Pushing For SAFE Banking In The Next Coronavirus Relief Package
by Michelle Rutter Friberg, NCIA’s Deputy Director of Government Relations
For years, NCIA has been lobbying for the SAFE Banking Act. Now, as we adjust to our “new normal,” we are trying to make lemonade out of the lemons we’ve been given and see if some provisions of the SAFE Banking Act can be attached to the next coronavirus relief package.
To that end, last week ten cannabis advocacy and industry organizations sent a letter to congressional leadership urging lawmakers to include the Secure and Fair Enforcement (SAFE) Banking Act or similar language in the next pandemic relief package which would create a safe harbor for banks and other financial services providers to work with cannabis and ancillary businesses that are in compliance with state law.
Signatories included Americans for Safe Access, Global Alliance for Cannabis Commerce, Marijuana Policy Project, Minority Cannabis Business Association, National Association of Cannabis Businesses, National Cannabis Industry Association, National Cannabis Roundtable, National Organization for the Reform of Marijuana Laws, Policy Center for Public Health and Safety, and Safe and Responsible Banking Alliance.
The coalition wrote,
“In 2019, it is estimated that sales of cannabis in the United States topped $12 billion– the vast majority of which were cash transactions. Previously, this situation created an unnecessary public safety risk and undue safety burden on state and local tax and licensing authorities who must receive and process large cash payments. Now, as recent reports show that viruses can live on cash for up to 17 days, the public safety concerns of this cash-only system compound. The lack of access to financial institutions places industry workers, government employees, and the public at-large at risk as banknotes circulate from consumers and patients to businesses to government.”
Even the lead sponsors of the SAFE Banking Act weighed in. Senate lead Sen. Jeff Merkley (D-OR) told NCIA, “Locking legal businesses out of traditional banking services—leaving them with no option but to operate exclusively in cash—has long put workers in danger. And now in the face of this pandemic, it’s making it increasingly difficult for these businesses to keep their workers and customers safe while they fight to stay afloat. The SAFE Banking Act is more important than ever to these businesses and the families who rely on them, and I’m committed to doing everything I can to get it passed.”
Congressman Ed Perlmutter (D-CO) also weighed in, stating, “Cannabis businesses and their employees already face a significant public safety risk without access to the banking system, and the COVID-19 crisis has only exacerbated this risk with these essential businesses having to move their cash-only transactions outside the store. At the same time, many of these businesses are facing disruptions in their supply chain and in normal operations and they should be eligible for relief just like any other legal, legitimate business during this pandemic. I will continue to push for inclusion of the SAFE Banking Act or other forms of relief for this industry in the next package.”
The next coronavirus relief package is set to be unveiled any day. Here at NCIA, we remain cautiously optimistic that our concerns have been heard and will be addressed. Regardless, we continue to call, email, and video message with congressional offices and remain dedicated to providing relief for our industry.
Member Blog: IRC Section 471(c) of the TCJA May Mitigate the Curse of 280E for the Cannabis Industry
On March 30, 2020, the Treasury Inspector General for Tax Administration issued a report titled “The Growth of the Marijuana Industry Warrants Increased Tax Compliance Efforts and Additional Guidance.” The 53-page report discussed several different topics, including that the IRS should conduct more audits under Section 280E, and this discussion focuses on Section 471(c).
The report states that certain qualifying cannabis taxpayers, who would otherwise be subject to business expenses being disallowed under Section 280E, could potentially account for their inventory under Section 471(c) using a method that would classify most or all of their expenditures as inventoriable costs and avoid Section 280E’s disallowance of such expenditures. Accordingly, as all the costs would be capitalized into inventory, they would then reduce taxable income as the inventory was sold. In other words, expenditures previously disallowed under Section 280E would be part of the cost of goods sold and allowed as a reduction of gross receipts. There was no public comment from the IRS in the report on the potential that 471(c) may eliminate 280E.
Before continuing to provide our additional comments, it is important to mention the impact of Section 471(c) on Section 280E has not been reviewed by the Courts and the Inspector General also stated that necessary guidance addressing 471(c) is lacking from the IRS. As such, the impact cannot be stated in certain terms.
The curse of Section 280E on the cannabis industry cannot be overstated – some businesses actually end up paying more in tax than they make and Section 280E can turn an economic loss into a taxable gain. This seemingly unconstitutional result has been justified by the courts and IRS under a very old principle of taxation that “deductions are a matter of legislative grace.” New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934) Legislative grace, according to these authorities, means the legislature has the power to deny all deductions, if they so choose, and it should be said that the limitation of such grace, under the 16th Amendment to the US Constitution, is that 280E cannot disallow costs of goods sold. With Section 471(c), however, legislative grace appears to be on the side of the cannabis industry because, as discussed below, Congress created Section 471(c) and it appears to allow inclusion of deductions into the cost of goods sold where they can’t be disallowed under Section 280E.
The Code states that Section 471(c) allows a small taxpayer, one with less than $25 million in revenues, who is not a tax shelter or public company to account for inventory according to their applicable financial statements, or absent applicable financial statements, according to the actual books and records of the taxpayer. For a qualifying business that doesn’t have applicable financial statements, if their books and records include deductions in COGS, then these deductions may not be subject to 280E.
Question #1 – What are applicable financial statements, what does it mean to have them, and if a taxpayer does not have applicable financials statements what are the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures?
It is our opinion that under IRC § 451(b)(3) if a taxpayer is required to issue audited financial statements in accordance with generally accepted accounting principles (GAAP) for credit purposes, to owners, or for any other nontax purpose, they have applicable financial statements. It would seem that “any other nontax purpose” would include audited GAAP statements required to be issued to state regulatory agencies. As such, because GAAP requires accounting for inventory in a manner similar to Section 471(a), taxpayers who have Applicable Financial Statements appear to be precluded from adding costs disallowed under Section 280E into COGS pursuant to Section 471(c). Of concern are states that require license holders to provide their licensing agency with audited financial statements. However, if the state doesn’t require GAAP financials, then the “Applicable Financial Statements” provision shouldn’t be a problem.
If the taxpayer does not have applicable financial statements, then they are allowed to account for inventory for tax purposes in the same way as they account for inventory on their internal books and records. Thus, their books and records would have to mirror their method of accounting for tax purposes.
Question #2 – Could a small cannabis company, who is not issuing applicable financial statements in accordance with GAAP and is subject to 280E, establish a method of accounting for inventory in which they consider all or most expenditures of the company to be inventoriable costs? If so, does characterizing these otherwise nondeductible costs as inventoriable costs change the nature of the expenditures from non-deductible business deductions to deductible costs of goods sold when the inventory is sold?
As noted above, there is currently no guidance from the IRS regarding this question and, we should assume, that the IRS will not acquiesce to the position that 471(c) eliminates 280E. So, let’s consider the arguments the IRS might make. First to consider is the Service’s conclusion in Chief Counsel Memorandum Number 201504011 regarding Sec 263A. Early on, cannabis taxpayers attempted to use Sec 263A to capitalize general and administrative costs, otherwise subject to 280E, into inventory and then deduct them as part of COGS. This does sound somewhat similar to the approach we are looking at under 471(c).
The IRS concluded in CCA 201504011 that Sec. 263A would not allow an expense disallowed under Section 280E to be added to COGS because of “flush language” added to Sec. 263A(a)(2) in a subsequent congressional amendment. The flush language states:
Any cost which (but for this subsection) could not be taken into account in computing taxable income for any taxable year shall not be treated as a cost described in this paragraph.
The U.S. Tax Court agreed with the Chief Counsel memo in several opinions including Patients Mutual Assistance Collective Corporation d.b.a. Harborside Health Center v. Commissioner.
However, where this language was fatal to the cannabis industry’s attempt to use Section 263A to its benefit – it may help in the case of Section 471(c). It appears to have been necessary for the U.S. Congress to add the Flush Language to Section 263A to prevent the inclusion of otherwise disallowed expenses into COGS. There is no equivalent language added to Section 471(c) and so the argument is that in the absence of an equivalent provision, Section 471(c) can be used to include expenses disallowed under 280E into COGS where they can be used to reduce taxable income.
Another argument the IRS may make is that Treas. Reg. § 1.61-3(a) prevents the inclusion of deductions into cost of goods sold because the regulation states that Gross Income is determined without subtraction of “…selling expenses…” However, Section 1.61-3(a) is part of the Treasury Regs defining gross income and its reference to the non-inclusion of “selling expenses” is from the regulations under Section 471(a). Section 471(c) specifically states that Section 471(a) does not apply (which include the regulations) and a taxpayer’s method of accounting for inventory under Section 471(c) does not fail to accurately reflect income. And, Section 471(c) is a higher authority than the regulations. Thus, it appears that Section 471(c) trumps Treas. Reg. § 1.61-3(a).
Question #3 – Should a taxpayer, eligible to use 471(c) to account for inventory file their tax return taking positions regarding 471(c) as described in this article?
Every taxpayer is different, and accounting for inventory under Section 471(c) is not right for everyone in the cannabis industry. It is also important to understand that it may not work and for taxpayers who use the method to do so with caution and understanding. However, below is a list of issues to discuss with your tax professional:
What is your tolerance for risk and a legal dispute with the IRS? Such a dispute could be time-consuming and costly.
If 471(c) is proven not to eliminate 280E – how will you manage additional tax, interest, and possibly penalties?
Should the position be disclosed as part of your tax filing?
Does the entity have applicable financial statements?
Is the cannabis business a tax shelter?
How aggressive does management and ownership want to be regarding the position?
How will management accomplish the necessary accounting and records to support such a position?
In summary, 471 (c) has left the cannabis industry with several questions and definitive answers are probably not immediately available. License holders should work closely with their advisors as they navigate these questions. But, there is a possibility that Section 471(c) eliminates Section 280E for qualifying taxpayers. Cannabis businesses should take the necessary steps to understand it and protect their ability to benefit from Section 471(c) if it does work.
The Bridge West and GreenspoonMarder teams work tirelessly to understand the tax and accounting issues facing businesses in the cannabis industry and provide the best possible solutions to their clients.
To discuss any of the questions within this article please feel free to contact Calvin Shannon, Nick Richards or any of their team members.
Calvin Shannon is a Pricipal of Bridge West and has over 17 years of experience providing tax, audit, estate planning and trust services. Calvin is skilled at understanding client’s challenges and working with them to develop and implement innovative and unique solutions. Assists organizations to address the industry’s unique and ever-evolving issues. He enjoys having the opportunity to work with cannabis clients to understand their business needs, and to provide timely solutions
Nick Richards is a Partner in the Tax practice group at Greenspoon Marder LLP. He represents individuals and businesses in tax audits & trials, M&A, in managing tax debt, and he advises cannabis companies, owners and investors regarding tax and regulatory compliance matters. Mr. Richards has been a tax attorney for more than twenty years beginning his career with the IRS where he was a leading trial attorney, a Chief Counsel advisor, and a Special Assistant United States Attorney.
With his broad experience and understanding at all phases of the tax system, from reporting and assessment through appeals, court, and tax debt resolution, Mr. Richards achieves successful legal solutions tailored to his individual client’s needs. Mr. Richards also teaches tax attorneys and CPAs throughout the US and he is an Adjunct Professor of Law at the University of Denver, Graduate Tax Program, where he teaches State and Local Tax and Civil and Criminal Tax.
The Illicit Cannabis Market Puts Consumers At-Risk and Is an Existential Threat to the State-Legal Cannabis Industry
by Andrew Kline, NCIA Director of Public Policy
Photo By CannabisCamera.com
The illicit market is not working for anyone. The illicit market puts consumers at risk by offering untested, unregulated, and dangerous products, including “vape cartridges” filled with additives that are not intended for inhalation. These illicit vape products alone have caused 2,768 injuries and 64 deaths to date nationally. Pop-up dispensaries are selling illicit, unregulated, and untested products to unwitting consumers. Unscrupulous people are unlawfully selling cannabis products over the internet in violation of state and federal law, and online platforms are enabling the illicit market by advertising for illegal online and brick and mortar stores. Counterfeit and ready-to-fill packaging is being sold with fake lab results, batch numbers, and barcodes. Illegal growers are causing serious environmental harms. Even illicit market operators with the best intentions still put consumers at risk when they sell untested products produced in unregulated facilities.
And these illicit operators pose an existential threat to the regulated markets that voters have demanded. Operators are laying out significant funds for licenses and compliance to compete against an illegal, untested, unregulated, untaxed marketplace. Law enforcement is playing whack-a-mole. Consumers are often unaware of which operators are legal, particularly where illegal operators often have a veneer of legitimacy or have stolen the intellectual property of these regulated businesses to gain consumer trust. We need to make certain that reliable and safer products (tracked, tagged, and tested) are being sold in the regulated market. Trust in the safety of the supply chain is key here, with laboratory testing, traceability, and safeguards (eg: ability for recalls) as mandatory prerequisites.
On February 19, 2020, NCIA, along with NCIA’s Policy Council, former Boston Police Commissioner Ed Davis, and Commissioner Britte McBride, public safety appointee on the Massachusetts Cannabis Control Commission, partnered to facilitate an important discussion with law enforcement, advocates, and industry stakeholders seeking solutions to the illicit cannabis market. The summit brought together federal, state and local law enforcement; state regulators, cannabis entrepreneurs and multi-state operators, ancillary technology companies, and social equity experts. The purpose of the summit was to dialogue about the illicit cannabis market with the goal of developing recommendations on resources, policies, best practices, and public-private partnerships to share information.
Here are some key takeaways:
First, the cannabis industry needs to help law enforcement find alternatives to arrest and incarceration. Some states have been creative in their approach to combating the illicit market, by locking doors and shutting off electricity and water, levying fines, and prosecuting tax evasion. It is essential that we rely most heavily on alternatives to arrest and prosecution so that we don’t perpetuate the myriad problems associated with the “war on drugs.”
Second, the industry must better define the illicit market. The illicit market looks very different in Idaho than it does in Colorado. In Idaho, all sales are illegal and diversion from legal states into Idaho is a serious problem. In Colorado, state regulators are concerned about unsafe products being manufactured and sold outside of the state regulatory regime. So, we need to take a hard look at the products that are causing the most significant problems (injuries and deaths) and focus our attention on the most serious of those cases. Until we prioritize what we deem to be illicit market activity, it will be difficult to prioritize limited law enforcement resources.
Third, the industry needs to definitively determine the root cause of the illicit market. We know that three probable causes of illicit market activity are: (1) lack of legal access to cannabis and cannabis products and (2) price disparity between legal and illicit markets, largely due to high taxes of legal products, and (3) a lack of economic opportunities in marginalized communities causing people to turn to illicit sales. But, what are other causes and effects?
Fourth, the industry needs a forum for collaboration with law enforcement. The middle of a crisis is not the time to develop relationships.
Fifth, the industry needs a pathway for illicit market operators to enter the legal market. We can’t displace the illicit market unless we create a pathway for previous illicit market entrepreneurs to enter the legal market. That means that states must create realistic pathways to enter the regulated market for legacy illicit market actors. There are an increasing number of potential models here, from the states such as Massachusetts (which has led on attempting to prioritize social equity during license application processes) and Illinois (which made such pathways a key point in the legislation to create a legal market) to industry groups such as the Minority Cannabis Business Association (which has published recommendations for state regulators intent on incorporating social equity requirements into their licensee applications).
Sixth, law enforcement has competing demands and needs help prioritizing cases. What are the most egregious cases that warrant criminal arrest and prosecution? What are the cases that warrant automatic expungement? And what do we do with the cases that fall in between?
Finally, the industry needs to speak with one voice and start rowing in the same direction. The industry needs national messaging from states that have a regulated market to help dispel myths and prepare warnings for responsible use. We need to share information on packaging and labeling, testing, universal symbols, etc., nationally. And most significantly, the industry needs to start speaking with one voice and work to bring legacy businesses into the regulated market. NCIA’s Policy Council is committed to continuing efforts to create a safe place for everyone in the industry to begin that dialogue.
Andrew Kline is the Director of Public Policy for the National Cannabis Industry Association and leads NCIA’s Policy Council. He can be reached at Andrew@TheCannabisIndustry.org
Congress Holds First Cannabis Policy Reform Hearing of 2020 This Week
by Morgan Fox, NCIA’s Director of Media Relations
This week, Congress will hit the ground running by holding the first cannabis policy reform hearing of 2020 only weeks into the new session. The hearing, entitled “Cannabis Policies for the New Decade,” will be held by the House Energy Subcommittee on Health on Wednesday.
This hearing is expected to explore the barriers to cannabis research, the health impacts of current federal cannabis policies and the implications of reform, as well as several pieces of cannabis-related legislation including the Marijuana Opportunity, Expungement, and Reinvestment (MORE) Act, the Marijuana Freedom and Opportunity Act, the Medical Cannabis Research Act of 2019, the Medical Marijuana Research Act of 2019, the Legitimate Use of Medicinal Marijuana Act, and the Veterans Medical Marijuana Safe Harbor Act.
This hearing is an excellent sign that Congress is willing to continue the groundbreaking progress it made last year.
Unfortunately, all the witnesses for the hearing are representatives of government agencies that have not been overly receptive to ending cannabis prohibition, namely the Drug Enforcement Administration, the Food and Drug Administration, and the National Institute on Drug Abuse. But while we do not expect these witnesses to be cheerleaders for meaningful cannabis policy reform, there will no doubt be many tough questions asked by lawmakers who understand the importance of changing our nation’s outdated and harmful federal laws.
The hearing also presents an opportunity to help inform members of the subcommittee and others in Congress about the facts on this issue, as well as to show them that the cannabis industry is united in its common goal of removing cannabis from the schedule of controlled substances in a way that helps address the harms caused by prohibition, and let them know we are committed to working with them to address any concerns. A coalition of cannabis industry groups will be submitting a joint letter to the subcommittee, which will be available later this week, outlining these areas of agreement. NCIA will also be submitting written testimony for the congressional record.
You can watch the hearing here and we will be following up afterward with more information as well as responses, so stay tuned!
Picking Up Speed In The 116th Congress – An Overview Of Our Progress
by Madeline Grant, NCIA’s Government Relations Manager
We’ve seen an extraordinary amount of momentum sweep through Capitol Hill so far this Congress. The U.S. House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act of 2019 and the Judiciary Committee marked up the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019. On top of these significant policy gains and historic achievements, we’ve seen an increase in cannabis-related bills, committee hearings, amendments, and markups.
With strong Democratic leadership on the House side, the question of legalizing cannabis has even been put on the table. Conversations are happening in hearings and markups that will help educate lawmakers. For example, as cannabis remains a Schedule I substance, significant federal research is still unattainable. These are the important conversations we are having with lawmakers. The SAFE Banking Act passed with overwhelmingly bipartisan support, with a vote of 321-103. This bill has been supported by the American Bankers Association, the Governors Association, the National Association of Attorneys General, and the credit unions across the country. The McClintock-Blumenauer-Norton amendment, which would prohibit the Department of Justice from interfering with state cannabis programs, passed the House with a vote of 267-165. This historic vote shows just how far we have come and with continued momentum where we can go.
Now, we need your help. It is more important than ever that Congress hears from their constituents. Your stories and experiences are what resonates the most with Hill offices. Now that the SAFE Banking Act passed the house, we need to turn our attention to the Senate.
Please call your U.S. Senators and urge them to support S.1200, the SAFE Banking Act, which prevents federal banking regulators from punishing banks for working with cannabis-related businesses that are obeying state laws or halting their services, taking action on loans made to those businesses, or limiting depository institution’s access to the Deposit Insurance Fund. As you call your Senators, be sure to explain the frustration you have had with a lack of access to banking. Personal stories resonate with our Congressional offices, so take a few minutes to make these important calls.
To find your Senators, click this link and simply enter your address. The office phone number will pop up next to their photos.
Please join us May 19-21, 2020 for our 10th Annual Cannabis Industry Lobby Days in Washington, D.C. Not only will you meet with congressional offices to discuss priority cannabis legislation, but you’ll get to know other NCIA members from around the country. For more information about Lobby Days, contact Maddy Grant and madeline@thecannabisindustry.org.
Member Blog: Youth Safety is Imperative to the Future Success of the Cannabis Industry
by Joan Irivine, Co-founder and CEO of ResponsiTech
The House Judiciary Committee recently passed the historic Marijuana Opportunity, Reinvestment and Expungement (MORE) Act in a 24-10 vote. After weeks of declining cannabis stock prices and layoffs due in part to counterfeit vaping issues, this vote provided a much needed, bipartisan boost to the industry. However, we need to remember that this is only the beginning of this process and there is still much to be done for our industry to be successful.
For example, this week, the legislators expressed both support and concerns about de-scheduling cannabis, but there was one consistent theme expressed by several of the committee members – youth safety. Representatives Doug Collins (R-GA), Tom McClintock (R-CA), Lou Correa (D-CA), Karen McBeth (R-RI), Debbie Mucarsel-Powell (D-FL), Sheila Jackson Lee (TX-D) and many more expressed valid concerns about youth safety.
As we all know, there have been many challenges for the industry and it seems that we are always reacting to change rather than being proactive about it. However, we now have the opportunity to lead our community when it comes to improving youth safety–especially online youth safety.
Online tools such as parental control filters are already offered by web browsers, Internet Service Providers (ISPs), firewall proxy servers, search engines, and even computer operating systems. Meanwhile, special plug-ins, toolbars and filtering software are widely available. These options are also commonly used to moderate kids’ Internet use in schools, libraries and other public places. However, even conscientious parents equipped with these tools can’t do it alone. Cannabis companies have a responsibility to label their sites that are unambiguously recognizable by parental control systems to reduce access by minors.
One of the issues in making website labeling mandatory is the fact that each state has different regulations. In addition, domestic laws do not apply internationally. As a result, websites operated by foreign companies cannot be required to comply with another country’s, state, or provincial labeling requirements. However, if international cannabis businesses and bloggers adopt a voluntary standard parental filtering label, proactive industry self-regulation can accomplish what governments can’t.
With parents implementing parental filters, and the industry installing standard parental controls, we can work together to reduce children’s access.
Moving forward, what does ResponsiTech recommend for companies in the cannabis industry? To start:
Continue to use self-affirming age gates for initial entry as a secondary safeguard.
And of course, use an age verification service for any purchase; including both online and delivery services.
Let a qualified marketing compliance expert conduct an audit of all of your brand’s Internet and social media profiles.
Like it or not, media, parents, and legislators consider vaping THC and nicotine as the same issue, even though minors obtain THC products from the illegal and counterfeit markets. Licensed e-cigarette retailers use various forms of age gates and verification to prevent youth access. We suggest that the cannabis industry incorporate policies that we established for another industry and Juul has included in its new marketing policies:
Do not feature images or situations intended for a youth audience.
Campaigns depict appropriately aged individuals.
Do not use cartoons, caricatures, or other designs aimed at attracting minors.
Ensure responsible placement of our product designed to limit exposure to an underage demographic.
Support and comply with all federal and state regulations to prevent sales to minors – this includes stringent third-party age verification for online sales.
Use social media responsibly to ensure content is targeted to adults while limiting engagement by youth.
Our industry needs to establish its own standard online youth policies before our legislators do. Let’s take the lead and make it happen.
I have written several recent articles about Online Youth Safety which provide more details:
Joan Irvine, ResponsiTech Co-Founder & CEO, brings over two decades of policy development, government relations, and advocacy for online child protection in ‘high-risk’ industries to the cannabis industry. She successfully spearheaded an international award-winning parental filtering label and worked with First Amendment, Internet Security, and Privacy attorneys and international law enforcement to establish online child protection. Learn more about us on our site, LinkedIn and Facebook.
NCIA’s Safe Vaping Task Force Submits Testimony
Last week, the Center for Disease Control (CDC) identified a probable proximate cause of recent vaping injuries and deaths. Simultaneously, the United States Senate (HELP Committee) noticed a hearing for tomorrow (Wednesday) on the vaping crisis, where CDC officials will testify.
NCIA Policy Council’s Safe Vaping Task Force has submitted testimony for the record, which can be found here.
For weeks, NCIA’s Policy Council has been calling for de-scheduling and regulation at the federal level to displace the illegal, untested, unregulated illicit market. It’s time for Congress to act. We can no longer sit by and watch as people are sickened by unregulated, untested, and dangerous products from the illicit market.
By now, we’ve all seen the concerning vape cartridge illnesses and deaths across various states. While the exact cause is still being determined, our industry has an opportunity to step up our game. So the question we must ask ourselves is: how can the cannabis industry help to prevent potentially dangerous illicit market cannabis sales?
The everyday consumer is seduced by lower-cost alternatives and some turn to the grey market with an assumption of safety. “If the price is half as much, why not?” wonders the consumer. Unfortunately, tragic examples slapped us back to reality and we are now seeing all too clearly the downsides of the laissez-faire approach that feeds the grey market. Low cost is good, but people are dying. This is where our crisis is real.
Safety protocols, procedures, regulations, and oversight, applied to the old methods of production, lead to increased costs that are duplicated on the way through the channel. High taxes multiply that effect, serving as a barrier to the consumer. The illicit market circumvents the bureaucracy and offers a lower cost that meets consumer demand at an increased risk.
Lower Production Costs = Lower Costs For The Consumer
As the end of cannabis prohibition nears, we have to remember that long before we had added regulations and government overhead, proponents of legal cannabis emphasized the medicinal value of the plant, for treating everything from chronic pain to post-traumatic stress syndrome. What started as a simple plant that grew outdoors with free sun and water has evolved, with numerous controls added to regulate, generate tax revenue, and improve the odds that this new medicine is safe. As well-meaning as those precautions are, they have added significant cost to the wonder drug through legal channels. Our best hope for migrating consumers away from dangerous shortcut products is to get a handle on production cost and make it easier for cultivators to follow the rules and enjoy profitability.
It pains all of us when we see the recent spate of illnesses — even deaths — increasingly associated with vaping cannabis, despite the fact that the majority of health issues appear to stem from the illicit market. If we don’t fix this, the market will be severely impacted by either consumer avoidance or government fiat. I’m proud to see that NCIA is taking a lead role in communications around this critical issue and in the fight to deschedule cannabis and enacting federal regulations at a reasonable cost, protecting consumers from potentially dangerous illicit cannabis distribution.
Raise The Quality, Lower The Cost Of Production
Safety, of course, has been and always will be a key concern of the legal cannabis industry. But as our industry grows up and competitive pressures bear down, we can’t afford to shortcut our responsibilities. Running a grow operation is full of potentially harmful contaminants that can strike at any time. Producers need to choose ways to protect their investments with safe operational procedures and new technologies that guarantee both safe and superior products for our customers. At a lower cost!
Where there is a need and a business opportunity, innovation will rise to the challenge. The vape crisis points to an urgent need for low-cost yields and profits for legal cannabis producers. This can be achieved through a highly controlled aeroponic approach for consistent, pure, clean yields that exceed regulatory and medicinal requirements. Using advanced technology, the cost of production can be reduced to as low as $0.30/gram, and the result is legal cannabis that can enter the channel at much lower cost at levels where the illicit market can’t compete, and legal producers can profit.
Fully automated environments, nutrients, pH, air, lighting, humidity, temperature — are all monitored and adjusted through software-controlled electromechanical systems in a soil-free environment. With minimal labor required, contamination risks are low, natural contaminants won’t take root and heavy metals and pesticides can be excluded from the environment.
Indoor aeroponic grow systems represent a sea change for many longtime growers and modernizing the industry means new opportunities. New technology replaces labor-intensive efforts with cruise control automation in an efficient climate-controlled environment. Cutting corners proves to be costly while the rewards for doing it right are considerable: precision fast-turning superior yields — and a dramatic reduction in the potential for contaminants to wreak havoc and impact safety.
We all know that risk is part of any business, and that a key element of our jobs is to reduce risk and cost for our customers. Growing in a highly controlled indoor environment at lower cost to the consumer can dramatically mitigate your risks so you, and your customers, can breathe easier, and we can ensure cannabis remains safe.
Phil Gibson, Vice President of Marketing has 30 years of sales, marketing, and channel experience with 3 years at AEssenseGrows, and is known as the creator of the WEBENCH online design environment now owned by Texas Instruments. Previously, Phil held executive marketing positions at Infineon, TI, and National Semiconductor. With 8 patents in web technology, Phil is an expert in digital marketing and built his first web site in 1995. Phil holds an MBA from the University of Southern California and a BSEE from UC Davis.
Former FDA Commissioner Calls For Descheduling And Federal Regulation
by Andrew Kline, NCIA’s Director of Public Policy
With uncertainty about the proximate cause of the vaping crisis continuing to roil state regulators, and state governors trying to determine the right short-term solution to protect the public health, the former Commissioner of the FDA has a longer-term plan. Former Commissioner Scott Gottlieb is rightly calling for descheduling and federal regulation in an op-ed in the Wall Street Journal. NCIA made the same argument in our Policy Council’s recent white paperon regulating cannabis post-legalization and in our public responses to the vaping crisis.
While no one yet knows for certain what has been causing these injuries and deaths, it is readily apparent that unregulated and untested products are extremely dangerous and continue to infiltrate the market. Just last week, a mother and her two sons were arrested for allegedly illegally filling over 30,000 vape cartridges in Wisconsin from their home. That burgeoning illicit and untested market poses real risks to American consumers. And the best way to eliminate the illicit market is to create opportunities for consumers to purchase products from legal dispensaries and market awareness of the benefits of purchasing from those regulated markets.
For example, if consumers know that legal dispensaries are selling regulated products that have been tested to improve consumer safety, then they will be more inclined to stop purchasing from the illicit market. People already know that when they step foot into a grocery store, the foods they eat and the drugs and dietary supplements they take are part of a supply chain designed to improve safety. That is because they have placed trust in the USDA and FDA. And no better way to build consumer confidence, than to make sure that trusted federal agencies are in charge of promoting public health in the cannabis industry.
We can’t continue to leave the cannabis industry in a state of uncertainty. It’s time to deschedule, regulate at the federal level, and require mandatory lab testing. We must displace the illegal, unregulated and untested illicit market. There is no plan B.
Andrew Kline is Director of Public Policy for NCIA and Chair of NCIA’s Safe Vaping Task Force
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Calvin Shannon is a Pricipal of Bridge West and has over 17 years of experience providing tax, audit, estate planning and trust services. Calvin is skilled at understanding client’s challenges and working with them to develop and implement innovative and unique solutions. Assists organizations to address the industry’s unique and ever-evolving issues. He enjoys having the opportunity to work with cannabis clients to understand their business needs, and to provide timely solutions
