Laboratory testing regulations for the cannabis industry have been consistently inconsistent, leaving companies struggling to adapt. In the early stages of California’s legal medical marijuana market, labs limited testing to potency, disregarding purity, which put patients at risk. When California legalized adult-use, regulators drastically and rapidly increased testing requirements and purity standards, leaving many producers struggling to adapt.
But despite the frustrations that may arise from convoluted cannabis testing requirements imposed in many states, it is essential that the growing adult-use and, of course, medical cannabis industries ensure that their products across the board are reliable, safe, and pure – free of contaminants such as heavy metals, mold, and synthetic pesticides – and that levels of THC and CBD are accurately labeled.
Companies can prepare for more stringent rules, while being confident in both the purity and potency of their products, by selecting a trustworthy lab to fit their needs, and by developing a lasting relationship with that lab. Once a brand has chosen a lab that they are comfortable with and whose results have proved to be credible, it’s important to stick with that lab rather than play the field.
The first step is to develop a thoughtful selection process to find a lab that best fits your company’s needs and goals. Take the time to meet with various lab teams and have in-depth conversations about their experience, equipment and technology, and operating strategies employed to test for product quality, purity, and safety. This is not the time to take shortcuts, nor should you base your lab choice solely on price and turnaround time. With regards to the latter, a great lab may need a week or more to thoroughly test a product and confirm its purity and potency. The lab is simply doing its due diligence to ensure a company can be fully confident in the products they put forth in the marketplace.
Once you’ve chosen a lab that will work best with and on behalf of your business, consistently stay in touch with the lab team. Build relationships with account representatives so they can fully understand your products, so you can understand the progress the lab is making throughout the testing process, and together be fully prepared to address any issues that may arise. For instance, if there is an expected delay, companies who have stayed in regular contact with their lab of choice can be ready to prevent problems relating to supply chain and inventory.
Fostering a strong relationship with a reputable, objective, third-party lab is another way for brands to distinguish themselves from the pack within the legal market, and to encourage consumers to forgo the illicit market and instead place their trust in high-quality, licensed products that have been properly tested. Companies can add test results to their product labels and their websites for full transparency.
By carefully selecting a lab and learning to seamlessly work together, brands can not only adapt to stricter testing requirements, but can potentially use the increased regulations to their advantage by establishing consumer confidence and by going above and beyond regulatory requirements.
Dr. John Oram, Ph.D., is CEO & Founder of NUG, an Oakland-based, vertically-integrated cannabis company with strong historical growth and performance. Founded in 2014, NUG continues to expand and diversify its portfolio, which includes world-class R&D, state-of-the-art cultivation, extraction, and distillation facilities, one of California’s largest wholesale cannabis distributors, and the new, unparalleled NUG retail store experience. Follow NUG on Facebook,Twitter, Instagram and YouTube.
VIDEO: Member Spotlight – Berkeley Patients Group
Get to know the team at Berkeley Patients Group, a founding member of NCIA, based in the Bay Area of California. Established in 1999, Berkeley Patients Group is the nation’s longest-running dispensary. Etienne Fontan and Sabrina Fendrick talk about the importance of establishing banking services for our industry, as well as other struggles related to federal prohibition. Etienne Fontan also currently serves on NCIA’s Board of Directors.
Member Blog: Cannabis Industry Banking Predictions In The U.S.
There is little doubt that lack of access to banking is one of the most immense challenges facing cannabis retailers. Legally-operating cannabis businesses are at a significant disadvantage, as well as the communities they operate in. Luckily, there are positive signs that a new day is quickly approaching and cannabis banking laws in the United States are about to go through a major change.
What’s Going on with Cannabis Banking Laws?
Recently and for the first time, the U.S. Congress held hearings on the all-cash nature of the cannabis business. The bill at the center of these monumental hearings: the Secure and Fair Enforcement (SAFE) Banking Act, originally introduced in 2006 and has been stuck in a holding pattern, as have similar bills, ever since.
The committee heard testimony from cannabis industry stakeholders, police departments, and banking executives. These witnesses painted a robust picture of the cannabis banking problem, from the danger it poses to communities in the form of increased risk of armed robbery, to the burden it places on legal dispensary owners who have to find alternative cash management solutions, to the lack of accountability cash creates from a tax perspective.
The bill has yet to come up for a vote. While there are elected officials who reject the concept outright, there is an ever growing coalition in both houses of Congress pushing for a cannabis industry banking solution. More than ever, it seems the U.S. could finally see a loosening on federal restrictions to banking legal cannabis business.
4 Reasons why the U.S. will Loosen Cannabis Banking Regulations Soon
There is more political will for the legal cannabis industry than ever before.
While one hearing is far from passing the law, it is a sign that times are changing. Ten states have legalized recreational cannabis and 33 more have some form of medical cannabis laws in place; this is a drastic increase in the last decade. Shockingly in a time of so much partisan rancor, 62% of Americans favor legalizing marijuana. That is more than double the approval rating cannabis enjoyed in 2000 (31%).
The cannabis banking law being discussed is relatively innocuous. It does not legalize or reclassify cannabis at all, just allows banks to offer services to state-legal cannabis businesses. All in all, considering the strong support across party lines and the success of state industries, passing this law would be an easy win for Democrats, Republicans, and President Trump in a time when political wins are a rarity.
Current banking solutions are prohibitively expensive and states want to see their prosperous legal cannabis industry grow.
Credit unions and banks that currently offer cannabis industry banking charge prohibitively expensive fees, up to $2,000 a month for a simple business checking account. This is a problem for state elected officials.
Recreational and medicinal cannabis states seem, generally speaking, to enjoy the tax revenue they receive from this robust and rapidly growing industry. It is in the best interest of the state for legal cannabis businesses to thrive. If cannabis business owners can’t afford the currently available banking services, it hinders their ability to build upon their business. Even worse, these prohibitive fees keep dispensaries operating on an all cash basis, creating a much higher risk of robbery and violence in the community.
California’s behemoth market is drastically tipping the scales.
It is hard to overstate just how massive California’s legal cannabis market is. Expected to rake in over $50 billion by 2026, the influence this one state industry has is profound and its cash management problem will significantly magnify the problem.
The industry will continue to grow and mature, pushing out the gray market over time. As more cash comes flowing into the legal cannabis industry, it will begin to strain the cash supply and law enforcement to such a degree that action, more than it already is, will be imperative.
Money talks; state and federal governments want their tax revenue.
More than anything else, what will ultimately carry a cannabis banking law across the finish line is money. Cash-only businesses are fertile for tax fraud, simply pocket a little cash here and there and then never report it to the IRS. If there is one thing that can motivate an otherwise slow-moving government, it is tax revenue being left on the table. Allowing cannabis industry banking is a clear way to increases transparency and ensure the state and federal government get their share of the profits.
Access to banking will allow the rapidly growing cannabis industry to advance even faster. Will you be ready? Subscribe to our blog to stay up to date on the latest cannabis news, industry trends, and best practices for running your cannabis dispensary!
Gary Cohen leads Cova’s charge into the legal cannabis space by guiding the vision, strategic development, ‘go to market’ plans and culture.
Before joining Cova, Gary was a principal in over a dozen tech start-ups in the mobile communications industry ranging from small VC funded companies to Fortune 100 firms, including Onavo, which was later acquired by Facebook. In those companies he led sales, marketing, business analytics and market expansions. He has also held a multitude of leadership roles with Verizon and AT&T.
Gary holds a degree in finance with a master’s in marketing from the University of Colorado.
Member Blog: The Explosive Growth of California Cannabis Licenses and What Comes Next
We’re more than one year into California’s legal cannabis industry and license growth continued on a fast-rising upward trajectory through the end of 2018. In fact, between November 1, 2018 and December 31, 2018, California issued a total of 6,855 new cannabis licenses according to the Cannabiz Media License Database as people worked extended hours to process the remaining temporary license applications.
To put that number into perspective, California had 4,085 active licenses as of October 31, 2018. During the next 61 days, the state more than doubled that number to 10,940 active licenses on December 31st. You can see the data visually in the chart below.
Majority of Licenses Granted Went to Cultivators
Of the 6,855 licenses granted in California during November and December 2018, 65% were issued to cultivators by the California Department of Agriculture.
Distributor licenses accounted for 14% of the licenses granted during that two month period, followed by manufacturer licenses at 12%, retailers/dispensaries at 3%, microbusinesses at 3%, delivery businesses at 3%, and testing labs at less than 1%.
Cultivators Continue Stacking Licenses
During the final two months of 2018, 45 license holders gained double digit licenses, which accounted for 24% (1,665) of the 6,855 new licenses issued. One reason for this is because cultivator licenses are skyrocketing as more growers secure multiple small licenses to create large cultivation facilities.
Between November and December 2018, five companies received 729 cultivator licenses, which equates to more than 16% of cultivator licenses granted during that time and nearly 11% of all licenses awarded during that time.
Those five companies are Coyote Hills Agricultural Enterprises (210 new licenses), White Light Farms (173 new licenses), BDZ, Inc. (134 new licenses), Iron Angel II, LLC (133 new licenses), and Busy Bee’s Organics (79 new licenses).
Distributor Licenses Saw the Most Growth in Late 2018
While new cultivator licenses grew by the largest quantity during November and December 2018, new distributor licenses saw the largest growth jump over the previous 10 months of the year.
The number of new distributor licenses issued in December and November 2018 was nearly double the amount granted in the previous 10 months. Manufacturer licenses issued increased by 188%, cultivator licenses by 178%, testing licenses by 68%, and retailer/dispensary licenses by 58%.
What’s Next for California’s Cannabis License Holders?
California has stopped issuing temporary cannabis licenses, and throughout 2019, many of the temporary licenses awarded during 2018 will expire. Each of these temporary licenses will need to become provisional and/or annual licenses in order for the license holders to stay active in California’s cannabis industry.
A few months in 2019 stand out as ones to watch because a large number of temporary licenses will expire. In March, 1,559 licenses will expire. In April, the number of expiring licenses jumps to 4,731, and in July, another 2,453 temporary licenses will expire. During other nine months of 2019, the number of licenses that will expire ranges from three licenses in October to 682 licenses in May.
Clearly, the story of cannabis licensing in California is far from over, and the Cannabiz Media team will be watching closely and tracking all of it in the Cannabiz Media License Database. Follow the link to see more data and insights related to license growth in California during the last two months of 2018.
Ed Keating is a co-founder of Cannabiz Media and oversees our data research and government relations efforts. He has spent his whole career working with and advising information companies in the compliance space. Ed has overseen complex multijurisdictional product lines in the securities, corporate, UCC, safety, environmental and human resource markets and focuses on workflow products. Ed has spent the last twenty five years in the information industry. During that time he has worked for both startup and established information companies where he has led marketing, product management and sales organizations. These companies include Wolters Kluwer/Commerce Clearing House, CT Corporation, EDGAR Online and Business & Legal Reports. At Cannabiz Media Ed enjoys the challenge of working with regulators across the country as he and his team gather corporate, financial, and license information to track the people, products and businesses in the cannabis economy. Ed graduated from Hamilton College and received his MBA from the Kellogg School at Northwestern University. He has been active with the Software & Information Industry Association for his whole career and managed the Content Division for six years. He’s was recently a Trustee at the Country School in Madison CT and a Little League Coach for seven years.
Member Blog: Advice for Surviving and Thriving in the New Era of Legal Cannabis From Those Who Have Climbed The Mountain (Part 1)
The challenges facing companies pioneering a new industry where each state deals with its own issues are numerous. The importance of strategic business planning and the ability to predict future problems are essential to survival.Colorado, Washington, and Oregon have each dealt with their unique issues and challenges but there are also common problems that every cannabis business experiences: burdensome regulation, unfair taxation, and banking prohibition to name a few. Building your company and brand is dependent on your ability to maneuver your company through the obstacles that will arise in your state market while also planning for a future of legal interstate commerce through a change in federal policy. To place your company in a position to be successful, you should understand the past to predict the future.
Quick Summary of Cannabis History
The history of cannabis is long and distorted, however a few basic points of what brought us to the current state of federal prohibition and individual state markets should be noted for context.
Cannabis use as medicine dates back to 2700 BC in China, and has been used throughout history. In 1850, it was added to the U.S. Pharmacopeia. Prior to state and then Federal prohibition, cannabis was an elixir/tincture used in many common household cough/cold syrups and other medications for stomach-aches, asthma, depression, and many others. In the 1930s, cannabis was regulated as a drug in all states, and in 1937, the passing of the Marihuana Tax Act regulated it federally. Then in 1970, the Controlled Substances Act determined cannabis to be a Schedule 1 drug meaning it has no medical benefit and a high risk for abuse. From 1970 to 1996 the manufacture, use, or possession of cannabis was illegal in all fifty states.
CALIFORNIA
In 1996, California became the first state to legalize the medical use of cannabis through Proposition 215. California was the first domino to fall and further background of the early days of California medical cannabis will be addressed in later blogs in this series focusing on California. Over the next twenty years, 37 states have joined California with medically legal cannabis, and nine states have passed and implemented legal “recreational” (now referred to as “adult use”) cannabis programs.
OREGON
Oregon was the second state to pass medical cannabis in 1998 and that was the start of this author’s journey through the cannabis industry. Prior to 1998, Oregon had been a bastion of black market cannabis cultivation due to its climate and wide open spaces especially in rural southern and eastern Oregon. After 1998, the state “protections” offered by medical cannabis state law allowed the cultivation industry to flourish. However, as opposed to California the state was more focused on growing weed and selling it around the country rather than setting up a distribution system to the medical patients of Oregon. This led to some of the early challenges of the medical cannabis program in Oregon. At this time, the Oregon population was relatively small compared to the state’s cannabis production. Oregon was on its way to being one of the largest cannabis producers in the country. But because cannabis was so easily accessible there was little effort put into a healthy distribution system to Oregon patients. Most patients either grew for themselves or had a designated “grower” and that is where I started in the industry.
OREGON: FORMATION OF RETAIL ESTABLISHMENTS
As a nurse who had self medicated with cannabis for ADHD, I began growing for patients because I wanted to provide others with access to the amazing health benefits of cannabis. This was the common way most patients accessed their cannabis. There were no dispensaries when the program started and patients who didn’t have a grower were relegated to barter trade types of acquisition. In 2005, the Oregon Legislature allowed growers to be reimbursed for the cost of production and in 2010, the first dispensaries began to pop up. However, it wasn’t until 2012 that legal retail entities were allowed. This lack of a retail access point for patients was one of the first impediments to the program and allowed states like Colorado and California to take the mantel on progress of a robust program of medical cannabis distribution.
COLORADO
In 2000, Colorado became the sixth state to allow medical cannabis with Amendment 20. Its medical program remained low key until 2010 when the Colorado Medical Marijuana Code was created, which provided for licensing of production and retail establishments. This change was a giant step to the progress of cannabis legalization.
Colorado followed the early model presented in California and began implementing licensed retail establishments for card carrying medical cannabis patients. Retails stores began to flourish and this laid the groundwork for the establishment of the Adult Use program. In 2012, Colorado became the first state to legalize what was originally referred to as recreational cannabis now called “Adult Use” cannabis, which allowed the sales of cannabis to all adults aged twenty-one and older and the boom began. Colorado’s medical program developed into a rapidly growing Adult Use system and with the new federal guidance of the Cole Memo in 2013 canna-businesses began growing rapidly.
COLORADO: SEED TO SALE TRACKING
The primary language of the Cole Memo highlights a “robust tracking system” of all products produced and sold. The Cole Memo did not provide protections for cannabis businesses but provided guidance that helped assure businesses of some safety from federal interference. With the advent and implementation of a tracking system we could now be assured of where products came from and be able to track them back to their origin.
COLORADO: LAB TESTING
Once tracking was in place, lab testing for the safety of the consumer came to the forefront of industry progress. This was one of the first problems Colorado realized it had with its blossoming industry. As opposed to Oregon which required all products sold through its immature dispensary system since 2012, Colorado had not required lab testing of all its products until 2016 after several large quarantines and destruction of unsafe contaminated products. Many Colorado producers struggled with new pesticide regulations and was an early sticking point to growth of the industry. Over the first years of Adult Use cannabis program, Colorado struggled with the infancy of a brand new industry and how to regulate it and consequently, businesses suffered.
Other early challenges that the first legal state dealt with were allowable dosages and changes to dosing, as well packaging changes and the look of products, specifically how or if the products were attractive or marketed to children. The obstacles of a new industry most directly affect the businesses and their bottom lines. These are important points to consider when strategizing your business model and planning for inevitable changes to regulations. The time spent preparing for a system that will change will go a long way to ensuring for success.
WASHINGTON
Now let’s talk about Washington.
Washington was the third state to approve medical cannabis but had problems with implementation due to legislative issues. As multiple pieces of legislation were offered, adopted, and repealed, the lack of clarity prevented the medical cannabis industry from launching. Washington passed its adult use cannabis program at the same time as Colorado in 2012. In Washington, the two major obstacles the industry faced were licensing issues and taxes. A previously existing strong medical program in Colorado allowed for a seamless transition to an adult use program, but that was not present in Washington and this added to difficulties with implementing an adult use program.
Because the industry was just getting off the ground, both states relied on their medical programs as a foundation to the adult use. However, Washington’s medical program was murky and disorganized which lead to complications, Washington also limited licenses and put unfair taxes on the industry. These two factors aided in keeping the black market as the primary driver of the industry, rather than pulling people or businesses into a controlled, tracked, and regulated system.
280E TAX CODE
This provides a nice segue to one of the challenges all cannabis business face: unfair taxes in the 280E tax code. Internal Revenue Code section 280E specifically denies a deduction or credit for any expense in a business consisting of trafficking in illegal drugs “prohibited by Federal law or the law of any State in which such trade or business is conducted” which translates to only “Cost of Goods Sold” as the only deductible expenses. This means administrative costs, executive salaries, marketing and advertising, banking fees, etc., are non-deductible expenses for any cannabis business and subjects them to much higher taxes as most normal business deductions are prohibited. This challenge is one all cannabis businesses deal with and must be factored into financial modeling.
BANKING
While we are on the the subject of taxes and non-allowable deductions, banking is the other major challenge all cannabis businesses face. Due to federal policy around an illegal substance, FDIC insured institutions force canna-businesses to operate in all cash for fear of prosecution under racketeering and money laundering laws. There are a handful of financial institutions, credit unions, or state banks that offer “Enhanced Monitoring Accounts” for cannabis companies. However, they are highly priced and rare. The average cannabis bank account is likely to run $1,000.00 a month, just to have access to banking services, not including additional fees. This $12,000 a year budget line item, while not only expensive, is not a tax write-off per 280E tax code.
One can quickly see from just these two major hurdles or challenges to the industry, normal operations can be difficult. These obstacles are not to be taken lightly; they can be addressed but it must be factored into operating procedures, financial planning/budgeting, and strategic vision.
NOW BACK TO STATE SPECIFIC ISSUES
As Washington and Colorado dealt with its issues, Oregon voted to approve “Adult Use” cannabis in 2014. Using Colorado and Washington as a guide, Oregon implemented their system with more deliberation and vision based on what had been experienced in the first two states. But as was seen with the unique challenges in the first two states, Oregon encountered an entirely different set of problems. Oregon currently faces a massive oversupply problem which has affected all facets of business across the industry. In normal business and supply and demand economics, if an area is oversupplied, business move their products to where the demand is higher or the supply is lower. However, cannabis remains a federally illegal product and therefore interstate commerce remains illegal.
Oregon’s unique problem originated from two main issues:
Oregon had already established itself as a cultivation mecca
The regulatory authority decided against a cap on licenses
This lack of license caps has allowed the number of licensees to explode and thereby allowed the oversupply issue to occur and continue to grow. As stated, this is not a problem exclusive to cultivator/producers. Because of a 75% drop in value, cannabis attorneys, electricians, HVAC, security companies and other ancillary businesses are not getting paid. The oversupplied market and decreased revenue has reverberated across the industry and driven otherwise thriving companies into bankruptcy.
As you can see, each state deals with its unique challenges when implementing its Adult Use cannabis program, while we all deal with some issues that affect us all. The key to thriving… or surviving is to prepare your company to deal with the current challenges shared by us all and predict the challenges that your business will face in your state while preparation is taken for a national and international market.
James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of CascadeHigh Organics with 20 years experience cultivating legal cannabis. James is a self-described organic minimalist cultivating in the most sustainable manner. James believes in clean cannabis and its use as a wellness drug. His Oregon licensed cultivation, Cascade High, has been featured in Dope Magazine and on the cover of Oregon Leaf’s Sustainability issue (March ‘18). James was featured as the Inaugural Stoner Owner by OR Leaf in Dec 2018. He has articles published by Dope Magazine about Cannabusiness and the Pharmaceutical Industry (May 2017), as well as a medical cannabis article in the Jan. 2019 Healthcare issue of OR Leaf. James is currently on the NCIA Cannabis Cultivation Committee and has presented Cannabis topics to multiple audiences at conferences including Cannabis Science Conference, PDX Hempfest, Cannabiz Convention, CBD Expo and Webinar series, Cannabis Collaborative Conference(CCC), Cannabis Nurse Conference, NCIA and educational industry mixers. His business, legal, medical, and agricultural knowledge provides a unique perspective on the industry. James has lobbied for Cannabis on both the national and state level with Oregon Cannabis Association and is a fierce advocate for the plant and all who use it.
Member Blog: Federal Authorities’ Current Position On Cannabis In 2019
Marijuana is anything but boring. And the politics of cannabis gets more and more interesting by the minute. On the tails of the 2018 Farm Bill signed into law, as we predicted, hemp-derived CBD leads as the most controversial subject in the pot trade. Politicians and lawmakers are divided. Federal government agencies, like state agencies, have separate and distinct enforcement and regulatory authority which lends itself to polar opposite view points.
U.S. Attorney General Nominee William Barr Takes A Favorable 360º Turn
In less than a month since the Act was signed into law, we have the nominated Attorney General William Barr taking a 360 from former U.S. Attorney General Jeff Sessions. In Senate confirmation hearings just recently, newly appointed Attorney General William Barr stated that he would “not go after” marijuana businesses operating in states where cannabis is legal. Barr reasoned that companies relied on the Obama-era Cole Memo (which Jeff Sessions rescinded) that kept federal authorities at bay from criminal prosecutions under Federal law. We are all aware Federal law prohibits the possession and sale of marijuana. A new bill was introduced into Congress last Friday that would revive the relaxed Cole Memo enforcement guidelines.
USFDA Commissioner Scott Gottlieb Announces CBD Product Sales Illegal
In stark contrast, USFDA Commissioner Scott Gottlieb issued a press release statement and didn’t mince words. Gottlieb expressly stated that introducing CBD/THC food products into interstate commerce is illegal “regardless of whether the substances are hemp-derived” – as we predicted and discussed in previous blogs. Despite the FDA’s foreseeable regulatory posture, we continue to believe there remains the open question:
“Can you produce and sell CBD food products – marijuana or hemp-derived – so long as you do not tout its medicinal benefits? A question that has yet to be specifically addressed by lawmakers. Ironically, the states’ legalization of marijuana all began with medical marijuana because of its medicinal benefits as an alternative treatment.”
Commissioner Gottlieb’s FDA Statement does not answer this question.
Stay Tuned – We’re Staying On Top Of Cannabis Politics For You
An experienced corporate litigator having worked in both the private and government sectors, Attorney Robyn Ranke has taken a modern business approach to the cannabis industry and in working with cannabis business startups. Throughout her legal career, Robyn has represented a diverse base of business clientele in a variety of industries involving both complex and novel legal matters. Her diverse experience as a business litigator provides a valuable legal platform from which she is uniquely postured to address the regulatory hurdles, costly pitfalls, unique business transactions, and business litigation risks that confront California cannabis business owners today and into the future as state regulations continue to evolve.
As 2018 came to an end, the FINAL proposed text of the permanent regulations for California cannabis were submitted to the Office of Administrative Law (OAL) by the three regulatory agencies – the California Department of Food and Agriculture (CDFA), California Department of Public Health (CDPH), and the Bureau of Cannabis Control (BCC). The cannabis regulations submitted to the OAL are currently undergoing a 30-day administrative review to ensure alignment with MAUCRSA and statutory requirements. These “final’ regulations shall become effective immediately upon approval/adoption which should be on/before January 16th 2019.
What “final” means in this evolutionary process of California cannabis regulations is debatable, as there are already several Assembly and Senate bills queued up to be put through the legislative tango and all three of the regulatory agencies have indicated that there will be further clean-ups and clarifications of the “permanent” regulations. Although there will assuredly be changes ahead, this is a highlight reel of where California Cannabis stands now.
For those that dug into the October redrafts, much of the substantial changes that occurred in that version carried over into the final proposed text. Here we will highlight the top eight changes impacting cannabis businesses in California.
The Final Statement of Reasons from the BCC, which also included responses to pertinent comments received during the previous 15- and 45-day comment periods, is where some greater clarity about the regulatory changes and intents can be found. It is by spelunking into these deeper caverns of reasoning where the sweet ore of further clarity can sometimes be extracted.
Here are 8 highlights for anyone interested in California cannabis.
1. Ownership and Financially Interested Parties
In October we saw the expansion of the definition of ownership and financially interested parties that clearly sought to capture the identification of any and all warm bodies that stand to direct, control, or financially benefit from commercial cannabis. While there were some changes in sections §5003 and §5004 between the previous and current version, the scope and intent remained the same. One particularly vague line §5003.b.6.D “Any individual who assumes responsibility for the license.” was removed from the BCC’s definition of owner, this very line turned up over the in the CDPH’s update in §40102.a.4.D.
The Ownership and Financially Interested Parties disclosures dovetail into the White Labeling issues (See #2) in that “Brand Owners” that may be licensing IP to contract manufacturers have been impacted by the prohibition on non-licensees conducting commercial cannabis business with licensees. In the response to comments in the FSOR was this gem of insight, “In response to commenter’s questions, if a licensee includes as one of their owners a brand-owner, the licensee can produce the branded products because in this case the licensee is not engaged in commercial cannabis activity on behalf of an unlicensed person. Because the owner of the brand is an owner of the licensee, there is no unlicensed person involved.” Of course, before everyone runs off and adds brand-owners as owners of their contract manufacturing business, let’s take a moment to reflect on the value and critical importance of a well-drafted contract.
2. §5032 (b) The So-Called “White Label Prohibition”
5032.b shall go down in infamy as one of the more talked-about sections of the BCC’s regulations. This simple sentence, “Licensees shall not conduct commercial cannabis activities on behalf of, at the request of, or pursuant to a contract with any person that is not licensed under the Act,” brought with it a level of confusion and white-hot panic regarding the inferred white label prohibition contained therein. October’s version had more explanatory examples for the types of “on behalf of, at the request of, or pursuant to” activities that the BCC was talking about, such as, “procuring or purchasing cannabis goods from a licensed cultivator or licensed manufacturer. Manufacturing cannabis goods according to the specifications of a non-licensee, Packaging and labeling cannabis goods under a non-licensee’s brand or according to the specifications of a non-licensee, Distributing cannabis goods for a non-licensee.” This language was removed in the final version submitted to the OAL and is one of the examples of where the FSOR is enlightening.
From the BCC’s FSOR: “Initially, the Bureau determined that it was necessary to assist licensees with determining what types of activities may or may not be allowed under the Act and its implementing regulations. The initial proposed change identified certain transactions that would generally be considered commercial cannabis activities under the Act. However, the Bureau has determined that inclusion of the clarifying example transactions is causing more confusion. Accordingly, the Bureau has decided not to move forward with the proposed changes which identify examples of specific commercial cannabis transactions.” The definition of “commercial cannabis activities,” therefore, is an important one, and we can refresh ourselves on that one (Business and Professions Code §26001.k) “‘Commercial cannabis activity’ includes the cultivation, possession, manufacture, distribution, processing, storing, laboratory testing, packaging, labeling, transportation, delivery or sale of cannabis and cannabis products as provided for in this division.”
This has been a hot, hot topic, and there have been some great analysis articles of this provision that dig further into solutions and scenarios related to this section. Get thee to Google and find out more!
3. Option to label THC/CBD post-final testing by Distributor
This was a big win for the industry! A substantial percentage of testing failures for “label claims” are due to products, previously required to be labeled with THC/CBD content prior to final testing (the one test that counts!) not falling within the 10% allowable variance threshold. It’s common knowledge that the science of cannabinoid testing is still getting dialed in, and the labs have some serious challenges in hitting the same tiny target twice. Especially when they are dealing with the vast array of cannabis product matrices, and an industry that it still learning about important things such as homogenization. The good news is, the CDPH now allows products to be labeled for THC/CBD content after that all-important final test, which should eliminate well-upwards of 50% of the product failures in California and ensure a steadier supply chain.
4.Regulation of Technology Platforms
The cannabis industry has always been a place of innovation and loophole-finding. These regulations are an attempt to close some of those loopholes that seem to have created a situation where unlicensed tech platforms were enjoying the privileges of licensed commercial cannabis without undergoing the slings and arrows of local/state licensure and regulation. Seeing themselves outside of the regulatory purview, certain business claimed that agencies such as the BCC had no dominion over their activities. Well, they may have wanted to wait until the ink dried on the final regs before making such an assertion, as now it seems the BCC has expanded its reach to embrace all kinds of advertising, facilitating, and delivery platforms.
5. Delivery to a Physical Address
This was (potentially) a huge win for patient access, however, it remains to be seen how this truly shakes out. When the BCC added the line that “a delivery employee may deliver to any jurisdiction within the State of California” it caused some serious outrage from municipalities that have banned commercial cannabis activity, the League of Cities, law enforcement, and others that saw this as a huge overstepping of the local authority ensured by Prop 64 and MAUCRSA. The LOC even launched a “wandering weed” campaign, in response to which it seems that a subsection that includes “a restriction on delivering cannabis goods to a school providing instruction in kindergarten or any grades 1 through 12, day care center, or youth center” was added to the regulations, for clarity. Whether the OAL will approve as is, and how this interacts with local bans, tax requirements, and law enforcement, and lawsuits… stay tuned! While the BPC (§26090.e & 26080.b) explicitly prohibits a local jurisdiction from preventing delivery, and transportation, of cannabis goods on public roads, it does not prevent localities that have banned commercial cannabis in their area from adopting ludicrous tax rates for deliveries that would in effect ban via taxation delivery in their area.
6. Sale of Non-Cannabis Goods (aka No Hemp)
While the seeming victory of the Farm Bill has folks leaping with joy for the future of hemp, statements from the FDA and other agencies have certainly rained on the parade of many a CBD vendor. Add to that the collections of California cannabis regulations that in effect eliminate hemp-derived CBD from cannabis dispensaries and products.
“In addition to cannabis goods, a licensed retailer may sell only cannabis accessories and any licensee’s branded merchandise.” (BCC §5407)
This limitation for retail (and retail delivery) is further clarified in the BCC’s FSOR in their responses to comments:
“Cannabis retailers are licensed to sell cannabis goods. The definition of cannabis within the Act explicitly excludes industrial hemp products. Industrial hemp is regulated by the California Industrial Hemp Program under the California Industrial Hemp Farming Act.”
“A retail license from the Bureau authorizes the retailer to sell cannabis goods and cannabis accessories. A retail license from the Bureau does not authorize licensees to sell items that are unrelated to cannabis.”
Combined with the retail prohibition on non-cannabis products, this trifecta from the CDPH extends that prohibition to manufacturers:
“A manufacturer licensee shall only use cannabinoid concentrates and extracts that are manufactured or processed from cannabis obtained from a licensed cannabis cultivator.” (CDPH §40175.c)
“Except for cannabis, cannabis concentrate, or terpenes, no product ingredient or component shall be used in the manufacture of an edible cannabis product unless that ingredient or component is permitted by the United States Food and Drug Administration for use in food or food manufacturing, as specified in Everything Added to Food in the United States, or is Generally Recognized as Safe (GRAS) under sections 201(s) and 409 of the Federal Food, Drug, and Cosmetic Act.” (CDPH §40305.a)iii. “Except for cannabis, cannabis concentrate, or terpenes, topical cannabis products shall only contain ingredients permitted for cosmetic manufacturing in accordance with Title 21, Code of Federal Regulations, Part 700, subpart B (section 700.11 et seq.) (Rev. March 2016), which is hereby incorporated by reference.” (CDPH §40306.a)
For now, it seems, non-cannabis derived CBD is DOA in CA.
7. Child Resistant Packaging (CRP) Requirement
Heads continue to spin (and cannabis business’ cash to hemorrhage) in response to the changes in the packaging requirements. As of July 1, 2018, all cannabis products were to be in child-resistant packaging, and retailers had converted back to the statutory requirement that all exit packaging was to be “opaque,” allowing them to use reusable totes and paper bags to satisfy this requirement. In the October regs, we saw a pivot that allowed for a seeming “grace period” for the child-resistant requirement to return to being able to be satisfied by the retail via CR exit bag. Some confusion remained as to whether products that were already IN child-resistant packaging would have to be put INSIDE of child-resistant packaging for the next year. The addition of the statement from the CDPH, “Until the date specified [1/1/20] the child-resistant package requirement [§26120] may be met through the use of a child-resistant exit package at retail sale.” (CDPH §40417.d) suggests that the significant ecological impact of CR packaging within CR packaging MAY be avoided, however, most legal counsel will probably be advising retail clients to use the CR exit bag to avoid potential liabilities. Viva Kafka!
In the CDPH’s Statement of Reasons, they said “This is necessary to comply with the packaging requirements in Business and Professions Code section 26120 while providing licensees with time to comply with packaging requirements.” Compliant operators were left somewhat confused, as they had been required to comply with these packaging requirements since July!
8. OSHA Training for Everyone!
All three regulatory agencies added the following requirement for OSHA training:
“For an applicant with more than one employee, the applicant shall attest that the applicant employs, or will employ within one year of receiving a license, one supervisor and one employee who have successfully completed a Cal-OSHA 30-hour general industry outreach course offered by a training provider that is authorized by an OSHA Training Institute Education Center to provide the course.”
This will be an additional training requirement, on top of existing state and local training requirements for cannabis operators. And remember, all that training documentation must be kept, like all other records, for seven years!
As with everything in life, more will be revealed as we get deeper into 2019.
Juli Crockett is a member of the NCIA’s State Regulations Committee and is Director of Compliance at MMLG. Slides from Juli’s recent Workshop on this topic are available for download here. You can also watch the workshop video in its entirety on MMLG’s Facebook page.
Member Blog: Tax Court Decision for Harborside Health Center
The Tax Court’s recent decision in Harborside Health Center v. Commissioner is more bad news for the cannabis business community. The taxpayer, a prominent California dispensary, was assessed approximately an additional $30 million in tax by the IRS for the years 2007 to 2012, years in which Harborside had total revenue of approximately $102 million. Harborside lost, so it will have to pay that amount plus also pay another 20% of the tax owed in accuracy-related penalties – the Tax Court did not decide the penalty issue and left it for a later opinion. At this point, Harborside can either pay the tax (plus possibly penalties) or appeal to the Ninth Circuit Court of Appeals.
GROUNDS OF THE DECISION
The court decided against Harborside on every single argument made by its counsel. Three of the issues are straightforward:
The doctrine of res judicata didn’t apply, so the fact that a civil forfeiture case against Harborside had been dismissed with prejudice did not prevent the IRS from assessing a tax liability.
The language in Section 280E of the Tax Code that deductions are disallowed to a trade or business that “consists of trafficking in controlled substances” applies to businesses that have more than the one activity of trafficking. Harborside argued that “consists of” means the business must ONLY be trafficking for the disallowance to apply, and the Tax Court rejected that interpretation.
Harborside had only one trade or business so it could not deduct any expenses related to a separate trade or business. The taxpayer had argued it had multiple lines of business, but the opinion held that Harborside didn’t make significant profits from any of the other claimed lines of business so there was only one business.
MOST IMPORTANT CONSEQUENCE OF DECISION
The holding in the case that has the widest applicability to the cannabis community regards what Harborside may include in its cost of goods sold. The increase in tax owed by Harborside mostly comes from reclassifying expenses from cost of goods sold to ordinary business expenses and then denying deductions for those expenses under Tax Code Section 280E.
The taxpayer argued that the broader cost of goods sold rules under Code Section 263A applied in addition to the earlier (and narrower) definition of cost of goods sold under Section 471 However, the Tax Court endorsed the reasoning in IRS Chief Counsel Advice Memorandum 201504011 (2015) regarding the interaction of Section 263A and Section 471 with respect to cannabis-related cost of goods sold calculations. It is the IRS view that a clause of Section 263A prevents allocating indirect cannabis-related costs into cost of goods sold because the deduction for those costs would be denied under Section 280E.
Harborside contended that the Sixteenth Amendment to the Constitution compels using Section 263A rules in addition to the Section 471 cost of goods sold rules. The Tax Court was very dismissive of the argument, pointing out that “Section 471 wasn’t found unconstitutional during the many decades when it was the only means of calculating COGS [cost of goods sold], and it wouldn’t be unconstitutional now if Congress repealed Section 263A.”
It is also worth noting that the Tax Court held that Harborside was a reseller, not a producer, and that producers are subject to a different set of regulations under Section 471 that allow additional expenses to be included in cost of goods sold.
WHAT NOW?
Harborside is important because it is the first Tax Court case to squarely address the interaction between Sections 263A and 471 in the context of a cannabis business. However, there are other courts that can hear federal tax cases besides the Tax Court, and there are other arguments that can be made besides the one made by taxpayer’s counsel (even in Tax Court). While the best option for relief for cannabis taxpayers is to change the law, even if the law is changed, there will still be years of audits under the current law, so the questions raised by the Harborside decision will continue to be litigated. For further discussion, please see our blog on our website.
James B. Mann is a partner with the Tax practice group of Greenspoon Marder LLP. Mr. Mann has over 25 years of experience serving as a trusted advisor to a broad range of stakeholders in the energy and financial services industries. He counsels clients on the new changes in the tax law, as well as cannabis tax issues and cannabis tax controversy proceedings. Mr. Mann has a law degree from Harvard Law School and an MBA from Columbia University.
Rachel Gillette is among the first attorneys in the nation to dedicate her practice to the cannabis industry. Since 2010, Ms. Gillette has helped marijuana/cannabis businesses with licensing and regulatory compliance, business law and transactions, contract drafting and review, tax litigation, corporate formation, and tax matters, including audit representation. She works with startups and entrepreneurs, investors, and ancillary industry businesses to help develop the cannabis innovation ecosystem, and is a zealous advocate for the industry.
Ms. Gillette regularly represents clients before the IRS’s Examinations, Appeals, and Collections Divisions, including marijuana businesses facing the challenges of IRS adjustments under 280E. She has successfully protested local, state and federal tax deficiencies on behalf of her clients, having prevented hundreds of thousands of dollars in incorrectly assessed taxes, interest, and penalties. She can assist individual and business taxpayers in 280E proposed assessments, offers in compromise, audit examinations, innocent spouse claims, sales, use, and employment tax matters, trust fund tax penalty assessments, penalty abatement’s, and levy releases.
For several years, Ms. Gillette was the executive director of the Colorado state chapter of NORML, the National Organization to Reform Marijuana Laws. She was a founding member of Women Grow and the National Cannabis Bar Association. She an advocate as well as an attorney, and is committed to helping change laws – and perceptions – relating to cannabis and ensuring state licensed and legal marijuana businesses are fairly taxed and regulated.
Ms. Gillette received her Juris Doctorate from the Quinnipiac University School of Law in Hamden, Connecticut, where she served as Associate Editor of the Quinnipiac University Probate Law Journal. During law school, she interned with the New Haven Public Defender’s office, where she developed her commitment to advocacy for those facing the many challenges of the criminal justice system.
Allied Association Blog: Nevada County Cannabis Alliance Update
The Nevada County Cannabis Alliance is a trade association in California whose mission is to Advocate, Educate, and Connect. The Alliance advocates for reasonable local policies and a fair county ordinance. We believe in empowering community success through education, and connecting stakeholders with opportunities to participate and collaborate in the industry.
Nevada County has a renowned history of heritage cannabis cultivation that has played a crucial role in the community and economy over the past decades. Our community is well known for high quality, craft cannabis farming as well as for our unique quality of homesteading life. The Alliance seeks collaborations with organizations that value high quality, craft, California cannabis, grown by farmers with a unique history and story.
What issues are we working on?
Completing the comprehensive Environmental Impact Report necessary prior to the final completion of our local cannabis ordinance.
Providing essential education to the farmers throughout the regulatory transitions to assist with permitting and licensing.
Developing relationships with distributors and partners to bring our farmers to market.
Challenges
One challenge we face as a member based organization is maintaining and continuing to grow our membership numbers. The quintessential financial sustainability quagmire. Ever changing regulations and market uncertainty has caused reluctance from many small farmers. The Alliance works hard to reinvigorate and provide hope throughout the local cannabis community, but the reality is that there has been a decline in membership. Maintaining and continuing to grow our membership numbers, business sponsorships and financial stability is a constant need in order to continue working for a thriving cannabis industry for our region.
Another challenge is connecting our small- batch (10,000 sq ft farmers) into the supply chain with distributors who are interested in craft product.
What’s happening that’s important?
Ensuring that permitted local farms have access to the market via various distribution channels.
Decreasing barriers to entry for farmers within our local policy and ordinances. For example, local farmers are restricted to holding only 3 cultivation permits and local farmers also MUST have a permitted residence on the land to which they farm cannabis.
What advice or education do you have for others?
To counties that may still have complete cultivation bans, hang in there. Policy work is thankless, not pretty, and not why anyone began farming and living off of the land. Celebrate each and every small victory and step in the right direction, they truly add up. It is crucial for the greater community to support those that are willing to do the policy work and for there to be consistent representation with local officials. These relationships are everything, so continue to build bridges and nurture every community relationship. Nevada County worked its way out of a 2016 ban and we will be home to a thriving cannabis community and industry. It is important to organize and show strength in numbers.
Wrapping Up 2018 Cannabis Caucus Events, Introducing New 2019 Events!
October marked the last NCIA events of the year with Cannabis Caucus events in eight regions nationwide and an outstanding 2nd Annual California Cannabis Business Conference in Anaheim, California. As this year’s events comes to a close, we have so much to reflect on and exciting new events to announce!
During this quarter’s Cannabis Caucus events, more than 400 NCIA members, representing 250 member companies, totaling in more than 750 attendees turned out for our eight events nationwide. This means that although these events are growing increasingly popular, they are still small enough to make meaningful connections with other industry leaders in your region. Instead of just making small talk with someone in passing, you’ll get to to have real conversations with some of the most influential leaders in the industry. Year after year, we hear about people striking business partnerships, friendships and impactful connections at these events because they offer the time, space and opportunity to do so.
In the industry’s largest markets, Northern California, Southern California, and Colorado, more than 100 industry professionals turned out at each event. But, perhaps most impressive was the 75 plus attendance in the Midwest, maybe a harbinger of the positive momentum garnered by statewide reform initiatives in this year’s midterm elections!
Cannabis Caucus Highlights
A the Northeast event, attendees heard the latest news surrounding medical cannabis in Maine from State Sen. Eric Brakey (R-District 20), as well as Maine’s adult-use cannabis laws from David Boyer, Maine Political Director at Marijuana Policy Project.
The event in Northern California featured special guest speaker Heidi Mattos, a payroll tax specialist from the State of California Employment & Development Department, who shared critical insights into state payroll tax regulations. In Southern California, we heard a special presentation on “Understanding California Agricultural Labor Laws As It Relates to Cannabis Cultivators” from guest speaker Eduardo Blanco, Special legal Advisor from the CA Agricultural Labor Relations Board.
The Southwest event featured Ryan Black, Campaign Co-Chair for Anita Malik, Candidate for Arizona’s Congressional District 6, discussing federal cannabis reform. Lastly, in the Pacific Northwest, Lara Kaminsky, Executive Director of The Cannabis Alliance (an NCIA Allied Association), spoke about the latest developments in Washington state’s cannabis industry, including the current status of the edibles product ban.
As the largest national trade association in the U.S. and the only organization representing more than 1,700 cannabis-related businesses at the national level, we have pretty deep connections. We know that 70 percent of the individuals who attend our regional events have executive level decision-making authority and 30 percent have heavy decision-making influence. All of this is to say that the caliber of the meaningful connections you will make have the potential to benefit your business in very real ways and quickly.
We also know that these boutique events are frequently attended by industry pioneers and dedicated policy reform advocates, the movers and shakers of the industry, who have helped support the movement for decades. Repeatedly, we hear from event attendees that these events are their favorite because of the quality of the event, the attendees and the sense of community and camaraderie they foster.
What’s Next? NCIA’s New 2019 Regional Event Series Announced
NCIA’s Industry Socialsare about cultivating regional communities of industry professionals, so that they can connect and learn from each other. Cultivating community is the most effective way to strengthen our industry and your business. Touring five cities in the West Coast, East Coast and Heartland regions, NCIA’s Industry Socials are the premier opportunity for cannabis professionals to harness NCIA’s extensive national network by creating meaningful connections with each other and with NCIA staff in a relaxed cocktail setting. Join us to expand your network and cultivate our community! Tickets to Industry Socials are complimentary to NCIA members and only $25 to non-members. Registration opens for the West Coast Tour on November 27!
NCIA’s Harvest Celebrations will be hosted in five cities in October to honor the cannabis harvesting season and celebrate the continued growth of our industry! Proceeds from NCIA’s inaugural Harvest Celebration events will foster support for NCIA’s federal lobbying work on behalf of businesses serving the industry and the industry at-large.
In light of these new 2019 NCIA events, we also have exciting new sponsorship opportunities to offer! Download the 2019 Event Sponsorship Deck or contact us for more information. Consider this your opportunity to get your brand in front of thousands of new businesses in diverse regions nationwide.
Member Spotlight: RoseRyan
In this month’s member spotlight we caught up with Maureen Ryan of RoseRyan, a finance and accounting consulting firm based in Silicon Valley that officially launched its cannabis solutionthis April. Finance is the language of business, and her firm, since 1993, has helped hundreds of companies get their financial house in order, efficiently and effectively, so they can go further, faster. Passionate about women in business and excited for the racial equity that she sees in the cannabis field, Maureen believes her firm’s best practices and proven approach are a match for many emerging growth companies in our field. To learn more about finance fundamentals, tune into our conversation with her colleagues that we hosted on the NCIA podcast on June 12.
Cannabis Industry Sector: Finance & Accounting for emerging growth companies and large enterprises
NCIA Sponsoring Member Since: August 2016
Tell me a bit about your background and why you launched your company?
My career at RoseRyan has mostly centered around the finance needs of fast-moving tech companies. That changed a couple of years ago after working with a cannabis biotech company and loving it. Around the same time, our consulting firm saw signs that recreational cannabis was headed for legalization in California, and it was then that we realized many cannabis companies of all sizes were going to need the kind of professional finance and accounting support that we offer.
Our focus on the high tech and life sciences markets here in Silicon Valley has put us in tune with the needs of companies that move rapidly and that need to work with government agencies to get their products market ready — much like the cannabis industry. We’ve responded with a specialized solution that will take cannabis companies further, faster.
What unique value does your company offer to the cannabis industry?
From working with fast-moving Silicon Valley companies for 25 years now, we’ve been able to apply our expertise and best practices to the cannabis market quickly and easily.
In addition, we know what investors want. Whether they are private equity or venture capital players, investors want a rational strategic plan, timely, reliable and accurate financials and a solid budgeting framework, just to name a few. Given the current cannabis environment with Canada, these expectations have become even more critical for companies to meet.
From working with over 275 life sciences companies through the years, we also know how to relate to government agencies, like the FDA. And from working with over 325 tech companies to date, we have experiences with helping companies scale fast, in a variety of business situations.
In a nutshell, we help cannabis companies get their financial house in order. Finance is the language of business, so companies absolutely need to get it right. No matter where they are in the business lifecycle — when starting up, growing at high velocity, tackling a tricky transaction or maturing as an ongoing enterprise—cannabis companies need to have their finance function tightly managed for ultimate success.
Our Cannabis Solution offers four levels of finance: 1) a rapid diagnostic review, 2) an outsourced CFO and accounting team to strategize and set up all the essential financial systems and processes, 3) partner referrals to build up or build out a trusted ecosystem, and 4) financial prep for potential merger and acquisition transactions.
Is cannabis that much different when it comes to finance and accounting?
Frankly, no. Let’s face it, when companies are starting out, their books are typically a mess, whether you’re talking about cannabis companies or companies in any other industry. Business leaders are typically not focused on their finance operations — they have so many other parts of the business to attend to, and we get that.
Many of the same business situations that happen to tech and life sciences companies are happening to those in the cannabis market. They’re dealing in the early stage with worries about survival and running on fumes, before they’re able to fundraise and determine their top investments for growth. When the business reaches velocity or even hypergrowth, they have careful decisions to make. Opportunities for a major transformation can spring up, like an IPO or a merger or acquisition. Every industry has their nuances, but many of the business situations that CFOs and accounting teams face are similar in nature.
Cannabis companies have a unique responsibility to shape this growing industry to be socially responsible and advocate for it to be treated fairly. How does your company help work toward that goal for the greater good of the cannabis industry?
We recognize that women and people of color are heavily involved in this industry, which we love. As a woman-owned business, we support and promote the further advancement of diversity. We also find that working with cannabis companies to professionalize their financial operations helps the entire industry, as it creates a stronger, leveled up playing field for their business interactions. A strong finance function is essential for cannabis companies to raise funds. It’s imperative for their valuation, should an IPO, merger or acquisition transaction arise in the future. Accurate financials and tight operations are a direct reflection on the experience of the management team and, to a larger extent, the industry as a whole.
What kind of challenges do you face in the industry and what solutions would you like to see?
If a cannabis company lacks best practices in their essential finance operations, they’re going to run into trouble when dealing with hypergrowth situations. It happens with founders in every field—they’re passionate about their businesses yet many struggle to keep the business running at today’s standards. This is a challenge for any cannabis company that has blinders on and only seeks advice from other cannabis companies or experts who focus on just one industry.
What’s needed is a crystal clear understanding of the critical aspects of a company’s finances, or strategic decisions will be off-base because they don’t have accurate data on hand. Cannabis companies also risk a slowdown if they’re missing a key partner at a critical time, such as valuation, tax, marketing or legal expertise.
We’d love to see cannabis companies absorb the best practices and talent from other explosive-growth industries that’s tailored to meet their exact needs. No need to pave a new trail when one exists already.
Why did you join NCIA? What’s the best part about being a member?
We joined NCIA to be part of the industry-leading association that is dedicated to the industry’s success. NCIA brings key players together, inspires community, shares best practices and keeps us up to date on the industry trends and news. We also like that NCIA is an active investor in cannabis companies. By being part of NCIA, we can stay informed and play a vital role in this burgeoning industry.
What’s it take to be successful in your business? In addition to the June podcast with NCIA on finance fundamentals with RoseRyan, you can check out the firm’s webinar for California-based businesses here: http://bit.ly/thepotthickens
Committee Blog: Progression in Packaging – Challenges & Opportunities for Cannabis Brands
Any visit to a licensed dispensary is proof of how far we’ve come with the packaging of legal cannabis. Sure, we still have plenty of standard glass jars, CR pouches, pop-tops and cans; but we also now see proprietary package structures, full branded lines commanding shelf space and packaging so beautiful it doubles as a merchandising tool. Just in the past several months, cannabis packaging design trends have been covered by mainstream media including The Dieline and Packaging Digest.
These are exciting times to say the least, but packaging and labeling remains at the crux of the serious challenges and opportunities that cannabis brands face today.
Keeping Up With Compliance
Here in California, the challenge of keeping up with compliance is beyond real. The race to meet state regs by July 1st were only met with a new set of checklists (literally) the following day. Added labels is the name of the game for any California supplier. This is a real problem for those brands who are trying to stand out with their packaging. Understandably, companies are hesitant to invest in their packaging when the regulations are still in flux. Those who are in this for the long haul need to be agile and forward thinking when it comes to packaging and labeling.
Branding… Because it Really Does Matter With limitations on how a brand can reach today’s cannasumer, packaging is a critical marketing tool. It’s the one guaranteed touchpoint we have, and just like in traditional retail environments, every second counts when trying to capture a shopper’s attention. While it’s tempting to go with the standard compliant packages, a lack of brand value will commoditize your product (and thus, the price point). Brands should ensure that their package is reflective of their unique position in the market. Whether it’s a regional play, a potency position or targeting the growing number of boomer consumers—your packaging should speak directly to who your target market is. Now is the time to create brand loyalists!
Taking a Note from Natural Products
All across retail industries, we are seeing a market demand for products that have a more “natural” approach. From clean ingredients to plant-based everything, it’s impossible to avoid this trend. As the OG natural product, cannabis brands have a real opportunity to take advantage of today’s more discerning shoppers. Tell your story, explain your growing practices, show us your social responsibility… It’s all part of the package, literally and figuratively.
A Need for Sustainable Solutions
To really take our natural story to the next level, we can all agree on the need for more sustainable options for packaging and labeling. It’s great to see some brands, companies, and organizations like W Vapes initiating recycling programs. But as an industry, we need to rally together to work on this issue. It’s definitely a challenge that NCIA’s Packaging and Labeling Committee discuss regularly.
An Optimistic Future for the Realists
For those cannabis brands who can be agile, patient and focused—there is a bright future ahead. Despite the challenges of cost and compliance, an effective package can pay for itself. And if other industries like food and beverage are integrating technologies beyond the QR code (think AR and VR), we’re just getting warmed up. As both in-store and retail experiences evolve, so will the opportunities for cannabis packaging. Form, function, technology and product development are bound to take packaging and labeling to exciting new heights.
Partner Blog: From Fashion Lifestyle to Cannabis – A Natural Move?
NCIA is giving away a limited number of tickets to the inaugural Hall of Flowers show happening next week in Santa Rosa. It’s shaping up to be one of the must-see B2B events in the cannabis space for premium brands and industry innovators, all thanks to the fashion and lifestyle industry vets running the show.
Hall of Flowers, set to take place September 17 and 18 at the Santa Rosa Fairgrounds, is the brainchild of Dani Diamantstein, Rama Mayo, and Aaron Levant, three pioneers in the trade show space who have spent the past 15 years producing the most successful fashion and lifestyle trade shows in the world. It’s no surprise they meticulously understand what makes an experience like this worthwhile.
“There are a lot of brands that are flourishing and there are a lot of people focusing on the manufacturing and cultivation, while there are also people partnering with some in the fashion industry,” notes Diamantstein. “I see a lot of similarities between producing trade shows 10-15 years ago and right now within the cannabis space in terms of forging one on one personal relationships, cultivating trust, and exchanging new and creative ideas. This is the perfect time to launch this kind of show.”
The show will be open for two days of discovering, meeting, and tasting and industry pioneer and entrepreneur Gary Vee will be hosting a keynote on Monday end of day. The team has centered the show to be about the experience as a buyer, retailer, and distributor, and have brought together the best across branding, design, packaging innovation, and of course, product. This means some of the most in-demand brands within the cannabis industry will be on-site – over 80 of the leading CA licensed cannabis brands and 60% of CA’s licensed dispensaries are confirmed to attend.
“We’ve spent over 4 years producing this show, perfecting the logistics, regulations, and invite list so that our guests can show up and do what they do best,” says Diamantstein. “We want everyone to have a successful two days while also enjoying work.”
Visit this link and enter code ‘NCIA’ to confirm your complimentary ticket and attend as a guest of NCIA.
Follow @hall_of_flowers on Instagram for real time updates on confirmed brands and visit hallofflowers.com for additional information.
Committee Blog: California Regulations Public Comment Period Nears Close – Act Now!
Do you have views on the regulations that will govern California’s cannabis industry? If so, California’s window for the public to make comments on the proposed permanent industry regulations is about to draw to a close. But you don’t need to be an expert on arcane administrative procedure or even a lawyer to participate in the comment period. Keep reading to learn more about what is at stake and how to make sure your voice is heard.
Overview and Introduction to the Regulatory Process
On Friday, July 13, 2018, California’s three cannabis licensing agencies (the Bureau of Cannabis Control, or “BCC”; the Department of Food and Agriculture, or “CDFA”; and the Department of Public Health, or “CDPH”) released their much-anticipated proposed permanent regulations for cannabis businesses pursuant to the Medicinal and Adult Use Cannabis Regulation and Safety Act. This began the 45-day public comment period of the regular rule-making process. During this time, the public has a chance to review and comment on the proposed regulations, and the agencies must consider these comments and may make changes based on this feedback.
Below are links to the proposed regulations and the summary sheets released by the agencies:
Currently, cannabis businesses in California are operating under emergency regulations that were originally adopted in December 2017 and re-adopted (with a few changes) in June 2018. The emergency regulations will stay in effect until the regular rule-making process is complete and the final regulations have been formally adopted at the end of this year.
In addition to publishing the proposed regulations, the agencies also each published a Notice of Proposed Rulemaking Action (NPRM), which contains various information about the proposed rules such as a summary of existing law and who to contact with questions and comments. The agencies were also each required to publish an Initial Statement of Reasons (ISOR), which contains the agencies’ reasoning and basis behind why they crafted a rule the way they did.
These regulations will have a number of impacts on how the cannabis industry operates in California. For example, new advertising regulations would go into effect; packaging and labeling requirements would change; certain edible products could contain up to 500mg THC per package (versus the current limit of 100mg THC per package); and outdoor licensees would be prohibited from using light deprivation.
Those are just a few of the key proposed changes. Please refer to the summary sheets published by the agencies, listed above, for a more comprehensive list.
What Makes an Effective Public Comment?
There are six standards in the Administrative Procedures Act (APA) that agencies including the BCC, CDPH and CDFA must follow when conducting rulemaking actions. They are:
Authority – The agency must be permitted or obligated by law to craft a particular regulation. (Gov. Code § 11349(b))
Reference – The agency must refer to the provision of law that the agency is implementing or interpreting via the regulation. (Gov. Code § 11349(e))
Consistency – The regulation cannot be inconsistent with other laws and/or regulations, and needs to be harmonious with existing provisions of law. (Gov. Code § 11349(d))
Clarity – The regulation must be easily displayed or written so that it will be easily understood by the people affected. (Gov. Code § 11349(c))
Nonduplication – The regulation cannot serve the same purpose as another existing state or federal law or regulation. (Gov. Code § 11349(f))
Necessity – There must be substantial evidence in the record for needing the regulation in order to fulfil the purpose of the statute or other provision of law that the regulation implements or interprets. (Gov. Code § 11349(a))
Since the BCC, CDFA and CDPH have to comply with the standards above, it’s a good idea to focus your comments around one or more of those specific areas, as opposed to just making a comment that you dislike a particular proposed regulation without giving any reason why. That way, it is more likely that the agency will respond to your comment by making an adjustment to the proposed regulation(s) in question.
How to Submit Your Comments
Comments on the proposed regulations can be submitted to the agencies by mail or email, or offered in-person at one of the agencies’ scheduled public hearings. Your comment must include the following: (1) the subject title of the proposed regulation; and (2) specific concerns regarding the proposed regulation, which the agencies deem most helpful if they identify the section number in question, discuss the issue, suggest changes to the text, and explain why any desired modifications address the issue.
Please note that all comments received during the public comment process become part of the official record which is public information. Thus, you may not want to include any confidential or identifying information in your comments.
All comments must be submitted to the respective agencies by 5:00pm on August 27, 2018 or provided at one of the scheduled public hearings. Below are the locations of the public hearings, which will take place throughout the state during the months of July and August. (This information is subject to change; please check for updates on the California Cannabis Portal.)
Bureau of Cannabis Control Hearing Dates and Locations
The first two BCC public hearings have passed. There will be a final public hearing on August 27, 2018 from 10:00 a.m. to 12:00 p.m. at the Tsakopoulos Library Galleria, 828 I Street, Sacramento, CA, 95814.
California Department of Public Health Hearing Dates and Locations
The first two CDPH public hearings have passed. There will be a final public hearing on August 27, 2018 at 10:00 a.m. at 8400 Edes Avenue, Oakland, CA, 94621.
California Department of Food & Agriculture Hearing Dates and Locations
The first three CDFA public hearings have passed. There will be a final public hearing on August 28, 2018 from 1:00 p.m. to 3:00 p.m. at the California Department of Food & Agriculture Auditorium, 1220 N Street, Sacramento, CA, 95814.
Some Final Words
Collaborate. Join with other groups, trade associations, brain trusts, friends. Have reading groups. Get together and consider problems and solutions from multiple points along the supply chain, so that the solutions you offer can be relevant, functional, and comprehensive. There are many smart people working on this right now, so if you don’t have the time to this by yourself, link up with a trusted group that is commenting in accordance with your interest. Comment letters signed on by many stakeholders are very powerful.
Most importantly, “Keep Calm and Carry On!” Even though operators may see major changes being contemplated in these regulations, these are NOT YET IN EFFECT. Operators still need to remain compliant with the EMERGENCY regulations that are currently in effect, until the final regulations – post comment period – are officially adopted. This draft can and will change, so folks shouldn’t be making major business decisions based on the draft, as elements may either fall away, shift, or be added. (Think about the 24-hour security guard requirement in the Readopted Emergency Regs – it came and went within a 5-day comment period.) There are items in this draft that are sure to receive a LOT of comments and suggestions, so keep calm and carry on following the emergency regulations during this comment period.
Finally, even for operators outside of California, this process is nevertheless important to watch as the path that California takes will impact how the rest of the country chooses to regulate the cannabis industry, and it is also important to participate in if you plan to expand into the Golden State.
NCIA’s member-led State Regulations Committee (SRC) examines and reviews the varying cannabis industry-specific statewide regulations and works to establish best practices or guidelines for states and municipalities to facilitate the development of regulations and compliance procedures.
VIDEO: Member Spotlight With MedMen
In this month’s NCIA member spotlight, we visit with MedMen at their Santa Ana, CA, dispensary location. MedMen has grown to more than 18 storefront locations across California, Nevada, and New York, and currently employs more than 800 people. Co-founder and CEO Adam Bierman, along with co-founder Andrew Modlin, launched the company nearly a decade ago. Watch this video to learn more about MedMen.
“I don’t think we can expect to ever live out something like this again in our lifetime.”
– Adam Bierman, MedMen CEO and Co-founder
Video Spotlight: W Vapes
Learn more about NCIA member W Vapes in this month’s video spotlight. The California-based, award-winning vaporizer company focuses on pure, pesticide-free, CO2 extracted, lab-tested oil. Their products are now also available in Nevada.
Member Blog: Increased Enforcement Is Coming – Takeaways for California and the Broader Cannabis Industry
As June came to a close, so too did California’s phase-in “Transition Period” of cannabis regulation. As a result, a number of additional labeling and testing requirements are now live. And with those newly effective regulations, there are also heightened prospects for enforcement actions. But the lessons from California’s regulatory rollout do not stop at the state border.
What should California cannabis businesses be doing differently? The simplest answer is, of course, the same as in every state cannabis market: follow the rules that are in effect. But it is a universal truth of highly regulated industries that not every possible scenario will be addressed by the rules. That is, in cannabis as in all highly regulated industries there are potential ambiguities and questions of interpretation inherent in the regulations.
California Bureau of Cannabis Control chief Lori Ajax recently tried to help calm industry concerns by offering insights into her team’s enforcement mindset. Ajax noted that “[t]here’s a lot of confusion out there” on what is and is not compliant. As a result, she explained that when the Bureau finds conduct it concludes is a violation, the regulatory response will be informed by whether the business “honestly thinks they’re in compliance.”
So how should a business go about demonstrating its good faith attempts to comply with cannabis regulations, in California and in the other state-legal markets?
Start at the Top
Good compliance practices start with the tone at the top of the company. There is a reason why so many of the nation’s leading companies involve their senior executives in formulating and promoting compliance efforts. Doing so sends a strong message to the entire organization that compliance is a priority, and that the path to corporate advancement does not involve cutting corners. Putting real resources into compliance provides a powerful indicator of a company’s values, and senior executives’ time is a key corporate resource. Put another way, if a regulator is trying to decide whether you have made a good faith effort to comply with the rules, you do not want to lay the decision at the hands of an inexperienced intern.
Build Strong Processes
Leaders in highly regulated industries tend to implement strong compliance processes. Why? For one thing, clear written policies help staffers understand what they can and cannot do. And these policies are a permanent resource for your team, even when your compliance staff is not on premise. But in addition to helping your team follow the rules, strong processes also help regulators understand what you are doing. If, for example, a regulator wants to see if you “honestly think[]” you are in compliance, one of the best pieces of evidence is a clear roadmap of your efforts to be in compliance.
Maintain Focus
This is a fast-moving industry, and the rules are rarely static. A business could have a strong commitment to compliance and detailed processes, but if its compliance efforts are keyed to regulations that have been out of date for many months that is unlikely to sway a regulator. For example, regardless of what they may have done in the past, a Colorado retail licensee would likely receive little sympathy from regulators if they failed to update their policies regarding statements on possible health benefits of their products in the wake of the MED’s recent bulletin regarding retailers recommending cannabis for morning sickness. A regulator will have little sympathy for a business that fails to alter its compliance efforts in the wake of contrary guidance. Effective compliance requires vigilance.
In short, cannabis businesses in California can likely expect heightened levels of enforcement as these additional rules come into effect. But the best practices for California businesses are no different than for those around the nation: by prioritizing compliance throughout the organization and building and updating strong compliance procedures, a highly regulated business takes key steps towards demonstrating its good faith, honest attempts to comply with the law.
Michael Cooper is the co-founder and managing member of MadisonJay Solutions LLC, a leading regulatory advisor to cannabis companies and a member of the NCIA.Agraduate of Harvard College and Harvard Law School, he previously served as General Counsel of MHW, Ltd., which provides compliance services to the beverage alcohol industry, and in the litigation department of Cravath, Swaine & Moore LLP, known as one of the nation’s premier law firms for nearly two centuries.
In this month’s member spotlight, we visited with CEO Adrian Sedlin at his cultivation and processing facility in Desert Hot Springs, California. His company Canndescent has been acclaimed for its unique, modern packaging designs. Canndescent’s lifestyle-focused strain names, including Calm, Connect, and Cruise, answers this question for consumers: “How do you want to feel?”
Member Spotlight: Défoncé Chocolatier
Meet Eric Eslao, CEO of Défoncé Chocolatier, based in Northern California. The company produces cannabis-infused chocolates, and proudly donates to St. Jude Children’s Research Hospital.
Cannabis Industry Sector: Infused Products and Extractions
NCIA Member Member Since: May 2016
Tell me a bit about your background and why you launched your company?
I’m a Bay Area native and I absolutely love living here. I completed my undergrad at USF and MBA at SFSU. And had a super fun career at iTunes. So I literally never left the Bay Area, which is very rare.
I started the company a few years ago as I felt consumers deserved a better edible. While the overall aesthetic is what people notice first, it’s really the elevated taste and the amount of care we put into the product that I’m most proud of.
What unique value does your company offer to the cannabis industry?
A great-tasting edible.
Cannabis companies have a unique responsibility to shape this growing industry to be socially responsible and advocate for it to be treated fairly. How does your company help work toward that goal for the greater good of the cannabis industry?
Edibles–historically–have had a bad rap. Whether it’s due to some of the insane dosing that was considered normal or issues with microbes, edibles were a crap shoot for even the experienced cannabis user.
As we move into an era where dosing is more normalized and regulations are more in line with normal food manufacturing, we’ll see more sophisticated products and operators. As a result, I feel the edible industry will start to have equal footing with well-respected food brands. This normalization will elevate our industry as a whole.
What kind of challenges do you face in the industry and what solutions would you like to see?
In California, we’ve had a medical market for 20 years. Going from two decades of quasi-legal businesses to a regulated market is a large hurdle–especially for operators that have been at it the entire time. To make sure we don’t leave behind the people that got us to this point, I would love to see veteran operators allowed more time and given more resources to be compliant–specifically the cultivators that have risked their livelihood to get us to adult-use.
Why did you join NCIA? What’s the best part about being a member?
It’s great to be part of a group with like-minded individuals: cannabis professionals looking to elevate the industry as a whole.
VIDEO: Member Spotlight on Palm Springs Safe Access
In this member spotlight, we speak with Robert Van Roo, founder of Palm Springs Safe Access, a medical cannabis dispensary based in Palm Springs, California. PSSA has been a member of NCIA since 2014. Learn more about PSSA as they prepare to serve the adult-use market in California.
The End of Prohibition in California: An Interview with Berkeley Patients Group
At the conclusion of the first week of adult-use cannabis sales in California, we spoke to Sabrina Fendrick, Director of Government Affairs of Berkeley Patients Group, to get a picture of their recent launch into the adult-use cannabis market. Berkeley Patients Group has been serving patients in the Greater East Bay Area of Northern California since 1999 and is a founding member of NCIA.
Sabrina, what was the process like for Berkeley Patients Group to apply for an adult-use cannabis license in California?
What we got was actually a temporary license, so the process for that is not as onerous or complicated as the annual process. We submitted our local authorization, site plan, and landlord approval. We did this three times, one for adult-use sales, one for medical sales, and one for distribution.
We had to work very closely with the city of Berkeley to make sure we had all of our ducks in a row, which was a little bit complicated because Berkeley had a ban on adult-use commercial cannabis activity. We engaged with the mayor and city council to get a “carve out” for us since we are a Berkeley institution as the nation’s oldest medical cannabis dispensary. We were intensely involved in conversations with regulators like the Berkeley Cannabis Inspector Mark Sproat throughout the whole process. We had it a little easy actually since we’ve been around for many years, as we were established in 1999.
When did you learn you had been awarded the license and how did your team react?
We learned on December 15th that we had received all of our licenses at about 4pm on a Friday, and the whole team was elated. There was perhaps even a little anxiety in wanting to make sure we had everything ready to roll out on January 1 to start offering cannabis to adults in California.
The first few days have been generally pretty smooth. There are a few questions surrounding process and operations to figure out as we go, but the whole roll out process has been smooth. Not a whole lot has changed except we’re getting longer lines, and we’re making sure that our systems are in place to be fully compliant with state law and all of the staff training required to go with that.
What is your reaction to the recent news of AG Jeff Sessions announcing on January 4th to rescind the Cole Memo?
We fully intend to keep serving the Berkeley community and the surrounding area as a state-licensed locally-operated compliant business. Further action on behalf of the Attorney General and the Department of Justice remains to be seen, but we do have support from local politicians and regulators.
We’re confident that public opinion and federal protections will continue to support the will of the voters and states’ rights. The DOJ should be using law enforcement resources to go after real criminals committing real crimes, and not enforcing an outdated, archaic policy that has almost no support from the general public.
As is traditional on the first day of adult-use sales, did Berkeley Patients Group make its first sale of cannabis to anyone noteworthy?
Yes, longtime California cannabis activists Mikki Norris and Chris Conrad were sold the first cannabis purchase in our dispensary. They were both spokespeople for Proposition 64 all the way back to Proposition 215, so it was an honor to make the first sale to people who were actively involved in reforming these laws in California.
VIDEO: Palm Springs Regional Spotlight
NCIA visited the Palm Springs & Desert Hot Springs communities in September 2017 to meet and greet with current and future members. At this Member Drive networking event, cannabis industry professionals connect at the local level and reaffirm the importance of staying plugged in to a larger, national voice of thousands.
Video: Member Spotlight – A Therapeutic Alternative
Based in Sacramento, California, this month we meet Kimberly Cargile, director of the medical cannabis dispensary A Therapeutic Alternative, focused on holistic healing and patient support. Learn more about how her dispensary has integrated and become a part of the local community. They also offer additional holistic services such as yoga, massage therapy, sound therapy, meditation, and more.
Video: 4th Annual #CannaBizSummit Re-cap
In this month’s video newsletter, NCIA Director of Events and Education Brooke Gilbert shares some of the highlights from last month’s 4th Annual Cannabis Business Summit & Expo, held in Oakland, California. With more than 5,000 attendees, 80,000 square feet of expo floor, in-depth workshops and tours, and exceptional keynotes and panel discussions, #CannaBizSummit attendees got connected and inspired with us over the course of three days in June. Thanks to everyone who attended and made the event NCIA’s best yet!
Highlights From NCIA’s 4th Annual Cannabis Business Summit & Expo
by Brooke Gilbert, NCIA Director of Events and Education
NCIA’s biggest and most influential event, the Cannabis Business Summit & Expo, wrapped up a few of weeks ago in Oakland, CA. We hope you had as much fun as we did! Did you miss out on attending, or would you like to relive your experience? Check out these event highlights below to get a glimpse into this year’s edition of the Cannabis Business Summit & Expo:
• Our largest event to date with 5000+ attendees.
• Keynote address from President Vicente Fox, the former president of Mexico, who spoke about the social injustices created by the war on drugs and the positive effects of global cannabis legalization. Listen to his full keynote here.
• Eighty thousand square feet of sold-out exhibit space featuring 250+ exhibitors, and 33 media and industry partners.
• Twenty hours of educational content over three days, featuring six workshops and 30 breakout sessions spread across five educational tracks and led by 150+ industry experts.
• Two plenary sessions, one featuring a discussion of the strategies to reform Internal Revenue Code Section 280E, and the second featuring a discussion of the results of a 16-month stakeholder-driven process that resulted in a comprehensive white paper detailing regulatory recommendations for packaging and labeling of cannabis products.
• On-site bookstore and book signings from current cannabis industry authors including John Hudak, Ewe Blesching, Chris Conrad, Steve DeAngelo, Jorge Cervantes, and Donna Shields.
• One hundred seventy-three press personnel from 65 outlets joined us for the three days, generating 1.4 billion impressions worldwide.
View the entire official photo album from the 4th Annual Cannabis Business Summit & Expo online here: TheCannabisIndustry.org/CBS17Blog
A big THANK YOU to all our attendees, volunteers, speakers, sponsors, exhibitors, and partners for contributing to another successful year at our Cannabis Business Summit & Expo.
This month, we visit with Jeff Hatley and Betsy Gribble of NCIA Member Sequoia Analytical Labs, based in Sacramento, California. Get a look inside the lab and hear more about the technology and methods used to ensure cannabis is safe, clean, and free of harmful contaminants.
VIDEO: Spotlight on California Cannabis Industry Association
In this month’s NCIA video newsletter, we headed to Sacramento to attend the California Cannabis Industry Association‘s 2nd Annual Policy Conference. CCIA is NCIA’s state affiliate in California. Hear from CCIA members and California state legislators about the critical work CCIA does to represent the state’s industry, and how the NCIA/CCIA affiliation means members have a comprehensive and powerful voice at the state and federal levels. If your California cannabis business isn’t yet a member of CCIA, join today!
Member Spotlight: THC Design
To kick off 2017, we’re highlighting NCIA Member THC Design, whom you may have met as a sponsor of some of our Quarterly Cannabis Caucus events in 2016. Seth Hilsabeck, the company’s Chief Operating Officer and Head of Research & Development, tells us a bit more about THC Design, a family-oriented cannabis cultivation company based in California, and what they’ve been up to as a company since launching publicly in 2014.
NCIA Member Member Since: June 2016
Tell us about your background in cannabis and why you joined the team at THC Design?
Seth Hilsabeck, COO & Head of R&D
President/Owner Ryan Jennemann and I both grew up in Oklahoma and have been close friends since grade school. Both of us have had a fondness and passion for cannabis and its many efficacies since being teenagers. Ryan was lucky enough to be taught to grow by his father in their backyard between their tomato plants. Ryan witnessed his father suffer from chronic migraines for as long as he can remember. With little to no access to safe cannabis, Ryan’s father was forced to continue managing his pain with opioid prescription drugs which ultimately lead to his death at the age of 47. Determined to prevent other families from suffering through similar tragedies, Ryan moved to California to spread his wings as an advocate and cultivator in the medicinal cannabis movement.
I was back home quietly using cannabis to alleviate the symptoms of my cerebral palsy. I soon began to take notice of the new legal movements in Colorado, quickly making new friends in the industry. Ryan and I were suddenly reunited back in Oklahoma in late 2013 at a funeral for a close friend of ours who had passed away. We quickly began comparing notes and talking of our passions for the future of cannabis. Soon after, I moved out to California to help with publicly launching THC Design with Ryan in Los Angeles.
What unique value does THC Design offer to the cannabis industry?
We aim to set the standard for advanced cultivation practices and techniques while taking steps to create a self-sustainable operation via renewable energy resources. By partnering with leading scientists in various fields, THC Design hopes to break new ground in the cannabis industry. We are committed to making scientific advances in identifying the roles of not only THC and CBD, but also the dozens of other compounds in cannabis that can potentially benefit patients. This will help us breed better plants that can acutely treat diseases and ailments, all while producing safer quality medicine year in and year out.
Cannabis companies have a unique responsibility to shape this growing industry to be socially responsible and advocate for it to be treated fairly. How does THC Design help work toward that goal for the greater good of the cannabis industry?
THC Design team, Beach Clean-Up with Surf Rider
Building a community and contributing our voice to the cannabis industry is extremely important to our THC Design Family. We support national and local advocacy groups such as NCIA, CCIA, and Americans for Safe Access to address legalization, access, and research of cannabis. We work closely with lawmakers and policy writers to ensure fairness in the ongoing organization and regulation of cannabis in California. Reaching out to the community is a huge part of who we are. Last year we worked with Surf Rider Foundation for a beach clean-up, Midnight Mission to help with their lunch service, and afterwards we hit the streets and passed out over 1,500 fleece blankets to the homeless just in time for the winter chill. Many similar projects are in the pipeline for 2017.
Why did you join NCIA? What’s the best part about being a member?
Joining NCIA is very important to us so that we can remain at the forefront of one of the few national organizations for cannabis advocacy. The network of top companies and individuals involved is a vital part of our efforts to help the cannabis industry in the U.S. grow and to be respected across the globe.
In this month’s video newsletter, we look ahead to the possibilities for progress in nine states voting on pro-cannabis initiatives on election day. With Arizona, California, Maine, Massachusetts, and Nevada voting on adult-use, and Arkansas, Florida, Montana, and North Dakota voting to create or expand medical cannabis programs, our industry has incredible potential to grow. Hear more from NCIA’s Executive Director Aaron Smith about this exciting election season.
by Michelle Rutter, NCIA’s Government Relations Coordinator
In November, five states will vote on legalizing adult-use cannabis for individuals over 21 – Arizona, California, Maine, Massachusetts, and Nevada – while an additional four states will vote on medicinal cannabis reform – Arkansas, Florida, Montana, and North Dakota. All nine initiatives differ slightly from one another and each has its own unique language.
Below are NCIA’s quick summaries of each of the initiatives. Read up, then visit the campaign sites for more information and how you can help make 2016 another success in the fight to end marijuana prohibition.
ADULT-USE
ARIZONA
The Campaign to Regulate Marijuana Like Alcohol (Proposition 205) legalizes the possession and consumption of marijuana by persons who are over 21 and levies a 15% tax on the sale of cannabis, which would then be allocated to education and healthcare in the state. This would create an estimated $113 million in new tax revenue.
– Allows local governments to regulate and limit cannabis businesses
– If passed, Arizona’s cannabis market is projected to surpass $1 billion within three years
The Adult-Use of Marijuana Act (AUMA) (Proposition 64) legalizes the possession and consumption of marijuana by persons who are over 21 and enacts a 15% sales tax, as well as a cultivation tax of $9.25 per ounce of flowers and $2.75 per ounce for leaves.
– Estimated $1.4 billion in revenues within the first year of a fully operational market
– Written to prevent licenses for corporate or large-scale cannabis businesses for five years, which is in order to deter “unreasonable restraints on competition by creation or maintenance of unlawful monopoly power”
California has the largest state cannabis market (medical or adult-use) in the country, estimated at $2.7 billion in 2016.
The Campaign to Regulate Marijuana Like Alcohol (Question 1) legalizes the possession and consumption of marijuana by persons who are over 21 and enacts a 10% sales tax in addition to the state’s 5.5% sales tax. The first $30 million in tax revenue from cannabis sales would be used for school construction, with any additional revenue allocated to the General Fund.
– Medical cannabis will not be subjected to the 10% sales tax
– Caps the number of cannabis stores and cultivators until 2019 and 2022, respectively
The Campaign to Regulate Marijuana Like Alcohol (Question 4) legalizes the possession and consumption of marijuana by persons who are over 21 and creates a Cannabis Control Commission of three members appointed by the state Treasurer, which would generally administer the law governing cannabis use and distribution, promulgate regulations, and be responsible for the licensing of commercial cannabis establishments. It also creates a Cannabis Advisory Board of 15 members appointed by the Governor.
– Enacts an excise tax of 3.75%, in addition to the state sales tax
– A city or town could impose a separate tax of up to 2%
The Campaign to Regulate Marijuana Like Alcohol (Question 2) legalizes the possession and consumption of marijuana by persons who are over 21 and designates the Nevada Department of Taxation to issue licenses to cannabis retailers, suppliers, testing facilities, and distributors.
– Gives local governments control over cannabis business locations, and forbids businesses to operate near schools, childcare facilities, houses of worship, and certain community facilities.
– Enacts a 15% excise tax on wholesale sales of cannabis, in addition to the existing sales tax which would apply to the retail sale of cannabis
– Revenue generated from these taxes would be used to support K-12 education
There are two competing initiatives on the 2016 ballot: the Arkansas Medical Cannabis Act (AMCA) and Arkansas Medical Marijuana Amendment of 2016 (AMMA), known as Issue 7 and Issue 6, respectively. The main differences lie in patient card fee limits, the organizations that would implement the program, the distribution of sales tax revenue, and whether certain patients could cultivate their own medicine. As of October 2016, Issue 7, the Arkansas Medical Cannabis Act (AMCA) was struck from the ballot. The initiative will still appear on the ballot, but the results will not be counted.
Arkansas Medical Cannabis Act (AMCA):
– Sets a cap on the fees required to get dispensary and cultivation licenses and the fees required for patient cards
– Assigns the Arkansas Department of Health to set rules for patient cards, medical conditions that qualify a patient for medical marijuana use, and operating rules for dispensaries and cultivators
– Requires that all sales tax revenue goes back into the medical marijuana program
– Permits qualified cardholders to purchase medical cannabis from non-profit compassion centers
– Allows patients and their caregivers to cultivate up to 10 cannabis plants at home provided they take steps to ensure it is secure
Arkansas Medical Marijuana Amendment (AMMA):
– Sets a cap on the fee required to acquire a dispensary or cultivation license, but no limit on the cost for patient card fees;
– Assigns the Arkansas Department of Health to set rules for patient cards and medical conditions that qualify a patient for medical marijuana use, and the Arkansas Alcoholic Beverage Control to establish operating rules for dispensaries and cultivators;
– Divides sales tax revenue, assigning 10% to the medical marijuana program, 10% to the Skills Development Fund, 30% to the state’s General Fund, and 50% to the state’s Vocational and Technical Training Special Revenue Fund
The Florida Right to Medical Marijuana Initiative (Amendment 2) allows medical use of cannabis for individuals with debilitating medical conditions as determined by a licensed Florida physician and allows caregivers to assist patients’ use of medical cannabis.
– Mandates that the Department of Health shall register and regulate centers that produce and distribute cannabis for medical purposes shall issue identification cards to patients and caregivers.
– Constitutional amendments on the ballot in Florida must garner at least 60% in order to pass. This is why the medical cannabis amendment on the ballot in 2014 failed, despite receiving 58% of the vote.
Montana is voting to amend their dysfunctional medical cannabis program that has basically been regulated out of existence. The initiative amends the Montana Marijuana Act of 2011 and renames it the “Montana Medical Marijuana Act” (I-182).
– Allows providers to hire employees to cultivate, dispense, and transport medical cannabis, and repeals the limit of three patients for each licensed provider.
– Repeals the requirement that physicians who provide certifications for 25 or more patients annually be referred to the Board of Medical Examiners.
– Removes the authority of law enforcement to conduct unannounced inspections of medical marijuana facilities and requires annual inspections by the State
The North Dakota Medical Marijuana Initiative will be Initiated Statutory Measure 5 on the ballot and is also known as the North Dakota Compassionate Care Act, which creates a state-regulated medical marijuana program for patients with specified debilitating conditions and written certifications from their doctors. Registered patients could obtain medical cannabis from a licensed non-profit compassion center, and if the patient lives 40+ miles away, they are permitted to cultivate a limited amount of cannabis for their medical use.
This year it’s more important than ever to make sure you’re registered to vote and get to the ballot box on November 8th. If you live in one of the nine states with a ballot initiative, cast your vote for ending prohibition or allowing patients access to medicine. Otherwise, don’t forget to cast your ballot for candidates at the local, state, and federal level who support cannabis reform to ensure that 2017 is the industry’s biggest year yet!
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Dr. John Oram, Ph.D., is CEO & Founder of NUG, an Oakland-based, vertically-integrated cannabis company with strong historical growth and performance. Founded in 2014, NUG continues to expand and diversify its portfolio, which includes world-class R&D, state-of-the-art cultivation, extraction, and distillation facilities, one of California’s largest wholesale cannabis distributors, and the new, unparalleled NUG retail store experience. Follow NUG on Facebook, Twitter, Instagram and YouTube.
James Schwartz RN, BSN, LNC, is an experienced medical legal consultant and CEO of 
James B. Mann is a partner with the Tax practice group of Greenspoon Marder LLP. Mr. Mann has over 25 years of experience serving as a trusted advisor to a broad range of stakeholders in the energy and financial services industries. He counsels clients on the new changes in the tax law, as well as cannabis tax issues and cannabis tax controversy proceedings. Mr. Mann has a law degree from Harvard Law School and an MBA from Columbia University.
Ms. Gillette regularly represents clients before the IRS’s Examinations, Appeals, and Collections Divisions, including marijuana businesses facing the challenges of IRS adjustments under 280E. She has successfully protested local, state and federal tax deficiencies on behalf of her clients, having prevented hundreds of thousands of dollars in incorrectly assessed taxes, interest, and penalties. She can assist individual and business taxpayers in 280E proposed assessments, offers in compromise, audit examinations, innocent spouse claims, sales, use, and employment tax matters, trust fund tax penalty assessments, penalty abatement’s, and levy releases. 
One challenge we face as a member based organization is maintaining and continuing to grow our membership numbers. The quintessential financial sustainability quagmire. Ever changing regulations and market uncertainty has caused reluctance from many small farmers. The Alliance works hard to reinvigorate and provide hope throughout the local cannabis community, but the reality is that there has been a decline in membership. Maintaining and continuing to grow our membership numbers, business sponsorships and financial stability is a constant need in order to continue working for a thriving cannabis industry for our region. 
In the industry’s largest markets, Northern California, Southern California, and Colorado, more than 100 industry professionals turned out at each event. But, perhaps most impressive was the 75 plus attendance in the Midwest, maybe a harbinger of the positive momentum garnered by 
The Southwest event featured Ryan Black, Campaign Co-Chair for Anita Malik, Candidate for Arizona’s Congressional District 6, discussing federal cannabis reform. Lastly, in the Pacific Northwest, Lara Kaminsky, Executive Director of The Cannabis Alliance (an 
My career at RoseRyan has mostly centered around the finance needs of fast-moving tech companies. That changed a couple of years ago after working with a cannabis biotech company and loving it. Around the same time, our consulting firm saw signs that recreational cannabis was headed for legalization in California, and it was then that we realized many cannabis companies of all sizes were going to need the kind of professional finance and accounting support that we offer.
Frankly, no. Let’s face it, when companies are starting out, their books are typically a mess, whether you’re talking about cannabis companies or companies in any other industry. Business leaders are typically not focused on their finance operations — they have so many other parts of the business to attend to, and we get that.
Branding… Because it Really Does Matter
A Need for Sustainable Solutions
Michael Cooper is the co-founder and managing member of 
We aim to set the standard for advanced cultivation practices and techniques while taking steps to create a self-sustainable operation via renewable energy resources. By partnering with leading scientists in various fields, THC Design hopes to break new ground in the cannabis industry. We are committed to making scientific advances in identifying the roles of not only THC and CBD, but also the dozens of other compounds in cannabis that can potentially benefit patients. This will help us breed better plants that can acutely treat diseases and ailments, all while producing safer quality medicine year in and year out.
MEDICAL