. This is a good stage to build your early financial network and can really help with those next steps. This is a small round of insiders and is as much about personal capital as financial capital. A friend and family round is a direct contact on your part, and those relationships you made in the boot-strapping are good places to start. These early champions will build your social capital as they talk positively about you. Being a small group also creates scarcity. These subtle behaviors will help your valuation when it comes time for that. A good friend and family round will get you off to a right start with the resources for securing an accountant and other professional services to determine the right way to structure your company.

For these early funding stages, bootstrapping and friends and family funding demonstrate your validity as an investable partner for later rounds. No matter your hurdles, starting your fund journey on the right path will pay off down the road.

In our next blog, we will discuss funding options such as debt, angels, and venture capitalists, and where to find them.

Video: NCIA Today – April 2, 2021

Senate to Consider SAFE Banking as the White House “Cleans” House

by Morgan Fox, NCIA’s Director of Media Relations

It has been quite a busy month in Washington when it comes to cannabis, but two of the more recent developments have garnered quite a bit of attention in the last couple of weeks and deserve a closer look.

First, a bipartisan group of lawmakers reintroduced the Secure and Fair Enforcement (SAFE) Banking Act in the U.S. Senate. This legislation, which was introduced by Sens. Jeff Merkley (D-OR) and Steve Daines (R-MT) along with 27 original cosponsors (up to 30 as of this writing), would protect banks and other financial institutions from federal prosecution simply for providing services to cannabis businesses that are operating in compliance with state laws.

This legislation was reintroduced in the House earlier this month to expected fanfare, understandable given that it has already passed in that chamber and continues to enjoy overwhelming support. In fact, it was the first-ever standalone cannabis policy reform legislation to ever be brought to a floor vote – and pass – in that chamber, and was approved twice more in pandemic relief legislation that unfortunately was not approved by the Senate.

This last fact has caused advocates to more carefully scrutinize the prospects of Senate passage. After this bill flew through the House late in 2019, its movement through the Senate quickly came into question after the Senate Banking Committee voiced concerns about the bill. There was also not much indication of priority by Senate leadership to call cannabis bills for committee hearings, which became even more stark with the onset of COVID-19 when almost every other issue took an immediate back seat. Concerns about Senate support were further compounded by the unfair and politically motivated attacks by some Republicans against Democrats for their inclusion of SAFE Banking language in coronavirus relief packages.

However, a new year brings new opportunities. With the contentious 2020 elections in the rearview mirror, and a renewed focus on economic recovery, supporting small businesses, and public safety, we need to use a different calculus when examining the chances of SAFE Banking in the Senate, and that is giving us plenty of reasons to be hopeful.

Let’s look at the numbers: there are currently 36 states with comprehensive medical or adult-use cannabis laws and either existing or soon-to-be-implemented regulated cannabis markets, all of which would directly benefit from this legislation. That means there are 72 senators whose constituents are being put in harm’s way or face limited business growth opportunities thanks to lack of access to financial services in the cannabis industry, including 25 Republicans (six of whom are already sponsors plus one GOP member from a non-regulated state). With just a few more Republican senators on board, this bill would theoretically be able to beat a filibuster, provided there was unanimous Democratic support.

Does this kind of representation guarantee all 72 of those lawmakers will support cannabis banking reform? Of course not. Legislators on both sides of the aisle frequently do not support legislation that is in their constituents’ best interests. However, it does greatly increase the chances of passage and provides additional incentives for hesitant senators.

In addition, Republican lawmakers have been more openly supportive of incremental reforms like the SAFE Banking Act than they have been of more comprehensive descheduling legislation that NCIA is working to pass, such as the MORE Act. In fact, some observers are confident that there was enough bipartisan support in the Senate to pass SAFE Banking in the last Congress, were it not for the pandemic and the obstruction of cannabis policy reforms by then-Senate Majority Leader Mitch McConnell.

The new landscape in the upper chamber has given us a lot of reasons to be optimistic about SAFE Banking this year. Democratic control of the Senate, tie-breaker voting power in the hands of pro-legalization Vice President Kamala Harris, the prioritization of cannabis policy reform by Senate Majority Leader Chuck Schumer and other members of Senate leadership, more Republican original cosponsors, and the increasing support of voters in conservative and swing states have given this legislation the best chances of being approved in the Senate since its first introduction.

The other federal cannabis story making headlines was the suspension, reassignment, and dismissal of a number of employees in the White House that was supposedly based at least in part on past cannabis consumption, despite recent guidance from the Office of Personnel Management which advised federal employers not to view past cannabis use as an automatic disqualifier for otherwise qualified job candidates. While the White House was quick to defend itself and point to other factors involved in individual cases, this move clearly sent the wrong message to employers across the country and called into question the Biden Administration’s stated support for at least marginal cannabis reforms.

Does this mean that Pres. Biden will veto comprehensive cannabis policy reform or other related legislation when it reaches his desk? Extremely doubtful. However, this unfortunate incident is indicative of the continuing stigma that cannabis consumers face, and an ongoing disconnect between public opinion, policy, and leadership.

This isn’t just a government employment issue, either; it is alive and (un)well in the private sector. Even in states where cannabis is legal for adults, many employers continue to enact strict anti-cannabis policies, limit their hiring pools, and punish qualified workers for off-duty cannabis consumption. This despite ample evidence that cannabis is not associated with decreases in productivity or increases in workplace injuries.

There has been some progress in recent years on this front. Recent court cases have finally begun siding with medical cannabis patients who were wrongfully terminated for using the medicine that works best for them, after years of ruling in favor of employers. More and more states are instituting employee protections, at least for patients. Yet as more states consider “banning the box” — a policy which prevents prospective employers from asking about past cannabis convictions – or institute laws against pre-employment drug screening as a condition of job offers, discrimination against cannabis consumers and people who work in the industry remains a major problem of not only policy, but culture. Ultimately, employers will need to get over the stigma and false assumptions they have about cannabis and develop better internal policies to match the growing reality of legal and accepted cannabis in the United States.

One thing is certain: as we get closer to ending prohibition, the complexity and nuance of this issue are sure to grow. Stay tuned for more updates as reform efforts continue to heat up in our nation’s capital!

ACTION ALERT: SAFE Banking Act Introduced in the Senate

Today, Senators Jeff Merkely (D-OR) and Steve Daines (R-MT) introduced the Secure and Fair Enforcement (SAFE) Banking Act in the U.S. Senate. This important legislation would provide state-legal cannabis businesses with the broad access to traditional banking and financial services afforded to all other legal businesses in the country — and we need your help to pass it!

NCIA has been building support for banking access for our industry in Congress since the first version of the SAFE Banking Act was introduced in 2013, when it was considered a fringe issue by most members of Congress. The latest version of the SAFE Banking Act was approved by the House three times in the last Congress and had garnered 35 cosponsors in the Senate by the end of 2020. That progress was only possible with the hard work our team in D.C. takes on every day, thanks to the support of our members.

Now, with a Democratic majority in the Senate, we have a unique opportunity to finally get the SAFE Banking Act to the President’s desk to become law! But success isn’t inevitable.

Please contact both of your U.S. Senators and ask that they sign on as co-sponsors of the SAFE Banking Act today.

You can find contact information and tips for calling your elected representatives on our website and use our Congressional Scorecard to find out their voting record on cannabis issues.

Contact Your Senators

The legislation already has a long list of bipartisan cosponsors, including U.S. Senators Kyrsten Sinema (D-AZ) Edward J. Markey (D-MA), Alex Padilla (D-CA), Patrick Leahy (D-VT), Richard Durbin (D-IL), Ron Wyden (D-OR), Mazie Hirono (D-HI), Tina Smith (D-MN), Angus King (I-ME), Catherine Cortez Masto (D-NV), Michael Bennet (D-CO), Robert Menendez (D-NJ), Jon Tester (D-MT), Jacky Rosen (D-NV), Kevin Cramer (R-ND), Dan Sullivan (R-AK), Kirsten Gillibrand (D-NY), Elizabeth Warren (D-MA), Chris Murphy (D-CT), Gary Peters (D-MI), Bernie Sanders (I-VT), Brian Schatz (D-HI), Patty Murray (D-WA), Amy Klobuchar (D-MN), Rand Paul (R-KY), Bill Cassidy (R-LA), and Cynthia Lummis (R-WY).

If your Senator(s) are listed above, please make a call to thank them for supporting this important legislation.

The House version of the SAFE Banking Act, H.R. 1996, was introduced last week. Thanks to the support of our members, NCIA will continue to lead the charge to advance this legislation in both chambers.

Thank you for taking action for the SAFE Banking Act and fair cannabis policies.

Video: NCIA Today – March 19, 2021

Member Blog: How to Avoid Compliance Issues with Your Cannabis Business

Have Your Business Documentation in Order

Stay up to Date with State and Local Regulations

Develop SOPs, Training, and Reporting Systems

Cannabis Payroll

Frequently Audit your Business

The Bottom Line

Video: NCIA Today – September 3, 2021

Member Blog: Commercial Property Assessed Clean Energy (C-PACE) – A Competitive Funding Source for the Cannabis Industry

NCIA Cannabis State Policy Map

PACENation Map

Committee Blog: Successful Retail Outcomes of SAFE Banking

So, what does the SAFE Banking Act mean for retail cannabis businesses?

Safety

Less Cash on Premise

Contactless Delivery for Retail

Speak your voice.

Member Blog: We’re Out of the Weeds – CRC Releases Initial Rules & Regs for New Jersey’s Adult-Use Marketplace

What type of license can I apply for?

Are there any caps on the number of licenses that may be awarded?

What are the fees to apply for one of the adult-use licenses?

Are there any fees other than the initial application fee?

Will anyone be given priority in the application process for a cannabis license?

What do you mean by “priority review?”

When will the CRC begin to review applications?

What should I expect from the application?

What if I don’t have all of the materials to submit a complete application?

What are the requirements to be considered for a Conditional License?

Are there any advantages in being awarded a Conditional License?

What is a Microbusiness License?

Can I rely solely on my local municipality for a license?

Can municipalities ban cannabis businesses from operating within their jurisdiction?

What happens if I don’t follow the CRC’s rules and regulations?

Committee Blog: Safety – Terpene Limits in Cannabis Manufacturing

Inhalation

Bioavailability

General Guidelines

Terpene Limits

Ingestion

Bioavailability

General guidelines

Terpene Limits

Topical

Bioavailability

General guidelines

Terpene Limits

Member Blog: Cannabis Legalization in Mexico

Crazy for Cannabis Administration and Opportunity Act (CAOA)

What is it?

What’s in it?

What’s next?

Even With So Much Progress, We Must Remain Diligent

Mid-Year Update on 280E and its Impact on the Cannabis Retail Sector

Strong growth in the first half of the year, does not necessarily mean huge profits for the cannabis industry.

Cannabis retailers are taking the brunt of federal tax policy.

The effective tax rate is forecasted to increase with corporate tax increases.

Cannabis retailers are struggling to make ends meet.

What do these numbers tell us?

Learn more in a recent NCIA Fireside Chat webinar with an all-star panel of accounting experts and operators to dive deep into all things 280E.

Supreme Court of Cannabis?

States Still Leading The Way, With Some Stirrings In Congress

Now let’s move to Congress, where things tend to move a bit more slowly but are nevertheless picking up speed.

Video: NCIA Today – June 11, 2021

Video: NCIA Today – June 4, 2021

Give Us MORE

What:

Who:

Status:

Summary:

Background:

Notable Changes & Provisions:

What’s Next:

Hurry Up And Wait: Descheduling, DEA Licenses, And Other Reform Legislation to Watch

Committee Blog: Fundraising Basics in the Cannabis Industry — Part 3

Member Blog: How Cannabis Legalization In Minnesota Can Further Equality

FIRST GLANCE:

Cannabis’s Rocky History

The Impact of Legalization and Equality

Legalization in Minnesota: How To Further Equality

What’s Still Left To Do