Cannabis, Accounting, Cost of Goods, and Taxation

6/10/2020

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Having worked with many medical marijuana growers, processors, and dispensaries in Oklahoma, it has become abundantly clear that the cannabis industry still lacks best business practices and accounting support. As I meet with business owners during my capacity as a c-suite consultant, the stress of the cannabis business is ever-present.

Many operators finished 2018 with high hopes, only to discover the tax bill that awaited them was unlike anything they anticipated! Even those who engaged bookkeepers, accountants, and other “professional” help were caught unaware. As I searched for articles to share with those in the cannabis industry, I quickly realized most were written for peers, not business owners.

This article will detail the issue of accounting, recordkeeping, and taxation for cannabis companies, primarily focusing on dispensaries. A later article will spend time on processors and growers.

The Complexity of the Issue

Basis of the Issue: Cannabis is Federally Classified

Let’s start at the beginning: the causal factor for the cannabis conundrum rests in the fact that marijuana is illegal because it is listed as a Schedule I Controlled Substance under the federal Controlled Substances Act:

Substances in this schedule have no currently accepted medical use in the United States, a lack of accepted safety for use under medical supervision, and a high potential for abuse.

Some examples of substances listed in Schedule I are: heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), peyote, methaqualone, and 3,4-methylenedioxymethamphetamine (Ecstasy).

Because marijuana is still listed as a Schedule I drug, its sale is illegal at the federal level. This is the basis of the conflict for legalization, which affects accounting, which rolls into taxation, and the discrepancy between state and federal government. Cannabis business owners are caught in the grind.

Why are my Business Expenses not Tax Deductible?

Prior to the state legalization of marijuana, 280E was a largely inconsequential IRS rule. IRS 280E specifically deals with taxpayers who sell Schedule I or II drugs as a business and essentially states that the federal government does not see the business as legal and does not allow for expenses (rent, salaries, utilities, etc.). Instead, the government only allows for something called Cost of Goods Sold (COGS). Cost of Goods Sold, specifically, is the cost of what was purchased to resell (flower, edibles, etc…). For dispensaries, this is the cost you paid for the product (plus shipping, if applicable). No other costs are allowed to be used to reduce your income subject to tax.

As detailed in Table 1 below, most businesses in the US would expect to pay income taxes on the Net Income (at the bottom of the table) of $4,500.00. The Net Income is (Net Sales – Cost of Goods Sold – Expenses).

Cannabis businesses, however, ARE NOT taxed like other businesses in the US. Based on IRS 280E, they are NOT allowed to deduct any costs other than the cost of their product (Cost of Goods Sold). Therefore, cannabis businesses will be taxed on Gross Profit (Net Income – Cost of Goods) of $50,000.00! That is a major difference in tax liability that results in taxes being charged on $50,000 versus $4,500.

Business Setup – Can it Help?

There are a few ways to go about establishing (setting up) your company. It is important to know the difference between the corporate structures as well as the difference between state and federal designations.

IRS (Federal) Designations

Regarding taxation, there are essentially two types of classifications: Taxable Entities and Passthrough Entities. There are also two types of Corporations: C corporations and S corporations. For the purposes of taxation, C corporations are significant because they are legal entities that are separate and distinct from their owners.

Initially, accountants and attorneys advised cannabis clients to set up as C corporations. This was primarily due to the difference in tax rates between C corporations and other types of tax entities.

Because cannabis businesses are paying taxes on such a larger amount (Gross Profit, not Net Profit), C corporations offered some advantage. The corporate tax rate is approximately 20% (actually 21%), while the highest personal tax rate is around 37%. Below is a demonstration of the tax differences between the two methods.

Recordkeeping and Accounting

Good Recordkeeping

The breaking points in the cases that have gone to trial have largely come down to poor record-keeping. In business, if it is not documented, it did not happen! (Especially to the IRS).

From a ruling in Alterman V Commissioner, TC Memo 2018-83, the court viewed the lack of separation of separate services as an “after the fact” attempt to make one business look like two businesses. Good bookkeeping would have allotted revenue to each service, along with the expense (Cost of Goods) incurred to earn the revenue.

Good recordkeeping costs more! It may require two sets of books, two business setups, and two tax returns if the businesses are run separately. The extra costs MAY be very small compared to the benefits.

Regardless of the type of business you choose to set up, good record-keeping is paramount for audit readiness!

Job Descriptions

Vertically integrated cannabis businesses (those who own both grow and dispensary; grow and processing; or grow, processing, and dispensary operations) have some advantages over simply owning a dispensary (as will be discussed later).

However, in keeping with good record keeping, these companies need to invest the time (or money, if you would like to outsource it) to write good job descriptions. It will not be sufficient to say, “I have a person who works the dispensary, so I pay them for that. Also, they work in processing, so I pay them for that as well.” The IRS may well deem all the salary costs to the dispensary, where labor IS NOT a part of Cost of Goods therefore it doesn’t reduce the dispensary’s revenue.

Detailed job descriptions as well as documented work hours, by job or process, will be of huge benefit during an audit.

Accounting and Taxation

Proper accounting is the gateway to proper taxation. Tax preparers utilize accounting to determine taxable income. Tax preparers are charged with assimilating data into a properly filed tax return, based on the information given to them.

If COGS are incorrect from accounting, they will be incorrect on the Tax Return. For cannabis, accounting, simply stated, is a service you cannot afford to be without.

Knowing what items are allowed to be part of COGS for dispensaries is THE major hurdle to having proper and accurate accounting. Only inventory purchases and shipping for inventory to your dispensary are allowed as COGS items for Dispensaries.

Items not allowed under COGS for dispensaries include:

  • Rent
  • Salaries
  • Contract Labor
  • Storage
  • Display Cases
  • Utilities
  • Insurance
  • Professional Fees
  • Licenses and Fees

Audit and Audit Ready

The chance of a business getting audited in the US is approximately 1.5%. This number fluctuates from year to year but remains relatively stable. For marijuana business operators, the chance of an audit has been reported as high as 10 to 15 percent, according to the Cannabis Business Professionals of Oklahoma.

While getting audited can be intimidating, being properly prepared is key. If you have invested the time in choosing an accounting firm that is familiar with marijuana businesses, gives you sound advice on what you may and may not deduct, and prepares solid financials (thus, data for your tax return), you will come through the audit just fine. Again, preparation is key! Remember: of the major cases that have been tried, most noted poor bookkeeping and accounting as contributing factors to higher taxes, leading to penalties and interest costs.

Conclusion

In review, cannabis dispensaries are only allowed to deduct Cost of Goods Sold (COGS) from net revenue to determine the business’ taxable income attributable to the owners. The lack of proper classification for Cost of Goods Sold purchases (inventory and shipping of inventory to the dispensary) can lead to a massive increase in the already-high tax exposure facing cannabis dispensaries.

Remember, typical business expenses (operating expenses) are not allowed for cannabis dispensaries in regard to taxation. Cannabis businesses pay taxes on the profit left after the purchase of the product. Storage, shelving, rent, insurance, and other normal business expenses are not taken into consideration for federal (and Oklahoma state) taxation.

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Study: Cannabis Can Reduce Severity of PTSD Symptoms

6/10/2020

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A Washington State University study suggests that cannabis reduces the severity of post-traumatic stress disorder symptoms in the short term by more than half. The study, led by WSU Assistant Professor of Psychology Carrie Cuttler, analyzed data of more than 400 people who tracked changes in their PTSD symptoms with Strainprint, an app designed to help users determine what type of medical cannabis works best for their symptoms.

The study participants used the app more than 11,000 times over a 31-month period.

The study found that cannabis reduced irritability by 67 percent, the severity of intrusions –  returning thoughts of a traumatic event – by about 62 percent, anxiety by 57 percent, and flashbacks by 51 percent.

Cuttler said the results purport that while “cannabis does reduce symptoms of PTSD acutely … it might not have longer term beneficial effects on the underlying condition.”

“Working with this model, it seems that cannabis will temporarily mask symptoms, acting as a bit of a band aid, but once the period of intoxication wears off, the symptoms can return.” – Cuttler in a statement

PTSD affects women at about twice the rate of men, with a 9.7 percent to 3.6 percent lifetime prevalence, respectively, the researchers note.

The researchers looked at a variety of variables but found no difference in the effect of cannabis with differing levels of THC and CBD, implying that the efficacy could be due to combinations of the cannabinoids along with other molecules – what’s known as the entourage effect.

“We need more studies that look at whole plant cannabis because this is what people are using much more than the synthetic cannabinoids,” Cuttler said in a press release. “It is difficult to do good placebo-controlled trials with whole plant cannabis, but they’re still really needed.” She added that a lot of people suffering from PTSD self-medicate with cannabis “but the literature on its efficacy for managing symptoms is a little sparse.”

A study published last year in the Journal of Psychopharmacology concluded that “cannabis use may contribute to reducing the association between post-traumatic stress disorder and severe depressive and suicidal states.” That study was based on data from the 2012 Canadian Community Health Survey on Mental Health.

A 2019 survey conducted by the Minnesota Department of Health found a “clinically meaningful” – 70 percent – reduction of PTSD symptoms in medical cannabis patients enrolled in the program for the condition.

In all, 26 states allow medical cannabis access for PTSD patients.

The WSU study is published in the Journal of Affective Disorders.

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‘Cops’ Show Canceled Amid Growing Pressure for Police Reform

6/10/2020

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The show “Cops” has ended after a 25-year run on cable broadcast, Paramount Network announced this week. The network pulled the show “temporarily” last month as protests against police brutality gripped the nation but, after weeks of turmoil, the network announced it would permanently drop the show from its schedule.

“‘Cops’ is not on the Paramount Network and we don’t have any current or future plans for it to return,” a network spokesperson said on Tuesday. “Cops,” which was marketed as a nonbiased reality show, was frequently criticized for glorifying police activities and stigmatizing people of color and drug users.; the show has also been described as an accidental recruiting tool for law enforcement.

The decision to cancel comes during a backdrop of national protests against police brutality in the name of George Floyd, an unarmed Black man who was murdered by a Minneapolis police officer in broad daylight.

“This is the right move and I want to give Paramount credit for being one of the first,” said Rashad Robinson, executive director of Color of Change, a civil rights advocacy nonprofit that had pressured FOX to drop the show back in 2013.

“These cop reality shows that glorify police but will never show the deep level of police violence are not reality, they are P.R. arms for law enforcement. Law enforcement doesn’t need P.R. They need accountability in this country.” — Robinson, via the New York Times

“Cops” debuted on FOX in 1989 and ran until it was dropped by the network in 2013 under pressure from social justice advocates, only to be picked up by Spike TV — Paramount’s predecessor — a few months later.

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Israeli Lawmakers Signal Support for Cannabis Legalization

6/10/2020

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Israel’s two parties making up the new government said in a joint statement on Tuesday that they would advance legislation “to resolve the issue of decriminalization and legalization” of cannabis, setting the stage for broad legalization in the country, the Times of Israel reports. The statement comes one week after the police minister supported the reforms.

In the statement by Prime Minister Benjamin Netanyahu’s Likud Party and Defense Minister Benny Gantz’s Blue and White Party, lawmakers said legalization would be conducted “via a responsible model that will be suited to the State of Israel and the Israeli population,” but did not elaborate.

Blue and White MK Ram Shefa and Likud MK Sharren Haskel will advance the legislation, which would allow cannabis purchases, possession, and use for people 21-and-older. Cannabis products would be sold at designated shops and there would be restrictions on advertising the products. Workers in security jobs would not be allowed to use cannabis, the report says. Some of the funds derived from sales would be used for education to explain the potential dangers of cannabis.

Responding to a High Court of Justice petition, Public Security Minister Amir Ohana said last week that it is his duty to “minimize harm as much as possible to [otherwise] law-abiding citizens who have offenses linked to the drug.” In February, Ohana – appearing in a video with legalization activist Oren Leibowitz – rallied against Israel’s “heavy-handed” enforcement of cannabis laws.

“They took law-abiding citizens and turned them to criminals. Not because they harmed another person, God forbid, but rather because they allegedly harmed themselves.” – Ohana in a February 25, 2020 video statement

The video was posted two days after Netanyahu expressed support on Twitter for the expungement of criminal records related to cannabis possession and use, saying having such records “causes unnecessary suffering to many and is a burden on the courts.”

The government has not offered a timeline for the reforms but some report that it will likely take about four months for the legislation’s approval.

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Vireo Health Ousts Bruce Linton as Executive Chairman

6/10/2020

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Vireo Health has cut ties with Bruce Linton as executive chairman effective immediately. The company said the termination is “on an entirely without-cause basis.”

Dr. Kyle Kingsley, CEO and Founder of Vireo, indicated in a statement that the company does not expect to fill the role of executive chairman following Linton’s ouster.

“We wish Bruce well in his future endeavors. Our organization will remain focused on executing a strategy which benefits all stakeholders and developing our core medical markets of Arizona, Maryland, Minnesota, New Mexico, New York, and Pennsylvania.” – Kingsley in a statement

In a statement on Monday, Linton said he likes the company “and pushed it hard, obviously a little too hard for everyone’s enjoyment.”

Linton joined Vireo last November after being fired as CEO of Canopy Growth, the company he co-founded. Linton said he was let go by Canopy because he had fallen out of favor with the company’s directors that were installed by Constellation Brands, an alcohol distributor that owns 38.6 percent of the Canadian cannabis firm.

Last year, Linton – along with National Hemp Association Chairman Geoff Whaling – launched Collective Growth, which focuses on investment opportunities in the hemp and CBD space. The company listed on Nasdaq last month. In March, the firm filed with the U.S. Securities and Exchange Commission seeking a target capital raise of $150 million to $175 million to purchase or invest in a combination of hemp- and CBD-related businesses.

Neither Vireo nor Linton have offered further details on what led to his departure.

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Tylor Couch: Sustainable Cannabis Packaging Solutions

6/09/2020

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We recently caught up with Tyler to ask about PolyCanna‘s driving mission, the PolyCannaZERO program, strategies the cannabis industry can use to elevate its sustainability, and more. Check out the full written interview below.

Ganjapreneur: When was PolyCanna founded and how many people do you currently employ?

Tylor Couch: I’ve been kicking this idea around for a long time now, we are officially an LLC as of August 2019. We currently work with volunteers.

What inspired the inception of PolyCanna?

I had a mold made so I could melt down recycled materials and frame artwork. I thought about the cannabis industry and how much cannabis packaging was recently recovered from the Platte River in the Denver metro area. Next thing I knew I was immersed in bioplastics and sustainability within the cannabis industry.

How do you gather used cannabis packaging with PolyCannaZERO? And have you faced any regulatory hiccups because the packaging has been in contact with cannabis?

PolyCannaZERO offers customers and patients of dispensaries a place to recycle their old cannabis packaging. Mainly dram bottles (plastic jars). We offer incentives with dispensaries for the return of dram bottles to one of our receptacle sites. People can also send them directly to us!

There is no prohibition against recycling these containers, they just need to be cleaned out before they’re recycled. With proper signage and a locked receptacle or in a locked area it is very easy to implement a recycling program in a dispensary without worry. We have spoken with the MED multiple times about this and our efforts go beyond their requirements.

How can a dispensary sign up for the PolyCannaZERO program?

A dispensary can sign up with PolyCannaZERO by email or phone on or our website PolyCanna.co. We aim to make every dispensary’s experience with PolyCanna unique as every dispensary is unique. From zoning to custom bins, PolyCanna will create a seamless transition into sustainability.

Do you use a specific technology or method to convert cannabis packaging & dram bottles into polymer?

We take the recycled material, sterilize it, and depending on the product being made, we process it through a regrinding machine and create blends of recycled materials that will never reach a landfill. We created the first 100% recycled cannabis packaging made totally from that same recycled packaging.

Where do you source the hemp polymer used in your products?

We source it locally as we are currently poised to manufacture hemp polymer in the near future.

We noticed that you sell hemp polymer in bulk, what can this material be used for?

Almost anything made from an oil-based plastic.

Can you walk us through your product development process? How long does it take to go from concept to prototype?

We design products with longevity. Take single-use plastic and turn it into multi-use plastic. In the meantime, we integrate hemp and other bioplastics. We get inspiration from the lifestyle we live and give a pathway to a better version of products and tools we use, as well as establishments we frequent.

What kinds of resources have helped you in product development? How could an entrepreneur gain access to these resources?

Network. Network. Network. If you have a righteous cause to get behind and you go at it boldly, you’ll find yourself will all the resources you need.

As for the time it takes to develop a prototype, it all depends on the product. We have gained some amazing resources in this space giving us opportunities to bring most products to prototype very quickly.

What new products do you plan to launch and when can customers expect to see them in the shop?

We are always working on new products! Right now we’re focusing on cannabis packaging and that should be available in the coming weeks! Our major aim is to reduce the waste involved in the cannabis industry.

We are also working on rolling trays, water bottles, sunglasses, snowboard/mountain bike gear, hemp clothing and bags, more disc golf discs, skateboards, guitar picks, various aerospace, vehicle, and appliance parts, basically, anything we can get our hands on that people aren’t going to throw away. Products with longevity. All made from hemp or recycled material. We’ll be releasing multiple products in the coming months.

Again the main focus right now is to find viable solutions for the single-use oil-based plastic that the industry currently has while we integrate bioplastics. The trick is finding a way for single-use plastic to never reach the ocean or landfills in the first place.

Is PolyCannaZERO a nationwide project or are you primarily focused on Colorado?

We are primarily focused on Colorado but we plan to expand into every state and country with dispensaries or facilities that dish out high volume single use plastic packaging

Do you think that the wide availability of hemp polymer could revolutionize industrial manufacturing? What would it take to get us there?

Short story. Yes, it will. It would take just that, wide availability. Because of the limited availability of hemp polymer, its not yet reached a crest where it can be appropriately integrated into industrial manufacturing, fiscally. Once it starts to be more and more produced, it will be more available at an affordable rate.

What advice do you have for someone who is interested in practicing sustainability in the cannabis industry?

My advice would be to make sure you stay focused. In this area it’s very easy to get overwhelmed and sidetracked once the single use plastic door is open. It will change the way you look at everything.

That said, If you have the opportunity to make this world a little bit better than you found it, you have the responsibility to.

Thanks, Tylor, for answering our questions! Learn more about Tylor Couch and Polycanna at Polycanna.co.

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Feds File Lawsuit Over CBD Company’s Health Claims

6/09/2020

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The U.S. Federal Trade Commission in April filed a lawsuit against CBD company Whole Leaf Organics over the company’s claims that their products treat cancer and prevents or reduces COVID-19 risk, the New Jersey Law Journal reports. The legal action is a departure from previous enforcement methods by the agency and the Food and Drug Administration against companies that make health claims about CBD products.

On April 22, the FTC filed an administrative complaint against Whole Leaf and Marc Ching, the company’s owner. Two days later the agency petitioned the U. S. District Court, Central District of California to enter a temporary restraining order and preliminary injunction preventing Ching and his company from disseminating false or unsubstantiated advertisement claims about its products.

Specifically, regulators said the company marketed its CBD-EX, CBD-RX, and CBD-Max as able to treat cancer and that it claimed its “Thrive” products could prevent or treat COVID-19, the disease caused by the novel coronavirus.

Ching ultimately agreed to a preliminary order to stop advertising the health claims.

When enforcing federal marketing rules about the health claims of CBD products, federal regulators have typically sent warning letters to companies accused of breaking the rules. In 2017, the FDA sent warning letters to four CBD companies making claims that their products could cure cancer. In 2019, the agency sent warning letters to three internet-based CBD companies who claimed their products treated or cured some diseases. Last April, the FDA issued warnings to two companies claiming CBD could treat opioid addiction, while the FTC said at that time that they were concerned about “about the deceptive practices some marketers can, have, and will employ” amid the coronavirus crisis, the report says.

When announcing the FTC agreement with Ching, Bureau of Consumer Protection Director Andrew Smith said there is “no proof that any product will prevent or treat COVID-19 or that any CBD product will treat cancer.”

“Let’s be clear: companies making these claims can look forward to an FTC lawsuit like this one.” – Smith in a statement

Last June, the FDA held its first hearing ever on CBD as various federal agencies are seeking to align federal CBD rules with 2018’s federal legalization of hemp. While neither the FTC, FDA or Drug Enforcement Administration have codified rules, the FDA said in November 2019 that CBD “has the potential to harm” including negative effects on the metabolism of other drugs, increase risk of sedation and drowsiness when used with alcohol, changes in alertness, gastrointestinal distress, and changes in mood.

The administrative case against Ching and Whole Leaf is set for January 7, 2021. The FTC notes that it is only filing an administrative complaint “when it has ‘reason to believe’ that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest.”

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Schwazze Acquires 14 Colorado Star Buds Locations

6/09/2020

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Denver-based Schwazze, formally Medicine Man Technologies Inc., is set to acquire 14 Star Buds locations throughout Colorado in a $118 million cash and stock deal. Four of the dispensaries are located in Denver – along with a cultivation site in the city – while two are in Aurora, and one each in Commerce City, Longmont, Louisville, Niwot, Pueblo, Pueblo West, and Westminster.

The company said the 14 locations collectively earned approximately $50 million in revenue with strong earnings before interest, taxes, depreciation and amortization (EBITDA) margin. Star Buds was established in 2013 and in addition to Colorado, operates one dispensary in Baltimore, Maryland and six throughout Oklahoma.

Brian Ruden, Star Buds owner, operator, and Schwazze Board Member said Schawzze’s strategy “provides exciting opportunities for our employees, customers and the industry.”

“These transactions further Schwazze’s vision to create the most admired cannabis company in the world while remaining focused on customer experience, trusted branding, and strong profitability.” – Ruden in a statement

In April, in addition to its rebranding from Medicine Man to Schwazze, the company announced it had completed its acquisition of Mesa Organics and its Purplebee’s business – which marked the first since its entrance into the Colorado market. Mesa operates four southern Colorado dispensaries, while Purplebee’s is a cannabis extraction and manufacturing company. That deal was worth about $2.6 million in cash and $2.6 million in common stock shares.

The deal is expected to close in the third quarter of this year and the change of ownership has already been filed with state cannabis regulators.

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Health Canada Boasts High Cannabis Industry Compliance Rate

6/09/2020

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Since federal cannabis legalization in October 2018, Health Canada has ordered 15 product recalls due to CBD and THC labeling errors for both higher and lower levels of the cannabinoids present, the Calgary Herald reports. However, Health Canada spokeswoman Tammy Jarbeau said that, generally, the industry “has a high overall compliance rate with the Cannabis Act and its regulations, and any packaging or labelling errors related to THC or CBD content have been limited relative to overall industry sales.”

“The cannabis regulations require license holders to investigate complaints received about the quality of cannabis and, if necessary, to take corrective measures. In the cases where THC or CBD content was improperly labeled, federal license holders have chosen to voluntarily recall their product.” – Jarbeau in an email to the Herald

According to the report, most of the recalls were for flower products while some were for concentrates. The report did not outline whether other products, such as edibles and topicals which were legalized for retail sales last December, had been subject to recalls.

Health Canada testing regulations allow a 15 percent variable either above or below labeled THC and CBD levels. Edible potency is capped at 10 milligrams per package.

Denver-based cannabis industry consultant Dan Rowland told the Herald that he suspected that the delay of drinkable products is likely due to companies having trouble maintaining THC and CBD levels in beverages. He added that in the early days of the industry, companies could “shop around” until they received the test results they needed; but Canada’s stringent regulations have prevented that practice.

In 2019, Health Canada suspended three cannabis licenses for various non-compliance issues unrelated to THC and CBD product labeling.

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Proposed Federal Police Reforms Include No-Knock Raids Ban

6/08/2020

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Congressional Democrats plan to unveil legislation today that would address systemic racial discrimination by police including a ban on no-knock warrants in drugs cases, according to an Axios report. The plan comes amid global protests sparked by the killing of George Floyd by Minneapolis, Minnesota police. Protestors are also calling for justice for Breonna Taylor who was killed by Louisville, Kentucky police during a no-knock drug raid at her home on March 13.

According to a 2015 Vox analysis, law enforcement agencies conduct more than 20,000 no-knock raids per year. The practice was greenlit by the federal government in the 1970s – as the war on drugs was being ramped up in the nation and despite the law allowing no-knock raids being repealed in the 1980s, several court decisions carved out sets of circumstances that allow no-knock raids. A 2017 investigation by the New York Times found that from 2010 to 2016, at least 81 civilians and 13 officers died during SWAT-led no-knock raids, and half of the civilians killed were minorities. Additionally, of those subjected to SWAT no-knock warrants, 42 percent were Black and 12 percent were Hispanic and at least seven federal lawsuits against officers who participated in no-knock warrants have been settled for more than $1 million since 2011.

“Persistent, unchecked bias in policing and a history of lack of accountability is wreaking havoc on the black community. Cities are literally on fire with the pain and anguish wrought by the violence visited upon black and brown bodies.” – House and Senate Democrats in an email to colleagues on Friday accompanying the bill summary, via the New York Times

The reform effort is being led by Rep. Karen Bass of California, the chairwoman of the Congressional Black Caucus, Rep. Jerrold Nadler of New York, the House Judiciary Committee chairman, and Sens. Cory Booker of New Jersey and Kamala Harris of California, the only two Black Democrats in the Senate. They cited the deaths of Floyd and Taylor as the impetus behind the legislation.

In addition to ending the practice of no-knock raids, the bill would restrict “qualified immunity” which limits lawsuits over police killings, reform police training, make lynching a federal crime, and ban chokeholds by officers.

House Democrats hope to pass the measure by the end of the month.

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Study: Certain Cannabinoid Extracts May Dampen Fatal COVID-19 Symptoms

6/08/2020

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Researchers at the University of Lethbridge’s Department of Biological Sciences and Pathway RX, a company aiming to develop cannabis therapies, suggest that certain cannabis strains show the potential to quell an immune system in the midst of a cytokine storm which occurs in some COVID-19 patients and leads to respiratory distress syndrome, the Lethbridge Herald reports.

The study is an update to the researchers’ findings published in April that found THC and CBD extracts could help prevent the coronavirus from spreading to and infecting humans.

Dr. Olga Kovalchuk, an author behind both studies, said in a press release the new research “identified three extracts that are very, very good strains” and the researchers altogether “have five strains we could formulate a clinical trial on right now.”

The specific strains identified by the researchers seem to control the immune response, working to prevent the cytokine storm while still maintaining some of the molecules needed to fight the virus. Kovalchuk says the extracts work through the endocannabinoid system, which regulates many of the body’s responses and has receptors that bind with cannabinoids.

In their initial study, the researchers did not posit cannabis extracts as a cure for the virus but suggested they might be used as an “adjunct therapy” in combating the virus’ spread. The updated research suggests that cannabis extracts could be used therapeutically in patients suffering from coronavirus-related respiratory distress syndrome.

The new study is undergoing peer review but is available as a preprint on Research Square. The team indicated that the next step for the study is a clinical trial. The researchers said they are seeking partnerships and support to conduct a proper randomized control trial to see whether the addition of these extracts diminishes the severity of COVID pneumonia and the cytokine storm.

Last week, Philadelphia, Pennsylvania-based FSD Pharma was granted permission by the Food and Drug Administration to submit an Investigational New Drug Application for a clinical trial using a synthetic cannabinoid drug called ultramicronized palmitoylethanolamide (micro PEA) to treat COVID-19. FSD Executive Co-Chairman and CEO Raza Bokhari said the cannabinoid could mitigate the cytokine storm. FSD is currently conducting a Phase 1 clinical trial in Australia.

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Arkansas Allows Cannabis Legalization Campaign to Collect E-Signatures

6/08/2020

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The Arkansas Supreme Court has ruled that cannabis legalization activists can collect petition signatures electronically as part of their campaign to put the question to voters in November, KATV reports. The ruling comes after state officials shut down the signature-gathering process for petitions in the state amid the coronavirus pandemic.

Despite the pandemic, the group has to submit around 89,000 signatures by July 3. Arkansans for Cannabis Reform Executive Director Melissa Fults said the organization has collected about 23,000 so far, noting that they “had just gotten money to hire paid canvassers like two weeks before” the coronavirus pandemic shut down most of the country’s economy and led to stay-at-home orders.

In addition to the push to gather signatures electronically, the group is also planning a signature-gathering campaign though the mail.

“One thing we’re talking about is next week sending out a letter, we actually have a list of everyone that signed both of the marijuana initiatives in 2016, so what we’re going to try to do is send a letter with a self-addressed stamped envelope a legal-sized signature sheet to all of these people and ask them as soon as you get this, please sign it and return it.” – Fults to KATV

If approved, the measure would allow Arkansans over the age of 21 to purchase and possess cannabis and grow up to six matures and six immature plants in their home. It would also increase the number of dispensaries to 30 per congressional district, with at least one in each county. Dispensaries would be allowed to grow a minimum of 200 mature plants and 200 seedlings; currently, dispensaries are capped at a 50-plant limit.

After the program is paid for, 60 percent of cannabis-derived tax proceeds would be used to fund pre-K and after school programs, while the other 40 percent would be sent to the University of Arkansas for Medical Sciences for their budget.

In April, Montana activists sued the state in a push for electronic petition signature collection, but that effort was shot down by a Missoula District judge who said the group failed to show that its constitutional rights were infringed and that election integrity outweighs extant law’s burden on those rights, according to a Montana Free Press report.

Supporters of the Arkansas campaign can go to the organization’s website, download the special signature page, sign the petition, and mail it in.

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California Regulators Remove Public Cannabis Business Info

6/05/2020

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Two of three California agencies have removed online databases containing cannabis business information from public view after dispensaries were ransacked during the protests over the murder of George Floyd, MJBizDaily reports. The public databases were removed by the Bureau of Cannabis Control and the state Department of Food and Agriculture.

On May 31, the California Cannabis Industry Association sent a letter to BCC Chief Lori Ajax asking her to “immediately” remove physical addresses of cannabis licensees amid the protests.

“While we are unified as an industry, a state, and a nation in overcoming social injustices through peaceful civil unrest, CCIA has learned that dozens of cannabis businesses across the state have been subjected to vandalism, looting and even violence over the past few days. Some of the attacks appear to be well coordinated break-ins taking advantage of the civil protests and unrest that are occurring in many cities across the country.” – CCIA Executive Director Lindsay Robinson in the letter

The state Department of Public Health database is still operational but contains limited information and does not currently display licensee addresses. Typically, cannabusiness information is searchable for the public and includes names, addresses, and other information for state-approved cannabis retailers, delivery services, microbusinesses, distributors, and testing labs.

Protesters throughout the U.S. and around the world have been demonstrating in response to the May 25 police killing of George Floyd, an unarmed Black man in Minneapolis, Minnesota who was being detained by several officers. Bystanders’ video recordings of Floyd’s death show him telling police “I can’t breathe” while a white police officer kneels on his neck and head for nearly nine minutes. The officer seen in the video kneeling on Floyd’s neck and three other officers present at the scene have all been fired and charged with crimes related to the murder.

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LEAP Issues National Recommendations for Police Reform

6/05/2020

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The Law Enforcement Action Partnership (LEAP) has issued a public letter signed by more than 80 law enforcement representatives containing recommended actions for Congress, local and state authorities, and the Trump administration to enact police reforms and rebuild community trust amid the recent unrest.

LEAP, formerly known as Law Enforcement Against Prohibition, is an organization of current and former law enforcement professionals that is pushing for sensible drug policy, including cannabis legalization, and criminal justice reforms.

“Today, words are not enough,” the letter reads. “We support national action because we owe equal rights to every person, regardless of their background. We must act on our values of transparency, accountability, and safety.”

“Accountability measures that show an agency is serious about respecting the rights of all of its residents help the police as much as they help the communities we serve. There’s no better way to restore community trust. And we cannot do our jobs without trust.” — Police Major Neill Franklin (Ret.), Executive Director of LEAP, in a statement

The LEAP recommendations to Congress include steps to increase the transparency and accountability of law enforcement, including “an independent national public database recording all officers who were terminated or resigned due to misconduct.” The letter also calls for a new national standard that raises the threshold for the use of deadly force and “upholds the sanctity of human life.”

LEAP recommends that state and local authorities work toward the same goals and additionally emphasize finding alternatives to some punitive police actions: “Wherever possible, remove policing of social issues from the scope of police responsibilities,” LEAP recommends. “Promote funding of social service agencies and implement evidence-0based interventions to address substance use, mental health crisis, and homelessness.”

The letter also calls for prohibiting the use of no-knock warrants during drug searches and other police functions, “when they are not essential to protect public safety.” No-knock warrants have been consistently criticized for their tendency to result in unnecessary violence, including the March 13 fatal shooting of Breonna Taylor during a botched drug raid in Louisville, Georgia.

For the federal Executive Branch, LEAP recommends reestablishing Department of Justice pattern-or-practice investigations and returning to the Obama-era 21st Century Policing Initiative, which was launched in the wake of the 2014 unrest in Ferguson, Missouri that resulted from the police killing of Michael Brown.

Click here to read LEAP’s full letter.

The LEAP recommendations come amid widespread calls for police reforms after a week of unrest resulting from the May 25 murder of George Floyd in Minneapolis. Other organizations have similarly launched calls to action, including the #8CantWait campaign, which is a movement announced this week during a town hall with former President Barack Obama that pushes for U.S. mayors to adopt eight specific policies proven to immediately reduce incidents of police brutality and abuse of power.

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Hawaii Whistleblower: State Allows Unsafe Cannabis Vape Cartridges

6/05/2020

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A physician and a Department of Health whistleblower are accusing Hawaii officials and some licensed cannabis businesses of putting patients’ health in danger due to a lack of proper industry controls, Hawaii News Now reports.

An HNN investigation found that many of the vape cartridges being sold in Oahu dispensaries would be banned in other states for not meeting safety standards and some patients are reporting symptoms that some doctors believe are directly linked to chemicals the Health Department doesn’t require testing for.

According to the HNN analysis, four of nine vape cartridges purchased from three Oahu dispensaries had ethanol levels exceeding 5,000 parts per million – levels that would ban the products in California, Colorado, and Washington. State regulators do not require testing for ethanol in cannabis concentrates. The products were blind-tested by a state-certified laboratory.

One cartridge was also found to contain levels of lead.

Dr. Clifton Otto, one of two board-certified cannabis physicians in the state, told HNN that “at least a third” of his patients have expressed concern over the cartridges, including burning and a “strange taste.” Otto said he brought the issue to the attention of the Health Department but never received a response.

“I see patients every day when I’m doing certifications. Patients who have stopped using these cartridges. They’re not safe for patient use. They’re not safe to be used as medicine.” – Otto in an interview with HNN

Heather Krug, a scientist in charge of Colorado’s State Marijuana Laboratory and Sciences Program, told HNN that ethanol in the 5,000 to 10,000 ppm range “can cause irritation to the eyes, lungs, nose and throat,” which are symptoms described to Otto.

In Colorado, ethanol limits for vape cartridges are set at 1,000 ppm.

One company, Aloha Green, disputed the HNN findings, providing test results that showed lower ethanol content; however, those results still showed levels in excess of 3,000 ppm. The company said they are “concerned” about the lead in the cartridge but provided a certificate from the manufacturer showing it passed heavy metal testing, and said the cartridges are the “best cartridges China makes.”

Aloha said they are working with another manufacturer on a state-of-the-art cartridge that would launch next month.

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Oregon Monthly Cannabis Sales Reach $100M for First Time

6/05/2020

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May cannabis sales in Oregon reached $100 million for the first time since legalization in 2015 and it marks the third consecutive record-breaking month for the state’s industry, Willamette Week reports. According to the Oregon Liquor Control Commission, total sales were $103 million, which represents a 15 percent increase from April when sales topped $89 million. In March sales reached $83 million, which had been the highest single-month total recorded in the state.

The May totals are a 60 percent increase from the same month last year. The OLCC had already adjusted its industry-derived tax expectations by $9 million before the May totals. Oregon currently generates more than $100 million annually from cannabis taxes and fees.

According to a Marijuana Moment report, state budget officials have described the post-pandemic state budget as “the largest downward revision to the quarterly forecast that our office has ever had to make.” The $9 million bump from higher-than-anticipated cannabis taxes serves as a bright spot for the state’s fiscal outlook.

State budget analysts also suggested that cannabis sales would begin to trend downward by about 5 percent “due to the lower economic outlook” associated with the pandemic.

A week-to-week analysis by Willamette Week found a gradual rise in cannabis sales as the coronavirus spread through Oregon in March and the most significant sales increase occurring just before the governor declared dispensaries an essential business amid the state’s economic shutdown to combat the virus spread. Sales then regressed, suggesting the spike was related to uncertainty over the shutdown.

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Drug Trial Planned for Synthetic Cannabinoid COVID-19 Treatment

6/04/2020

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Philadelphia, Pennsylvania-based cannabis company FSD Pharma has been granted permission by the Food and Drug Administration to submit an Investigational New Drug Application for a clinical trial using a synthetic cannabinoid drug called ultramicronized palmitoylethanolamide (micro PEA) to treat COVID-19.

The drug is believed to act as an anti-inflammatory and is currently sold in Italy and Spain as a prescription-based nutraceutical under the brand names Normast and Pelvilen. FSD acquired the rights to micro PEA from Epitech Group, an Italian pharmaceutical firm that holds the patents for the drug until 2034, the company said.

In a press release, FSD explained that between 1969 and 1979, PEA was marketed as Impulsin by a pharmaceutical manufacturer in the former Czechoslovakia to treat influenza and the common cold. During this period, clinical trials were conducted for those uses that involved nearly 4,000 patients and volunteers across six randomized, double-blind, placebo-controlled trials. The clinical trials demonstrate that PEA has clear treatment and prophylactic effects in respiratory infections, and is safe in its use, the company said.

FSD Executive Co-Chairman and CEO Raza Bokhari called the FDA approval of concept “a paradigm shift” for the company and that it contacted the FDA in late March after finding out that some Italian physicians and scientists were advocating for the drug’s use in treating COVID-19.

“Numerous studies over the past 40 years also validate the efficacy and safety of ultramicronized PEA in the treatment and prophylactic effects in respiratory infections. These studies also pointed out that the ease of application of PEA offers the possibility to have a quick therapeutic answer ready in case of a flu epidemic.” – Bokhari in a statement

FSD spent $17.5 million to purchase the rights to the drug earlier this year and rebranded it as FSD-201, according to a Philadelphia Inquirer report.

“Severe COVID-19 is characterized by an over-exuberant inflammatory response that may lead to a cytokine storm,” Bokhari said in an interview with the Inquirer. “[FSD-201] is not a virus killer. But we believe it can mitigate that immune response, which can be fatal.”

The firm is currently conducting a Phase 1 clinical trial for the drug in Australia. The FDA approval only allows the company to submit an application for U.S. trials, rather than approval to conduct them. Bokhari indicated they would seek trial approval from the FDA after the results of the Australian study.

Last month, a study published in Preprints suggested that cannabis extractions containing THC and CBD could help prevent the coronavirus from spreading to and infecting humans by lowering the production of two proteins commonly hacked by the novel coronavirus to create a new infection.

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Illinois Allows Hemp Sales to Medical and Adult-Use Processors

6/04/2020

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Illinois has expanded its hemp market by allowing hemp producers to sell directly to adult-use and medical cannabis processors in the state. The Illinois Department of Agriculture’s Bureau of Medicinal Plants made the announcement in late March.

Under the plan, hemp can be purchased from licensed Illinois hemp farmers or any other licensed hemp farmer from around the country. The Bureau uses the traditional definition of hemp, a cannabis plant with a THC concentration of less than 0.3%. Hemp procured under the program can only be used in “extracted form” and infused cannabis products — hemp flower cannot be sold.

“We harvested over 70% of the hemp that was planted in Illinois in 2019. That increased our supply of hemp dramatically. By supply, I mean hemp that’s just sitting in barns or in storage, or that may have been processed and is now some kind of a crude oil, distillate or isolate. While we had a lot of processors licensed, I don’t think they expected the influx of hemp that we had.” — Jeff Cox, head of the Bureau for Medicinal Plants, via HempGrower.com

Cannabis cultivation centers must apply for a hemp processor license and all products made from hemp extracts must be tested for THC, THCa, CBD, and CBDa.

The new policy will benefit hemp growers and the legal medical and adult-use markets by expanding hemp sales and simultaneously freeing up cultivation space for high-demand, THC-rich cannabis plants, Cox told Hemp Grower, as farmers won’t need to dedicate as much of their canopy to growing CBD-rich strains.

“The biggest demand is for high-THC flower,” he said.

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California Lowers Cannabis Tax Estimates Due to Coronavirus

6/04/2020

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California Gov. Gavin Newsom (D) is downgrading the state’s cannabis excise tax projections for this year and next year due to the coronavirus pandemic and the looming recession related to the response, which shuttered businesses and has led to near-record unemployment, the Los Angeles Times reports.

Newsom in January estimated that the state would see $479 million in cannabis excise taxes during this fiscal year, but he reduced those expectations to $443 million. For the fiscal year that begins July 1, Newsom has projected $590 million in cannabis excise taxes, but revised that estimate to $435 million.

The budget proposal with the recalculated figures said that while other vice products, such as tobacco and alcohol, “tend to be recession-resistant, the forecast assumes that cannabis businesses will be more negatively impacted by the COVID-19 pandemic.”

“Cannabis businesses have less access to banking services that could provide liquidity, have a younger consumer base likely to be disproportionately affected by the COVID-19 recession, and still must contend with competition from the black market.” – California Executive Budget via the Times

The impact of the virus and the measures put in place to combat its spread had mixed impacts on the cannabis industry which haven’t yet been fully realized. Some states reported a slowdown, while others reported a sales surge; however, cannabis businesses are unable to access federal coronavirus aid due to the federal illegality of cannabis.

California considered cannabis businesses “essential” businesses as part of their response to the virus and the Newsom administration has relaxed some industry regulations, including deferring license renewal fees and extending filing deadlines for first quarter tax returns.

Jerred Kiloh, president of the United Cannabis Business Association called the situation for cannabis companies in California “dire at this point” and said that the illicit market would “have another leg up this year” because people will be looking for the cheapest option.

The governor estimates the state’s unemployment rate would reach 18 percent this year. According to the Economic Roundtable, 60 percent of workers ages 16 to 24 face a high risk of unemployment compared with 42 percent of workers 45 to 54.

Kiloh added that the state has seen a 30 percent drop in tourism, which also negatively impacts cannabis sales.

Josh Drayton, a spokesman for the California Cannabis Industry Association said sales have “leveled out” in the state after an initial sales spike attributed to panic buying.

Last week, the state reported $134.9 million in combined cannabis-derived tax revenues for the first quarter of the year.

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Iowa Senate Passes Medical Cannabis Reforms

6/04/2020

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The Iowa Senate has passed a modest expansion of the state’s medical cannabis program which has already passed the House and has the approval of Republican Gov. Kim Reynolds, the Cherokee Tribune & Ledger News reports. The measure would replace the state’s current 3 percent THC limit with a per-patient limit of 4.5 grams of THC-rich cannabis over 90 days and allows that cap to increase with a physician recommendation or if the patient is terminally ill.

The bill also adds intractable autism and post-traumatic stress disorder to the list of qualifying conditions.

Sen. Joe Bolkcom (D) said during the debate that the measure doesn’t actually improve the program and will ultimately make it weaker than the current regime. Bolkcom also opposed a provision in the law allowing businesses to deny unemployment insurance to former employees who test positive for cannabis. The senator said that rule would have a disparate impact on low-income and minority communities.

“Here we are, five years after passing our original law … and tonight you’re going to make it even worse. Wow. No small task, colleagues.” – Bolkcom, during the debate, via the Tribune & Ledger News

Last year, the Iowa Legislature passed a bill to remove the THC cap and allow patients to access 25 grams of THC over 90 days, along with a host of other program changes, but that measure was vetoed by Reynolds on the grounds that the reforms were opposed by the state medical cannabis board.

Iowa‘s program prohibits smoking, allowing only capsules, extracts, concentrates, lotions, ointments, and tinctures. The measure passed the Senate 32-17 and moves next to Reynolds, who is expected to sign the bill.

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DEA Now Permitted to Investigate Protesters

6/03/2020

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The Drug Enforcement Administration (DEA) has been given temporary power to investigate people participating in the nationwide protests over the police killing of George Floyd, according to an agency memo acquired by BuzzFeed News.

The development allows DEA — which is normally restricted to the investigation and enforcement of only federal drug crimes — “to enforce any federal crime committed as a result of the protests over the death of George Floyd.”

The agency submitted its request for the increased enforcement power last week and on Sunday a high-ranking Justice Department official signed off on the plan.

“In order for DEA to assist to the maximum extent possible in the federal law enforcement response to protests which devolve into violations of federal law, DEA requests that it be designated to enforce any federal crime committed as a result of protests over the death of George Floyd. DEA requests this authority on a nationwide basis for a period of fourteen days.” — Excerpt from DEA memo procured by BuzzFeed News

Attorney General William Barr said over the weekend that federal agencies including the FBI, DEA, U.S. Marshals, and the Bureau of Alcohol, Tobacco, Firearms and Explosives would be “deployed” to support local law enforcement.

“Drug enforcement agents should not be conducting covert surveillance of protests and First Amendment protected speech,” Hugh Handeyside, a senior attorney for the ACLU, told BuzzFeed News.

“That kind of monitoring and information sharing may well constitute unwarranted investigation of people exercising their constitutional rights to seek justice,” Handeyside said. “The executive branch continues to run headlong in the wrong direction.”

The May 25 murder of George Floyd, an unarmed Black man, by a white Minneapolis police officer — on camera and in broad daylight — has sparked outrage and international protests against U.S. police brutality in Floyd’s name. During the chaotic weekend, dozens of cannabis dispensaries were burglarized; many affected business owners, however, said they supported the protests and suspected they had been targeted by opportunistic criminals, not protestors or looters.

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Columbia Care Sued Over Alleged License Interference

6/03/2020

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Florida MCBD, a cannabis company focused on low-THC products, is suing New York-based Columbia Care claiming tortious interference with contract, unjust enrichment, civil conspiracy, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty over Columbia’s cannabis license in Florida, the New York Law Journal reports.

According to lawyers for Florida MCBD, the company has sought a medical cannabis license in Florida since 2015 and entered into a joint venture agreement with Sun Bulb, a Florida-based nursery, to help it meet the state’s medical cannabis dispensary license requirements. While Sun Bulb lacked experience with cannabis, Florida MCBD filed confidential information related to its expertise as part of the license application, according to court documents outlined by the Law Journal. The state Health Department initially denied the application from the joint venture but over the next two years the partners lobbied the state legislature to allow additional licenses, the report says.

In the court filing, Sarmad Khojasteh, a partner at law firm Kasowitz Benson Torres, said during that two-year period, Columbia “feverishly sought to obtain a license” but the company’s first two applications were rejected.

The lawsuit claims that in the summer of 2017 Columbia Care executives allegedly entered into secret negotiations with Sun Bulb, conspired to defraud Florida MCBD and the Department of Health, and that the companies agreed to pay Sun Bulb for Florida MCBD’s ownership claims to the dispensary license.

Sun Bulb described its new relationship with Columbia Care in updates to the Health Department, but Florida MCBD’s lawsuit claims that Sun Bulb presented those updates as supplemental information, not as fundamental changes to the license application, which the plaintiffs’ attorneys claim were “prepared, paid for, and filed by” Florida MCBD. By the end of 2017 the Sun Bulb and Columbia Care partnership received a state cannabis license, the report says.

In the complaint, Khojasteh also accused Columbia Care of “a pattern of racketeering and tortious activity” in other states, including Arizona and Massachusetts.

The case is filed in New York County’s Supreme Court Commercial Division. Arbitration between the companies is ongoing.

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Harborside Appeals Cannabis Tax Ruling in Federal Court

6/03/2020

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California cannabis company Harborside is continuing its legal challenge to federal tax code 280E but is taking a different approach to the case along with a new legal team, MJBizDaily reports. The company argues that 280E is unconstitutional, running afoul of the 16th Amendment, which allows for income taxes, but attorney James Mann of Greenspoon Marder says 280E, “results in a tax that’s not on income, it’s not an income tax, so therefore it’s unconstitutional.”

The arguments come in a May 26 appeal filed by Mann on behalf of Harborside. In short, 280E prevents standard business deductions by companies that deal federally illegal drugs, including cannabis even when state-approved. In 2018, the U.S. Tax Court ruled against Harborside calling the firm “a giant drug trafficker, unentitled to the usual deductions that legitimate businesses can claim” because cannabis remains federally illegal.

Mann told MJBizDaily that decision “is just wrong” and calls the determination by the Tax Court and the Internal Revenue Service that state-legal cannabis businesses aren’t afforded the same cost of goods sold deductions “crazy.”

Former IRS officer William Fowler, now a senior adviser with Nevium Intellectual Property Consultants, told MJBizDaily that Harborside is “dreaming” and “grasping at straws” and that the lawsuit risks further entrenching the IRS’s position on 280E.

“They’re really pushing the industry to have some really tight rulings on this. The IRS is preparing more guidance on this, so (Harborside) should have waited until they got that guidance. To me, those arguments are weak, and it’s not good for everybody else.” – Fowler to MJBizDaily

Mann argues that the legal issues in the case are ripe for appeal and that the 2018 opinion was “ill-considered.”

The case is in the U.S. Court of Appeals for the 9th Circuit in San Francisco and a decision on the matter could take years. The original lawsuit by Harborside was filed in 2016 and a decision wasn’t issued until 2018.

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Maine Cannabis Coalition Files Suit Over Removed Industry Residency Requirements

6/03/2020

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The Maine Cannabis Coalition has filed a lawsuit against the state for its decision to remove residency requirements for cannabis business licenses, the Portland Press Herald reports. The trade association says the decision by the state Department of Administrative and Financial Services violates Maine’s Marijuana Legalization Act.

The decision by the agency was in response to another lawsuit by Wellness Connection of Maine over the residency requirement. The Wellness Connection and Wellness and Pain Management Connection of Delaware, which are financially tied to international cannabis firm Acreage Holdings, filed the lawsuit against the state in April arguing that the residency requirement violated the commerce clause of the U.S. Constitution which forbids restrictive and discriminatory commercial regulations between the states.

The Office of Marijuana Policy, which is housed in the Administrative and Financial Services division, said it wouldn’t enforce the policy after the state Attorney General’s Office said the state was unlikely to beat the lawsuit in court because the state Supreme Court had struck down residency requirements in the past.

“Maine Cannabis Coalition and its members along with many other citizens fought hard for two years to make sure residency protections were included in the law. To have it all be ignored after all the hard work and efforts is extremely aggravating to the citizens and policy makers of Maine who expect no one to be above the law.” – MCC in a statement via the Press Herald

In the lawsuit, Maine Cannabis Coalition claims the decision to revoke the requirement hurts medical cannabis providers such as MCC co-founder Dawson Julia, a caregiver, and Christian Roney, who is seeking a recreational cannabis license, by increasing the number of entities competing for limited market share. Both Julia and Roney claim they relied on the competitive advantages provided by the residency requirement while developing their business plans.

As passed, the Maine law requires every officer, director, and manager of recreational cannabusinesses, and most of its ownership, to have lived and filed taxes in Maine for at least four years. That rule would have expired in June 2021.

The plaintiffs argue that the OMP doesn’t have the authority to abandon parts of the law that have not been struck down by a court or repealed by the Legislature and seeks an injunction preventing officials from awarding any licenses to out-of-state applicants, the report says.

The long-awaited rollout of the state’s adult-use cannabis industry was put on hold amid the state’s coronavirus response. OMP Director Erik Gunderson told the Press Herald that the decision to strike down the residency requirements would not further delay sales.

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