Gov. Gary R. Herbert, the Republican governor of Utah.

Utah Gov. Signs MMJ Research Bill

3/28/2017

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Utah Gov. Gary Herbert, a Republican, has signed a bill that allows research into the benefits and risks of medical cannabis after the legislature failed to pass comprehensive reforms during the session, the Associated Press reports. The proposal has the support of the Utah Medical Association, which has pushed for more research before the state broadens its limited medical cannabis regime – which currently only allows the use of CBD.

This is the third consecutive year that the Utah legislature has failed to pass medical cannabis reforms, and the inaction has already mobilized advocates in the state who are looking to put a ballot question to voters in 2018.

The bill signed by Herbert (HB.130) allows researchers to study cannabis for medical use without federal approval and will create the Cannabinoid Product Board to consider recommendations for future medical cannabis policy. The board will consist of four physicians, three medical research professionals, and three members of the Controlled Substances Advisory Committee.

The board will be tasked with reviewing medical cannabis research in order to evaluate the “safety and efficacy of cannabinoid products” including medical conditions that respond to cannabinoid products; cannabinoid dosage amounts and medical dosage forms; and interaction of cannabinoid products with other treatments. They will be expected to present their research annually.

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Oklahoma Supreme Court Restores MMJ Ballot Initiative Title

3/28/2017

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The Oklahoma Supreme Court has thrown out a rewrite of the title of a ballot measure to legalize medical cannabis in the state, paving the way for State Question 788 to make its way to voters, according to a NewsOK.com report. The ballot measure has been on hold since September, when then-Attorney General Scott Pruitt decided to rewrite the title of the initiative; this led to a lawsuit between Pruitt, Oklahomans for Health, and the American Civil Liberties Union.

Ryan Kiesel, executive director of the ACLU of Oklahoma, said Pruitt’s rewrite was meant to mislead voters into believing they would be voting for legalizing adult cannabis use.

“Whether it’s the folks that signed this initiative petition or all of the voters who will ultimately have the chance to weigh in on whether or not Oklahoma will have medical marijuana, they should be able to do that without the attorney general injecting his personal political position into the ballot campaign by misrepresenting what the petitioners seek to accomplish,” Kiesel said in the report.

The state Supreme Court ruled that Pruitt’s title changes be stricken and the original title language restored, but did not offer an explanation for its decision.

Oklahoma Attorney General Mike Hunter, who succeeded Pruitt after he took the job as administrator of the Environmental Protection Agency in February, said he disagreed with the court’s decision.

“The ballot title was reviewed by the Oklahoma Supreme Court and the Court opted to substitute the original ballot title language,” he said. “We disagree with that result, but respect the decision of the state’s highest court.”

According to the report, the measure will likely be put to voters in November 2018 during the gubernatorial election; however Gov. Mary Fallin could schedule a special election.

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A baby hemp plant that has only just recently sprouted.

Colorado Ag Dept. Could Begin Hemp-as-Feed Research if Gov. Signs Bill

3/28/2017

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The Colorado Department of Agriculture will soon begin researching the use of hemp in livestock feed if Gov. John Hickenlooper signs a bill that passed the state legislature unanimously, the Greeley Tribune reports. Using hemp in animal feed is barred by the Food and Drug Administration because it considers hemp to be an adulterating substance.

The study would be led by the state Commissioner of Agriculture, who would issue a recommendation at the conclusion of the year-long study. The original bill would have allowed hemp to be used in the feed without a study; however state Sen. Kerry Donovan, who authored and sponsored the measure, said the study would help avoid a conflict with the FDA.

“The study should figure out how to more effectively reach the goal of how we can use hemp without it being confiscated or the FDA sending letters of cease and desist,” she said in the report.

Mike Sullivan, owner of Hemp Farm Colorado, said that allowing hemp in livestock feed would help solve one of the most pressing issues for hemp farmers – finding buyers for raw materials.

“One of the real big problems with the hemp industry is there’s hardly any processors out there that are buying materials straight from the farmer,” he said. “This would be a great leap forward.”

Terry Fankhauser, executive vice president of the Colorado Cattleman’s Association, opposed the initial bill and indicated he would likely continue to oppose using hemp as cattle feed because hemp contains trace amounts of THC.

“I don’t think anybody that is buying a gallon of milk or a pound of beef would want to have that adulteration of that food product contain any level of THC … As a parent of three children, any level is unacceptable in their food,” he said. “I think the majority of consumers feel that way.”

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Mature cannabis plants pictured shortly before harvest in a Washington grow facility.

Cannabis Taxes: The Challenges of Running an All-Cash Business

3/28/2017

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Editor’s note: This is the final installment of a three-part series about cannabis taxes and the intricacies/pitfalls of staying tax compliant in the marijuana industry. If you haven’t yet, check out Part 1 and Part 2 to get the full scoop.

Let’s take a moment to examine the “logic” of the Federal Government. We have a business that is legal in some states but has a history of being federally prohibited. As a result, cannabis retailers must conduct all their transactions in cash, which only makes them juicier targets for thieves and criminals — and furthers the potential for cannabis-related crimes.

The Feds, in their refusal to allow cannabis industries to use the Federal Banking System, have created a safety hazard for the owners and workers of cannabis dispensaries everywhere.

In this final part of my series, I am going to lay out some basic strategies and other ideas for operating within the realm of an all-cash business.

IRS audits in a cash-based industry

Cannabis certainly isn’t the only industry where cash is the main source of income — for instance, topless bars generally handle a lot of cash. To put a myth out there to rest, the IRS can actually trace cash. How, you ask? Let’s say that you are paid in all cash and you report $25,000 of income on your tax return. On that same tax return, you report that you paid $15,000 in mortgage interest and $3,000 in property taxes.

How did you eat? Unless you have some source of untaxable income, the IRS will indeed question the return.

Photo Credit: 401(K) 2012

The IRS will reconstruct your income. One method they use is a cash flow analysis. What they will do is ask you questions about your lifestyle. How much is your rent? What do your groceries cost? How much do you spend on clothing and utilities? You get the picture. They will multiply that out by the number of months in the year, and that is your income.

This method has been backed up by the United States Tax Court, but there are other methods that they can use as well.

Point of sale and other useful tools

If you are in the cannabis industry, you must keep track of your sales. This is done with a point of sale (POS) system, which tracks sales and inventory and enables you to run a daily Z-Tape that tells you what your sales were, how much tax you collected, how much cash should be in the drawer, and other information. A POS system is necessary to stay in compliance with the state tax regulations and also allows you to track your inventory so you know what to order and what your best-selling product is.

Dispensaries need to take precautions by systematically removing some cash from the cash register and placing it in a safe. This should be done periodically throughout the day. Other security measures available to you include installing security cameras, and some dispensaries have even gone so far as to have armed security on site.

Then there is theft. I can’t tell you how many times my practice is called into a business to audit cash. Employees steal. Counting a drawer before and after an employee’s shift is essential. Having only one person per register at a time is the best way to handle this, because if that drawer is short, then you have one person to go to. Note that humans do make mistakes. If the drawer is over or short by $20, that is normal. Discrepancies in the hundreds of dollars however, signifies theft. Not only do you have to worry about the theft of cash, but you also have the vexing problem of the potential loss of cannabis. Alarm systems that are set off by magnetic strips attached to the cannabis packaging can act as a deterrent to this kind of theft. Properly setting up your dispensary is key to minimizing this problem.

Electronic money solutions

Banks won’t touch cannabis money, but some dispensaries are turning to Bitcoin, which is a kind of digital currency that uses encryption techniques to regulate the generation of currency units. This cryptocurrency technology verifies the transfer of funds completely outside of the central bank’s domain. Dispensaries can take Bitcoin as payment, and make payments with the cryptocurrency.

Photo Credit: Fabian Figueredo

While Bitcoin can now be used and traded digitally in a similar way to more conventional forms of currency like euros or dollars, the main feature that sets it apart from standard currencies is the lack of centralization. There is no single authority controlling cryptocurrencies like Bitcoin, and some people are more comfortable with this type of money.

Bitcoin’s transactions are processed through a network of machines and their underlying transactions; again, there is no central regulatory agency involved. Theoretically, the system cannot be rigged to support any one monetary policy, such as what happened in Cyprus several years back. Even if one part of the network is offline, the currency still flows.

In summary, it is decentralized, meaning the Feds don’t control it.  

There are literally thousands of different cryptocurrencies out there, Bitcoin just happens to be the most popular. At one point in my career, I was tax consultant for the biggest cryptocurrency limited partnership at the time in the United States. What they did was mine cryptocurrency; they would exchange dollars or euros for Bitcoin, then exchange Bitcoin for Fatcom, and then Fatcom for BlackCoin. They made money via the exchange rate between the different cryptocurrencies — a strategy that could potentially open up a passive income stream for a struggling cannabis company.

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Cannabis clones inside of a licensed I-502 facility in Washington state.

Illinois Health Department Reject Petitions Adding Intractable Pain, Autism, to MMJ List

3/28/2017

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The Illinois Department of Public Health has rejected petitions to add intractable pain and autism spectrum disorder to the list of qualifying conditions for medical use, the Associated Press reports. In both cases, Department of Public Health Director Nirav Shah said that neither petition contained information demonstrating that individuals with either diagnosis could benefit from medical cannabis.

Last year, Cook County Judge Neil Cohen forced public health officials to include post-operative chronic pain and post-traumatic stress disorder to the state’s qualifying conditions list after the Health Department rejected petitions for both conditions. His colleague, Cook County Associate Judge Rita Novak, also ruled that the state must reconsider adding migraines to the program; however the condition is not listed on the Health Department’s list of more than 30 qualifying conditions.

Under the state’s Compassionate Use of Medical Cannabis Pilot Program Act, patients are allowed to petition the Health Department to add “debilitating” conditions to the qualifying conditions list. The intractable pain petition was submitted in July 2015, while the autism petition was filed in October 2015.

It is possible that the petitioners could sue the department, forcing the matter to be adjudicated in the courts as with previous rejections.

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Despite a raging opiate epidemic that has left countless Americans dead, pharmaceutical companies continue to rail against cannabis for being an unsafe and unproven medication.

DEA Approves Synthetic Cannabis Medication by Anti-Cannabis Pharmaceutical Giant

3/27/2017

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The Drug Enforcement Administration has approved Syndros, a cannabis-based medication developed by pharmaceutical company Insys Therapeutics, for Schedule II status under the Controlled Substances Act, according to a Chicago Tribune report.

Syndros is an oral remedy that uses THC to treat nausea and vomiting, two of the most common symptoms caused by chemotherapy. The drug was pre-approved by the FDA last summer as a treatment for nausea, vomiting, and weightloss in cancer and AIDS patients.

If that name Insys sounds familiar, it’s probably because this is the pharma group that donated $500,000 last September to help defeat Arizona’s cannabis legalization campaign; and now the company has received DEA approval for its own cannabis-based drug. During the campaign, the company said it opposed the legalization measure because, “it [would fail] to protect the safety of Arizona’s citizens, and particularly its children.” Now, non-medical cannabis users in Arizona must still face felony charges for possessing even small amounts of the plant.

However, if safety were truly Insys’ biggest concern, they might rethink their aggressive marketing strategies for Subsys — a medication containing fentanyl, a dangerously powerful and addictive opiate that can be 50-100 times more powerful than Morphine.

“It appears they are trying to kill a non-pharmaceutical market for marijuana in order to line their own pockets,” a spokesperson for Arizona’s legalization campaign said last year.

It’s clear that in a world where anyone and everyone would be allowed to cultivate their own medicine, giant pharma companies such as Insys would inevitably lose revenue. However, according to Kevin Gallagher of Craft Concentrates and the Cannabis Business Alliance, Big Pharma interests may ultimately be surprised by the zeal and persistence of cannabis patients and advocates.

“This is a completely unique substance that is so readily available, and it’s so easy to take advantage of its healing nature, … it’ll be very interesting to see how that plays out,” Gallagher said in an interview with Westword.

“These pharmaceutical companies still think they’re going to win the battle in creating essentially fake cannabis and having to even compete with the real cannabis industry, but they’re not looking at the effects of certain terpenes or certain cannabinoids,” Gallagher said.

More and more Americans succumb to prescription opiate overdoses each year, while there remain zero recorded deaths contributed to the over-consumption of cannabis.

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The Canadian flag on a sunny, blue-skied day.

Canadian Legalization Plans Expected Next Month

3/27/2017

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Canada’s federal government is expected next month to announce nation-wide plans to legalize cannabis nationwide by July 1, 2018, according to a report from the CBC. Bill Blair, the parliamentary secretary to the Minister of Justice briefed the Liberal caucus on the plans, which sets the legal age to purchase, possess, and consume cannabis at 18, and includes provincial control on distribution and sales, including local ability to raise the legal age.

Canadians would also be able to grow up to four plants per household.

The announcement comes little more than two weeks after authorities in Toronto and Vancouver raided dispensaries in the provinces. In those raids, Marc and Jodie Emery, activists and owners of Cannabis Culture were arrested and charged with trafficking along three other dispensary operators.

Prime Minister Justin Trudeau said about a week prior to the raids that until the government has “a framework to control and regulate marijuana, the current laws apply.”

According to Health Canada statistics from February, the number of registered medical cannabis patients in the nation rose 32 percent from September to Dec. 31 last year. In 2016, a Canadian Federal Court ruled that grow-your-own cannabis bans violated a patient’s right to life, liberty, and security, forcing the government to allow those with a prescription to grow their own cannabis plants, which was capped at two indoor or five outdoor plants.

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The Tennessee Capitol Building in Nashville, Tennessee.

Tenn. House Passes Bill That Would Derail City-Approved Cannabis Decriminalization

3/27/2017

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Tennessee’s House of Representatives has passed a bill that, if approved, would negate cannabis decriminalization policies enacted in Nashville and Memphis, the Memphis Daily News reports. The measure, which passed the body 65-28, aims to clarify that state law overrides local regulations involving Class B misdemeanors and above – which includes drug policies.

Last year Memphis’ City Council passed an ordinance that allows police officers to issue a $50 ticket for possessing less than 1 ounce of cannabis, rather than arrest the offender and charge them with a Class B misdemeanor. According to a Tennessean report, last year Nashville passed its own measure imposing a $50 fine and 10 hours of community service for possession of a half-ounce or less of cannabis.

Republican state Rep. William Lamberth, a former assistant district attorney from Sumner County and the bill’s sponsor, said the legislation creates equity in Tennessee‘s criminal justice system. Lamberth also noted that since Nashville’s decriminalization measure was passed just 37 people have been issued the civil infraction while 888 people had been charged with the misdemeanor.

“You can’t have rich people being held to a different standard than poor people. You can’t have people from the good part of town being held to a different standard than the people from the bad part of town,” he said in the report. “You can’t have people that look one way be treated differently than people who look another way. You just can’t have that, at least not in the country I love.”

Democratic state Rep Sherry Jones argued that the “legislation is not about cannabis” rather about whether lawmakers “support or don’t support local control.”

“If you want to take local control away from your governments, this is the bill to do that,” she said.

The Senate is expected to take up the bill today.

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Looking down on the beach somewhere on the island of Guam.

Guam Pushing Forward with Cannabis Reforms

3/27/2017

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Legislation set to be introduced in Guam would force policymakers to implement the 2014 voter-approved medical cannabis laws, which stalled due to complications developing the rules and regulations, according to a Guam Daily Post report. The measure, introduced by Sen. Joe San Agustin, would set the license fees for manufacturers and cultivators at $1,000, while dispensaries and testing facilities would not be charged.

The legislation is necessary as the original medical cannabis bill did not include regulations allowing the Department of Revenue and Taxation to create business licenses, and an amendment last year to the law only pushed the Public Health Department to start the process of distributing license applications.

The move comes as Gov. Eddie Calvo considers legalizing adult cannabis use on the U.S. territory – however, due to unease regarding federal policies Calvo might pull legalization plans in favor of a home-grow measure, the Pacific Daily News reports. Under the legalization plan, sales would be taxed and the funds would be used to help sustain Guam’s medical cannabis regime.

“The governor’s bill is something that can work, but if it can’t because of the president’s crackdown, then we want to be able to allow home cultivation,” Troy Torres, Adelup special policy advisor said in the Daily News report.

Last term, Calvo vetoed a home-grow bill because he believed it was over-regulated.

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Looking out from underneath a cannabis plant inside of a state-licensed grow op.

Golden Leaf Holdings Completes Grassroots Deal, Latest in March Flurry

3/27/2017

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Oregon-based Golden Leaf Holdings has struck a deal to acquire the Nevada cultivation and extraction licenses from NevWa, LLC – which operates as Grassroots in the state – for $1.925 million. The move comes just four months before state regulators anticipate the launch of the state’s adult-use market. The license allows the company to sell and distribute products throughout Nevada.

Don Robinson, CEO of Golden Leaf Holdings, said the state is “increasingly being recognized as one of the fastest growing cannabis markets in the U.S.”

“The level of tourism in the state combined with the reciprocity provision in the state’s [medical] cannabis laws, positions Nevada to become one of the largest and most dynamic markets in the country,” he said in a press release. “Cannabis brands that are on store shelves in Nevada can create brand loyalty throughout the North America.”

The deal is the third this month for Golden Leaf, who announced last week they had signed a letter of intent to acquire Oregon’s Chalice, LLC, which won “Cannabis Store of the Year” at the 2017 Dope Magazine Industry Awards. On Mar. 16, the company announced they were set to acquire the assets and business of JuJu Joints, which sells disposable cannabis oil “e-joint” products in Oregon, Nevada, California, Washington state, and Canada. Two days prior, Green Leaf announced plans to acquire Medical Marihuana Group Corporation – a licensed Canadian producer.

All of the deals still await final approval from the appropriate regulators.

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Indoor cannabis plants inside of a licensed Washington state I-502 cultivation facility.

Report Suggests Cannabis Market Will Continue Growth Despite Federal Uncertainty

3/24/2017

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Despite uncertainty in the cannabis space fueled by recent comments from federal government officials, the legal cannabis market is expected to grow at a 27 percent compound annual rate through 2021, according to an Arcview Market Research report outlined by Bloomberg. In 2016 legal cannabis sales reached $6.7 billion – up 34 percent from the previous year.

Arcview CEO Troy Dayton said that not only would a crackdown on the legal cannabis trade be “so politically unpopular it would be silly,” but in 2014 Congress passed an amendment to an appropriations bill the prevents the Justice Department from using funds to interfere state medical cannabis programs. Although the measure does not protect adult-use markets, it is plausible that similar protections could be implemented this fall, Dayton said.

“We’ve got all these other countries that are passing more laws and also other states, and presumably the federal government could end marijuana prohibition as soon as 2021,” he said in the report. “There’s never been a market that’s grown at 20-plus percent growth each year for 10 years, right? But that’s possible here.”

The Arcview report indicates that North American total cannabis sales totaled $56.1 billion last year; however, 88 percent of those sales were illegal.

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Inside of Delaware's Legislative Hall in Dover, Delaware.

Adult-Use Legislation Could Come This Session in Del.

3/24/2017

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An adult-use cannabis legalization bill in Delaware is near completion and will likely be introduced this session, according to a WDEL report. The bill’s sponsor, state Sen. Margaret Rose-Henry, indicated it has preliminary support of the state’s law enforcement community.

“Law enforcement wants this bill,” she said in the report. “I’m pleased to tell you that there are police officers who think this is a good thing that we are going to reduce their having to arrest people who don’t need to be arrested.”

Rose-Henry explained that she and several of her colleagues have been in contact with lawmakers in Colorado while crafting the legislation, hoping to learn from “the corrections that they’ve made.” The details of the bill are doubly important in Delaware, because Gov. John Carney has maintained that the state needs more time to develop its medical cannabis program before advancing into an adult-use market.

“We’re going to make sure we put the safeguards in, work with state and local law enforcement, to ensure that our people are protected,” Rose-Henry said. “I think our governor is being cautious. We had the same thing with the previous governor when I did medical marijuana it takes a while because of the federal laws, and I think that’s his concern.”

According to Cannabis Bureau of Delaware Co-Chair Zoe Patchell, 61 percent of Delawareans support a taxed and regulated adult cannabis market and suggested that public pressure could force Carney to sign the legislation if it were to pass.

So far no state has passed an adult-use measure via the legislative process.

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The Phoenix Convention Center at night.

Imperious Expo 2017 Coming to Phoenix, Arizona on April 12-13

3/24/2017

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The first Imperious Expo of 2017 is coming to the Phoenix Convention Center in Phoenix, Arizona this April 12-13.

The Imperious Expo is one of the nation’s leading business-to-business cannabis conferences with an emphasis on the medical and industrial cannabis industries. Each conference boasts a unique array of cannabis industry speakers, and this year’s Phoenix, AZ location promises a blend of west coast, central, and east coast cannabis expertise. Furthermore, the extensive list of exhibitors who will be attending the Phoenix Imperious Expo includes industry representation from legalized markets around the U.S.

Expert speakers will give presentations on topics such as cultivation, extraction, insurance, legal issues, licensing, sustainability, water and more.

Arizona State Representative Mark Cardenas will deliver Wednesday’s keynote address and Shaping Fire podcast host Shango Los will be delivering Thursday’s keynote. Taylor West of the NCIA, Laura and Casey Rivero of Yerba Beuna Farms, Oregon and Nancy Whiteman of Wana Brands, Colorado will be speaking along with an array of national cannabis industry experts. You can view the full list here.

“Arizona cannabis entrepreneurs have a great opportunity. Not only do they have talented growers and extractors locally, but the state is so gorgeous that it is a great place to visit to get high and explore nature,” said Los. “I am excited to be speaking at the Imperious Expo event and have the opportunity to meet some of the state’s top cannabis players.”

David Murét, co-founder of Viridian Staffing, will take up the role of the event’s MC after playing a similar part at the inaugural Imperious Expo held last year in Tacoma, Washington.

“As with any enterprise, putting on a successful cannabis industry conference comes down to the quality of the team. And while relative newcomers to the cannabis industry, the team behind Imperious have been putting on successful tradeshows for years,” said Murét. “But, in an industry saturated with events, that isn’t enough. What ultimately won us over is their commitment to respecting the intelligence of their attendees and creating a valuable experience for all stakeholders. They aren’t just in it to turn a profit. We respect that.”

“We haven’t changed our focus or direction from last year,” said Imperious Expo founder Eric Norton. “We promote the legal medical and industrial benefits of cannabis, emphasizing the business sector, with a primary goal of connecting business to business (B2B).”

Norton says that Arizona’s thriving medical cannabis program is what originally caught his eye a few years back, but also that the state’s central location makes it more attractive to industry members who are further from the west coast. “Phoenix is only a few short hours by car to San Diego, LA, and Las Vegas — that makes it ideal for a trade show location in the cannabis industry,” he said.

Tickets are available online for the 2017 Phoenix Imperious Expo; two-day passes cost $148, a one-day pass costs $88.

If you are unable to attend the Imperious Expo in Phoenix, start planning now for their October Imperious Expo in Los Angeles.

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David Barakett: Growing a Multi-State Dispensary Chain

3/24/2017

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David Barakett is the CEO of ShowGrow, a culture-focused dispensary chain with California locations in Los Angeles, Santa Ana, and Ramona. ShowGrow also runs a dispensary in Las Vegas, Nevada.

David recently joined our podcast host TG Branfalt for a chat about participating in the widening cannabis markets in California and Nevada. In this episode, David offers predictions for the new adult-use cannabis markets that will be opening after last November’s election, describes how he is able to make his dispensary brand stand out in the modern cannabis industry by understanding who cannabis consumers are and what they care about, and shares insight about his own management style, which he says can be summed up in one word: “positivity.”

Listen to the episode via the media player below, or continue scrolling to read a full transcript of the episode.

Subscribe to the Ganjapreneur podcast on iTunes, Stitcher, SoundCloud or Google Play.

Listen to the podcast:

Read the transcript:

TG Branfalt: Hey there. I’m TG Branfalt and you are listening to the Ganjapreneur.com podcast. The Ganjapreneur.com podcast gives us an opportunity to speak directly with entrepreneurs and experts who are working on the front lines of the industry to normalize cannabis through responsible business, education, and activism. As your host, I will do my best to try to bring you actionable information to help you plan, grow, and manage your cannabis business.

Today I’m joined by David Barakett. He’s the ShowGrow CEO. He’s got some dispensaries in Nevada and California. How are we doing today, David?

David Barakett: I’m doing great, doing great. How about you?

TG Branfalt: It’s a very strange day. Jeff Sessions was confirmed yesterday, so I’m still trying to wrap my head around that, and we might get to that a little bit later. But before we do, I want to talk about you. Let’s start with your background. What did you do before getting involved in the cannabis industry?

David Barakett: Early on, I got into real estate, that was kind of my first career, and built a mini real estate empire. It wasn’t very big but it was a Century 21 franchise. It was a good learning experience. That gave me the foundation for bringing some of the business acumen to the cannabis industry, and that was kind of my first taste of business and then I quickly moved into this shortly after.

TG Branfalt: Tell me about the experience opening your first dispensary. What was that like, and during that process, what were you looking for in partners and employees?

David Barakett: Yeah, it was crazy. It was a pretty interesting time and we actually partnered with somebody to manage this facility, and it was a great project at the time, and I was really excited. I didn’t know anything about the industry, really. I mean, I knew cannabis but not in the depths that you would have to know to be really great at retailing. We took over this facility and right out of the gate, we started doing pretty well. We kind of just developed it as we went and one of my partners did have some experience and he showed up a couple of days in and he was like, “You guys don’t have enough products on the shelves. What’s going on?” I was just like, “Man, I don’t know anything about this.” But from there, we just kind of learned.

I learned a lot early on from my employees because really they were the ones that were in tune with the industry. They are the boots on the ground and even today, that’s really where, that’s where we get our swagger from. That’s where all the knowledge is derived from, really, is from the folks that are in the store. A lot of those things we learned early on.

TG Branfalt: What state was your first dispensary in?

David Barakett: California.

TG Branfalt: How did you kind of evolve that business model and expand into Nevada? What did that entail? What’s that story?

David Barakett: When the Nevada market was going online, I think there was a lot of interest, right? The operators of the world descended on Nevada to find a home. We did the same thing. I started coming out here. If anything, it was just a good excuse to come to Vegas once a month. We met with a lot of people, talked to a lot of people about what we’re doing in California. We always felt like being from California, that we were better set up to succeed in Nevada. We kind of went through the process of meeting a lot of different owners, a lot of different personalities, and we landed on a group that are just really, really great guys, and they gave us the reins to do our thing.

We originally slow-played the market out here, and we didn’t end up doing cultivation and manufacturing because there just wasn’t a market to support it at the time. We built, we brought our California dispensary model. It was met with a lot of happy faces. People were coming in. They were like, “Man, it’s great to see a California dispensary.” In Nevada, a lot of people that live here are from California. A lot of people that they consume cannabis in Nevada, they’ve been to California. They’ve seen the shops. They’ve seen the product. There’s a lot of California influence out here. We just did our thing, put OGs on the board, put other California products that are just quintessential products that people would want, right? It just was a smooth transition.

TG Branfalt: With both of those markets opening up for recreational now, what are you guys doing to prepare for that and what is your kind of anticipation? What are you anticipating happening in both those states?

David Barakett: I anticipate these two states blowing up. I don’t think there’s any doubt that California is the largest market in the country. It’s poised to absolutely explode. I mean, we’ve had about a million patients in that market. What’s coming in California with rec, although it’s been relatively easy for people to get a rec and go to the shops, it’s still not something that everybody’s comfortable with. People think that you’re going to be on a registry somewhere. When you go to apply for a job sometime, somebody’s going to be able to dig out that you’re a cannabis consumer or whatever. Gun owners feel the same way.

There’s a lot of people that never entered the marketplace and there’s a lot more cannabis consumers out there that just aren’t in it. Yeah, my expectation is that the market could very well 10x. There’s no reason why it wouldn’t. We know that the million people that are cardholders now, they are your core business and they will be the core business after. You’re going to have always the people that are cannabis enthusiasts that will be your core business, and then there’s just going to open a market to a whole lot of people that will be occasional smokers, once a week or even once a month. But when you add up the numbers on that, you wind up with a pretty big market and the medicinal numbers should pale in comparison.

In Nevada, strategically, there’s no reason why we wouldn’t want to be here. We’re so close and this market, unlike California, it just, it doesn’t have the population, but when rec comes, the 42 million visitors a year could purchase. They’re flying into Las Vegas with the purpose of lowering inhibitions, so there’s no reason why this market isn’t going to just explode, too. My expectation is that these two markets will easily be the two largest in the country.

TG Branfalt: With the expansion happening, I mean, it’s happening all over the U.S. We’ve got eastern states now that are going full rec, so there’s a lot of opportunities to enter the market, but what are some of the barriers that you think exists as an entry to the market in the current business climate?

David Barakett: I mean, there’s a number of barriers to entry. It just, it depends how equipped you are to deal with them. We’ve built a business that’s comprised of people with a lot of different talents. Although we’re great at cannabis, we’re also great at business, and transitioning into this regulated market and every regulated market is different. It’s just, it’s imperative that you have somebody in-house that’s doing compliance. We happen to have somebody that’s phenomenal. It’s imperative that you understand the market that you’re getting into. Something that happened in Nevada was that nobody understood the market they were getting into. When locations were opening, there was 8,000 patients. That wasn’t going to support a bustling market. I still see a lot of that.

There’s this notion that you sell a gram of weed and your bank account automatically has a million dollars in it, and that’s just like so far from the truth. A lot of guys are jumping into the industry thinking that all you’ve got to do is get the license and open the doors, but it’s just not the case. There’s certainly some great markets out there that will be opening up. Massachusetts will be one of them. Everybody predicts that Florida will also be one of them. We’ll see how things kind of play out. But nevertheless, you’re talking about smaller states than where we’re working. They don’t have the same kind of tourism. When every prospectus that get sent to me is basically using black market numbers, it’s really hard to really understand what the value of these business are.

It’s experience. It’s just, it’s having done it that gives you the ability to really understand what you’re doing because, yeah, when you ask what are the barriers to entry, there’s a lot. There’s a lot. This is a heavily regulated space. Nobody is trying to legalize cannabis and have room for madness on their hands.

TG Branfalt: This is actually kind of leading into this quote that I’m going to read back to you that you had said, but before we do that, we’ve got to take a quick break. This is the Ganjapreneur.com podcast.

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TG Branfalt: Hey, we’re back. This is the Ganjapreneur.com podcast. I’m TG Branfalt, your host. I’m here with David Barakett, the ShowGrow CEO. Before we took the break, we were talking about barriers to entry, the current market. You’ve said that legalization and regulation don’t create a market. They simply allow it to exist. Now, it’s my opinion that cannabis regulations are too onerous. They don’t actually allow for free markets. It’s often unbalanced and stuff. It says to regulate tobacco or cannabis like alcohol. There’s a bill to regulate it like tobacco in New Jersey that’s probably going to get killed.

For me, when I read that quote, that’s what I think, is that there’s too many regulations and it’s not regulated like alcohol is, whatsoever. Is that what people should take away from that quote or did you mean something entirely different?

David Barakett: Well, I could lie to you and tell you that I meant a whole lot of things, but what you’re saying I think is, I think there’s a lot of truth to it. To a degree, yes, I’m alluding to that, but what really I’m saying is just pretty simplistic. When a new territory goes online, and they are all the time, everybody goes bananas, and it’s like they just think that it’s guaranteed success and that’s not the case. There’s a lot of contributing factors and one of which is exactly what you just said. I mean, the fact that they can be over-regulated and overtaxed, those are reasons why that’s not really a great market.

Although we’re legalizing and we have a framework that’s going in place, there’s still a lot of crazy things that are going on out there. To a degree, I think there’s some really good regulators that are trying to figure it out so that they don’t tax us out of the markets. Forget about taxing outside of the market. The fact is is that creates, that doesn’t create the black market. It will let the black market continue to exist and thrive. Yeah, so simply putting an ordinance together isn’t a key component to a successful cannabis market.

What I meant by that, really, I mean, is that there’s more to evaluating markets viability than the mere fact that it’s been legalized in a town near you. There’s a lot of excitement over cannabis and it’s created this mentality that success is given, and that couldn’t be further from the truth. Every day I speak with investors looking to jump in. I try to get people to understand that this is a very serious, highly competitive industry, and it’s not to be just taken lightly.

That’s in essence what the quote means, but I do agree that we’re operating in an imperfect regulatory model that can be very difficult to navigate, and that’s due to the grassroots nature of this movement. Laws were typically enacted at the highest level and the framework is then passed down to smaller governments for them just to follow the rules in place, but due to the unwillingness to reverse prohibition, the onus has been put on local city councils and the city attorneys to enact complex marijuana law.

Like I said earlier, the fear of legalizing cannabis and winding up with reefer madness in your hometown is not something that a lot of them want, so they do regulate it heavily because they don’t want to be the city and they don’t want to be the people that cause something bad to happen in their town, so it’s understandable. We’ve also seen voter-backed initiatives that pass and leave everyone a little bit confused about how to operate or the city on how to regulate because they haven’t really been properly vetted to the degree that most laws would be.

TG Branfalt: It’s not something that regulators are used to dealing with until it’s implemented. I mean, in much of the same way that I’ve spoken to a lot of operators who say it’s really hard to find good people because you don’t have a whole lot of people with experience in the cannabis industry.

David Barakett: Yeah, that’s right. I mean, you don’t. You need to train people. A lot of times, the people with the experience, unless it’s somebody that’s really honed their craft, it’s not always the best choice. But for us, we like to train people. Cannabis knowledge is not a prerequisite. In fact, it’s sometimes, obviously, it’s different for every job. We have all kinds of different jobs in this industry and in our business, and of course if you’re getting a higher level job, then to get cultivation, you have to know about it and you have to be good at it.

But if you’re coming into a dispensary to get a job at ShowGrow, all you’ve got to do is have some personality and have some charisma, and that’s all it boils down to for us. I can teach you about cannabis but I can’t teach charisma. I can’t teach somebody how to smile and chat with people and make lifetime patients out of them. That’s something that a lot of people, they just inherently have.

TG Branfalt: Well, and you come from not the cannabis industry. You come from real estate. What other, with your employees and the people you work with, where else do you see them coming from?

David Barakett: Well, to be perfectly honest, I give a lot of people their first jobs (laughs). A lot of times, the food and beverage industry. It’s one of those things. Everybody kind of has their first jobs, and that’s why, looking at people’s resumes for positions like that is of very little importance to me, going through resumes to find out that you’ve had your first job at a fast food restaurant or on a golf course, wherever. It doesn’t matter really what it’s specific to because it’s not something that is going to have given you all the skills you need to be successful in cannabis.

On the retail side, it really just, it starts with personality. It’s all about personality. It’s all about, it’s how you connect with patients and how comfortable you make people. The cannabis knowledge comes. We build a culture in ShowGrow that is such that it’s a point of pride to know everything about cannabis. I don’t have to teach it in-depth because they want to learn it. They want to be good at their jobs. They want to be able to provide that best service because the girls and guys that work there are competitive with each other, and that’s always been a point of pride in our company and we’ve always really encouraged that.

TG Branfalt: What’s your management style like? You’re a CEO. How closely do you work as far as the day-to-day operations go?

David Barakett: I built the retail side to a large degree with a manager that managed all our facilities, and my partners, and I got out of it for sometime while I was really doing the branding, and actually just recently I got back into it. It’s been a lot of fun. The reason I got back into it was kind of because I missed it. It’s a grind but at the same time I have a lot of people now surrounding me. I have a lot of support. Although it is kind of all-consuming, it’s really like, it’s a really enjoyable experience to work with so many young people and to really see them enjoy what they do.

My management experience or my management style is basically positivity. In a nutshell, if I could use one word, it’s positivity. This is all about culture. Cannabis is all culture, and cannabis consumers are savvy. They’re cool, and they want that to be reflected in the stores they go to. What we’re building here is just this culture where everybody loves coming to work every day. I want you to love coming to work every day.

We have three major focuses and none of them have to do with making money. The first thing and the utmost importance is patients first. We are a customer service driven business. We are all about customer service. We want to give the best customer service. I want those value adds to separate us. That’s what I want people to say about us when they come into our facilities for the first time.

The second thing we do is employees. It’s all about the employees. We take care of the employees. We want them to love where they work. We also want the employees to take care of the employees. We want them to just build those relationships and enjoy themselves. When that happens, what I said earlier about not having to train them on cannabis, you don’t because when they love where they work, they learn it because they want to be there and they know that to be here, you have to, you’ve got to know your job. You’ve got to know your stuff. You’ve got to be good at it because your shift leads have you and your managers have them. They all know all their stuff. That’s the culture that I like to create so that everybody can kind of look around and see that everybody is working together. Everybody loves what they do and everybody thinks cannabis is great, and it should be. I mean, could you imagine working at a cannabis shop and hating what you do? That’s pretty sad. That’s really helped us separate ourselves from the pack.

Then the last thing we do is community. We do community outreach. We want to be a part of every community we’re in. We don’t do it to drive sales. We do it help familiarize people that would typically be familiar with cannabis. We want them to see what we’re all about and who we are, and we’re not bad guys. A lot of the bud tenders go and volunteer or they meet people that are from different charities that we’re working with. We’re changing minds and people see that and they’re like, “Wow, you guys are good people. Imagine that.” Those are our focuses. That’s what we focus on. That’s my management style. I try to really dig deep with all of our employees and give everybody the benefit and chance to succeed, and I have groomed a lot of young employees and I’ve given a lot of young people opportunity where they wouldn’t get it anywhere else, and I know they wouldn’t.

We have managers as young as 24 years old managing facilities that, these are extremely valuable assets that are being managed by young kids, but that’s what, they want it. They want it and they have what it takes to be successful in cannabis now. Does that mean we don’t give them the support system that they need on the back end to succeed? Yeah, of course we do. But on the front lines, boots on the ground, I want all these young kids to succeed and I want them to be a part of it, and I want them to buy in because we’re, this isn’t a company for me. It’s a company for everybody that works for us. They see the growth and they see the opportunity. The upward mobility in our business is massive, and they could see it.

In a lot of jobs in this day and age, you can’t see your opportunities. You can’t see where your job today that’s making you 12 bucks an hour can lead in a few short years if you just grind it out and work hard, keep your head down and in fact actually really like what you do instead of working on an assembly line or doing something but not this that seems to be not what kids today want to be doing anyway, I guess. But, yeah, so that’s it. We’re just trying to give people opportunities and be a part of the community and to take care of our patients.

TG Branfalt: I want to stay on this theme of culture and community, but before we do that, we’ve got to take our last break. I’m TG Branfalt. This is the Ganjapreneur.com podcast.

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TG Branfalt: Hey, welcome back to Ganjapreneur.com podcast. I’m your host, TG Branfalt. I’m here with David Barakett, ShowGrow CEO. Before the break, we were talking about culture, and inevitably, well-funded big business is going to enter the space which a lot of grassroots people who were the fore founder, the founders of everything that exists now, so there’s a lot of fear about well-funded big business getting involved, and many states such as New York and Minnesota, they’re already there operating the medical programs there. What’s your take on this as an operator and how are smaller operators preparing for this inevitability?

David Barakett: Yeah, that’s something that I’ve given a lot of thought to, and I do get asked that question. I’m a pretty firm believer that the cannabis industry is not going to go the way of big business overnight, one, and I don’t really see it going to this kind of generic cannabis mass-produced, widely available model where your kind of boutique product and your craft product, if you will, ceases to exist.

I mean, I don’t know a cannabis consumer that isn’t like super into what it is they’re consuming. If cannabis is just something that kind of falls flat, it’s not that exciting, and I think like in part, consuming cannabis isn’t just about getting high. Even if you’re talking about medicinal, recreational, whatever, whoever it is, if you are, especially if you’re a recreational consumer and a habitual consumer, it’s the ritual. So much of it is the ritual, and it’s your peace. I mean, shit, 420, I mean, it’s just like it is what it is. I just don’t see that type of consumer.

Cannabis consumers are a very, very savvy consumer. That is something that is lost on a lot of people that are not from this space that don’t understand this space. They think that they’re just going to mass produce a bunch of weed and they’re going to thrown on the shelves, and weed is weed, right? It couldn’t be further from the truth. It’s a surefire way to not get anybody to come back.

TG Branfalt: You’ve said a couple of times that cannabis consumers are this real savvy consumer. Why do you think that this is?

David Barakett: Well, I think that kind of falls in to what we were just talking about. It’s that it’s something that they care about. It’s a ritual. It’s an interest. It’s a hobby. Cannabis, it makes people more conscientious. I think that, I don’t think that we need any real in-depth studies to find out that the consumers of cannabis are by and large a more caring people, a more thoughtful people. I think that the stoner stigma that’s associated with cannabis is in part true, but the same is true for everybody that consumes cannabis. Not everybody that is a stoner, stigmatized consumer, is going to not be the same as everybody in a sense that you’re going to have your professionals that consume, and you’re going to have your elderly folks that consume.

The one common thread here is not that they’re all kind of, that they’re straight off half-baked. It’s that they’re kind of just a lot more thoughtful and giving. I think that a lot of that comes with cannabis. When people ask me about the rec market, “Well, medicinal has value, and we know that so we should legalize medicinal, but rec, there’s no good in that. Why should we legalize rec?” I think that that’s so short-sighted because a world where cannabis is available to everybody all the time is going to be a better place. I can guarantee that.

TG Branfalt: You’ve got people too that are self-medicating and they’ve been doing it for years. I’ve said on this podcast several times, I use low dose cannabis products for my anxiety, and had these been available to me when I was much younger, I sometimes wonder, maybe I would have done a little better in college. Maybe I would have done this a little differently or done that a little differently. I think that, in my opinion, medical is great. I mean, all the pro, when I hear Governor LePage out in Maine saying, “Oh, well, we’ve got to get rid of medical marijuana now that we’re going to have a recreational market,” that’s absurd. That’s an absurd thing to me. But at the same time, you do have some people who don’t meet the state criteria who are using it for anxiety, using low doses. To your point that there is more to recreational than people who just want to go get stoned.

David Barakett: Oh, yeah. I mean, yeah, definitely, definitely. It’s a well-documented fact that cannabis abuse in youth, in the undeveloped brain, can cause harm. That’s something that has been studied and documented and proven because it can slow brain development. But there is zero negative impact that has been proven for adult use. I think the social benefits of it are just massive, especially if you’re comparing it to what the risks are because the risks are nil. It could only better, right? I mean, you’re not causing harm.

Of course, people have to be responsible. There’s no doubt that there’s a responsibility component to it, but that’s something that comes with the territory, too. I think that also, and this isn’t true for everyone but I see cannabis consumers that are responsible, and I think that has something to do with being thoughtful and kind of, and being more caring and all that kind of stuff that comes with getting high actually.

TG Branfalt: We’re running a bit long here, but I do want to get your opinion as an owner, as an operator, on the Trump administration and specifically the opinions of Jeff Sessions as they relate to cannabis. Are you guys worried?

David Barakett: I just, I try not to focus on the things I can’t control. I do everything that is inside of my control. The fact of the matter is, is that this is a very big business. It’s not going away. I don’t think that really it’s something that they’re going to spend their bandwidth on doing. It would be an incredibly unpopular thing to do. Typically, when public support is on the side of cannabis, that’s where it’ll ultimately land. I know in this day and age, people are questioning whether majorities matter, but in this particular case, I don’t know if this is necessarily on the forefront and at the top of the list of things they want to get to.

TG Branfalt: For you, the sky is not falling.

David Barakett: No, man. The sky is never falling. It’s all good. It’s all good. I know a lot of people are freaking out. Cool, they freak out, but for us, I’m just going to keep my head down and just keep working and doing the right thing. I’d be nervous too if I thought I was not doing the right thing. But I can open up the doors to my business any time and show anybody what it is we do and how we do it. If you could take a look at what we do at ShowGrow, we are proud of what we do. The reason that we built a model like that and the reason we do that is because we are breaking down barriers, we are changing minds.

I’ve been doing that as long as I’ve been in this industry and I’ve seen the most vehemently opposed change their minds when they come to our facilities because how could you hate this? It’s not doing anything to harm you and all of these young kids that are working here, they’re not monsters. We have beautiful, well-built out, well-lit, secure facilities. We pay our taxes. We participate in the community. We give back a lot.

Those are the things I can control. I can’t control anything else, so I guess I just, I don’t want to waste time worrying about stuff that I can’t control. I want to worry about just building a great business, and we’ll see. This isn’t the first time there’s been adversity in this industry.

TG Branfalt: It was built on adversity.

David Barakett: Exactly.

TG Branfalt: My final question is, what advice do you have for entrepreneurs looking to enter the cannabis space?

David Barakett: I guess what I would say is that you’ve got to work hard. It’s just like there is nothing given in this industry. It is all hard work. It’s unrelenting perseverance because you are going to get kicked, not once, probably two or three times. It is unrelenting. You will get knocked down. In cannabis, you get knocked down even in the best of situations, and that’s not to say that, that’s not like an ultra-negative thing, don’t get into the industry. It’s just that, again, I go back to this thing. We are breaking down barriers. We are changing minds. There are still a lot of foolish people that don’t want to believe their eyes when they see a product that cures people and they still rally against us.

That, to me, is really, that’s the biggest component to it. Now, honestly, that’s kind of the fun part too, though. You’ve got to understand that we’re educating people on a plant that’s truly amazing, and that’s rewarding, that’s rewarding for everybody that’s involved. The other bit of advice I would give people is if you’re getting in for monetary gain, and that’s your only motivation to enter, I’d tell you that don’t bother because if you’re not a true believer in what this plant can do, you have very little chance of succeeding right now.

It’s inevitable that at some point this industry will become such that it’s like every other industry, and like you said earlier, there will be that kind of mass-produced corporate weed that’s commoditized and fluctuates with the markets, and then there will be an opportunity if money is your only goal. But there’s more than enough to go around in this industry. If you’re really, if you’re touching people’s lives with cannabis and you’re affecting real social change in the community, to me, it’s inevitable that that leads to a great deal of success. That’s success, that’s happiness, and that’s in your business life and that’s in your personal life. Cannabis is great (laughs).

TG Branfalt: Well, I really want to thank you for coming on our show today. It’s rare that we get an opportunity to really speak to somebody who is in a management position, CEO of a dispensary. I talk to a lot of policy people and people of that nature, so this is, for me, this is one of the first conversations that I’ve been able to have on this show to cover the sort of topics that we discussed, so thank you so much for appearing on our show. Would you like to just tell everyone how they can find out more about your dispensaries, where they’re located, before we go?

David Barakett: Yeah, absolutely. You can just go to ShowGrow.com. We’ve got a location in downtown L.A., off San Pedro and the 10, or the 10 and San Pedro, I should say. We’re in Santa Ana. We’re on Saint Gertrude Street. You’ll find us on Weed Maps for all our locations. Go to ShowGrow.com, you can check out the shops and pictures to kind of see what we’re all about. Then we’re down in Ramona. Ramona is a San Diego county, just a cool little spot out in the countryside. It’s really awesome. We’re going with the small town, and it’s got a small town vibe, and all of the bud tenders that work there, they know everybody in town, everyone knows them, and it’s a trip, but it’s really cool. We’ve become a part of that community to a degree and everybody is loving it. That’s a cool project. Then Vegas. We’re up near the Summerlin area off of the 215 and Tropicana.

We aim to be the top customer service brand, the top value-added brand. We don’t want people to come into our stores to simply get the rock bottom basement product and price and then mass quantities. We’re an experience. We’re a store that when people come to us, we want them to think like, “Oh, cool. This is my kind of vibe. This is my kind of spot.” You get excited about coming back to see the girls and everybody knows you by name. That’s what we’re about. That’s how we built our business and that’s how we’ve enjoyed our success. Yeah, we’re just going to keep rocking. We have a number of new locations coming too, so stay tuned. We’ve got seven coming in 2017.

TG Branfalt: That’s exciting news. We’ll be in touch when they start rolling the map, but thanks again for joining us on today’s episode.

David Barakett: All right. Thank you very much.

TG Branfalt: You can find more episodes of the Ganjapreneur.com podcast in the podcast section of Ganjapreneur.com and the Apple iTunes Store. On the Ganjapreneur.com website, you will find the latest cannabis news and cannabis jobs updated daily along with transcripts of this podcast. You can also download the Ganjapreneur.com app in iTunes and Google Play. This episode was engineered by Jeremy Sebastiano. I’ve been your host, TG Branfalt.

End

Australia’s Cannabis Stocks Outperforming Peers Worldwide

3/24/2017

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Shares of companies involved in the cannabis space have gained more than 130 percent in Australia stock markets this year – six times higher than their peers in Canada and the U.S., according to a Bloomberg report. The boon comes after the Australian government announced they would begin implementing a medical cannabis importation system and access program.

In Australia, cannabis industry operators have an average market capitalization of A$80 million (~USD$61 million) – counting the 136 percent increase this year, according to a Bloomberg index. By comparison, that index shows the global cannabis market returns at about 20 percent.

Niv Dagan, an executive director as Peak Asset Management, said he has a fraction of his A$100 million (USD$76 million) fund invested in cannabis stocks.

“The market is excited by the potential upside it could bring,” Dagan said in the report. “The key risk we see is obviously regulatory risk.”

Currently, only Queensland allows medical specialists to prescribe cannabis to patients who do not respond to conventional therapies. Earlier this month the Department of Health’s Office of Drug Control granted its first license to grow and harvest medical cannabis to Victoria-based Cannoperations Pty Ltd.

According to the report, The Hydroponics Co. Ltd, an Australian lighting rig and greenhouse manufacturer specializing in cannabis plants, is raising money for its initial public offering next month. The A$8 million share sale is already three times oversubscribed.

End

Several cannabis plants shortly after being cut down for harvesting.

Ohio MMJ Requirements for University Testing Could Cause Delays

3/24/2017

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Ohio’s medical cannabis proposal requires public universities to conduct product tests, which could delay the program due to equipment costs, and application and operation fees, according to a Cincinnati Enquirer report. Under the plan, private laboratories are barred from testing medical cannabis for one year, the testing application fee is $2,000, and the operation fee is $18,000.

According to Jeffery Raber, CEO of The Werc Shop, which performs cannabis testing in Oregon, Washington, and California, equipment costs could reach as much as $1 million. At universities, budgets often rely on grants from government programs.

Rob Ryan, executive director of the Ohio Patient Network, said that without testing “there is no program.”

Spokespeople from the University of Cincinnati, Ohio State University, Cleveland State University, and Kent State University all told The Enquirer that they have no plans to conduct the testing. Advocates are concerned that with so little interest from state universities there would not be enough labs in the state to meet the demand.

“There are too many unknowns to rely exclusively on learning institutions,” Chris Lindsey, senior legislative counsel for the Marijuana Policy Project, said in the report. “Private labs are in better positions to respond.”

State Rep. Kirk Schuring, one of the authors of the medical cannabis law, said he believes the institutions “will step up.”

“If it becomes a problem, we’ll correct it, but I don’t think it will,” he said.

The rules for the program must be finalized by Sept. 8.

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The state flag of Illinois flying on a clear day.

Adult-Use Bills Introduced in Illinois

3/23/2017

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Democratic lawmakers in Illinois have introduced legislation to legalize adult cannabis use, which would set up a taxed and regulated system. The measure (SB.316) is sponsored in the Senate by Appropriations Committee Chairwoman Heather Steans and in the House by Rep. Kelly Cassidy.

In a press release, Cassidy indicated that wholesale sales would be taxed $50 per-ounce under the proposal and there would be a 6.25 percent sales tax levied at the point of sale. The Marijuana Policy Project estimates that the revenues derived from the legal cannabis industry could generate between $349 million and $699 million annually for the state.

“Marijuana prohibition is a quagmire that creates far more problems than it prevents,” Cassidy said in a statement. “Several states have adopted sensible alternatives to prohibition, and it is time for Illinois to develop its own exit strategy. Regulating marijuana and removing the criminal element from marijuana production and sales will make our communities safer.”

Steans called cannabis prohibition “a financial hole in the ground” that the state “should stop throwing taxpayer dollars into.”

“Right now, all the money being spent on marijuana is going into the pockets of criminals and cartels,” she said. “In a regulated system, the money would go into the cash registers of licensed, taxpaying businesses. It would generate hundreds of millions of dollars per year in new revenue for our state.”

The House version has been assigned to the Appropriations-Public Safety Committee, which Cassidy chairs. It must pass through that committee before moving to the floor for a full vote.

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Skyscrapers in downtown Los Angeles, California.

Los Angeles Creates Cannabis Licensing Commission

3/23/2017

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The City Council of Los Angeles, California has approved the creation of a Cannabis Licensing Commission which will be tasked with regulating the city’s legal adult-use cannabis industry, according to an LAist report. The approval comes after voters passed Measure M during the primary election earlier this month which gives the city the power to establish regulations for the medical and recreational cannabis markets.

The five-member commission will be comprised of Los Angeles residents, two appointed by the City Council and three by the mayor – one of which must be an elected neighborhood council member. No member is allowed to have been a registered lobbyist with the city for any cannabis-related activities in the year preceding the appointment.

According to the report, yesterday’s vote directs the City Attorney to draft an ordinance outlining the committee’s creation, which will need to be approved by the City Council.

“We’re really pleased that they’ve created the commission,” Sarah Armstrong, director of industry affairs for Americans for Safe Access, said in the report. “I think it will work better for the city to have this distinct commission, rather than tasking already overburdened agencies with a huge new program.”

The voter-approved initiative passed last November takes effect Jan. 1, 2018.      

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Detroit skyline with the MacArthur bridge leading to Belle Isle and Detroit Boat Club in the foreground. Photo taken from Belle Isle fishing pier.

Mich. Advocates Release Adult-Use Draft Proposal for 2018

3/23/2017

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The Michigan Coalition to Regulate Marijuana Like Alcohol has released the latest draft of the cannabis legalization initiative the group hopes to put to voters in November 2018. The proposal would legalize cannabis possession and use for adults 21 and older, impose wholesale and sales taxes, and provides people convicted of a non-violent cannabis crime a path to clear their criminal record.

Under the measure, adults would be allowed to possess 2.5 ounces of cannabis and 15 grams of concentrates and grow up to 12 plants in a residence for personal use. Individuals with criminal convictions would be able to petition for redesignation or expungement of their violation as if the new law were on the books at the time of the sentencing.

The proposal provides licenses for retailers, testing facilities, transporters, processors, and microbusinesses, along with licenses for three cultivation classes. Class A licenses would authorize cultivation of up to 100 plants; class B would allow up to 500 plants, and class C would authorize up to 2,000 plants. Growers would be taxed $20 per dry-weight ounce of flower and $6.75 per dry-weight ounce of leaves. Municipalities would be allowed to limit or ban any or all cannabis business operations.

The law would create a Marihuana Regulation Fund in the state Treasury for taxes and fees derived from the legal industry which would be used for implementation, administration, and enforcement of the law until 2020 – then at least $20 million from the fund would be provided to Food and Drug Administration-approved clinical trials aimed at researching the efficacy of cannabis in treating medical conditions of U.S. Armed Services veterans. Following all appropriations, any excess funds would be distributed to municipalities and counties hosting cannabis establishments and to community colleges.

Last year, the ballot initiative to legalize adult cannabis use in Michigan was defeated by the Board of State Canvassers who ruled 137,000 signatures were over 180 days old, “stale,” causing the ballot drive to fall 106,000 signatures short.

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A cup of cannabis nugs is on display in the Chalice Farms dispensary in Portland, Oregon.

Taxes for Cannabis Businesses: Strategies for Mitigating Section 280E

3/23/2017

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Editor’s note: This is the second installment of a three-part series about cannabis taxes and the tax hurdles faced by marijuana business owners. This article contains hypotheses that haven’t yet been proven by case law; we highly recommend consulting your accountant before adapting any of these theoretical strategies.

If you haven’t yet, check out Part 1 before reading further. Stay tuned for Part 3, coming next week!

In the first part of this series, I introduced Section 280E and various Tax Court Cases that have left the door open for mitigating your tax liability as a cannabis business owner.

One way to alleviate federal taxation is through cost of goods sold (COGS). According to the Tax Court:

“Taxpayer trafficking in controlled substance determines COGS by using applicable inventory-costing regulations under Code Section 471 as they existed when Section 280E was enacted. And IRS Examination or Appeals may change to inventory method for that controlled substance when the taxpayer currently deducts otherwise inventoriable costs from gross income.”

What that means is that instead of using the favorable way to calculate COGS in Section 471, we must go back to 1982, when Section 280E was enacted. Van Pickerill & Sons Inc. v. United States stated that when the use of inventories is necessary to determine the income of a taxpayer, the taxpayer must use the best accounting practice to determine the amount of income (Section 471(a)).

Photo Credit: Carlos Gracia

Despite the use of the word “best,” multiple accounting methods may satisfy the best accounting practice requirement for any given business. The court and the IRS are caught between what is legal under state law, when the exact same thing is illegal under federal law.

In Jason R. Beck v. Commissioner, the Tax Court ruled that although the COGS were deductible to marijuana businesses, the cost of marijuana seized by federal authorities could not go into the calculation of COGS. Even though marijuana is legal in a state, federal government law enforcement agencies can raid legal state marijuana facilities, and, in the Beck case, the court said these amounts are not deductible.

Right now, many CPAs and EAs are loathe to sign a tax return that respects a non-trafficking trade or business. There was a famous paper written for accountants which concluded that the tax law makes it difficult to establish a second trade or business and therefore creates a challenge in treating that business as non-trafficking for purposes of IRC § 280E.

Appearing to follow the Tax Court’s lead in Olive, the paper used a multi-factor analysis from the Trupp case applying the rules of IRC § 183 (relating to hobby losses) to the question. The paper did not, however, consider accounting method cases under IRC § 446, which also address the issue and are likely in some instances to be more favorable to the taxpayer.

Added to that is the misinformation spread a few years ago that people like me, when helping those in the cannabis industry, are in danger of losing their license for aiding and abetting a drug dealer.

Common Section 280 strategies

As I mentioned in my first article, the first approach derived from Californians Helping to Alleviate Medical Problems, Inc. (CHAMP) v. Commissioner. In this Tax Court Case, the California-based marijuana dispensary provided marijuana to its patients, but also provided non-cannabis services, including counseling and caregiving services for its patients. This allowed the company to fully deduct the expenses associated with those practices.

A common and basic strategy for a dispensary is to offer another service alongside its dispensary. You then allocate expenses between the dispensary and the other activity.  However, what was learned in the Olive v. Commissioner case is that you simply cannot throw two things together and say that they are separate businesses under one roof.

I have heard of a strategy whereby a dispensary would sell cannabis and also sell hats and t-shirts. The allocation of the expenses were 80 percent t-shirts and hats, to 20 percent dispensary. But, unlike that sort of arrangement, you need a business that compliments a dispensary. For instance, medical cannabis and caregiving go together. Recreational marijuana and food go together. Then you have to make sure you are not allocating so much more on the non-cannabis side of the business that it ceases to make sense — then the question would arise: why do you have a dispensary at all?

Photo Credit: Phil Roeder

Another way to look at it

Before going further, I want to mention that this idea does need some work and should not be considered bulletproof.

If you are in the medical cannabis industry, why not charge a monthly fee for caregiving services commensurate with the patient’s diagnosis? You could offer different packages like Silver, Gold, and Platinum. If the patient is prescribed a potent and more expensive strain of cannabis, you simply charge them more for the caregiving. The cannabis you just give away alongside the caregiving services.

Before you think that I’ve lost my mind, stay with me. You are providing caregiving services as a way to deduct your business expenses. What does the patient want most of the time? They just want the cannabis. So, you enter into a contract with the patient that says you will provide these caregiving services, charge them a fee, and give them the cannabis for no charge.

Will the patients take part in the caregiving services? Some will, but for this to work, you would have to make a requirement that the patient attend so many appointments to get their cannabis. They can simply do a certain thing every month when they come to pick up their supply and that would fulfill the contract.

What do you need to employ this method? A good accountant that understands the strategy, an attorney that can write the caregiving contracts, and an attorney/accountant team that can offer ongoing consulting services.

If we go back to the successful CHAMP Tax Court Case, this was their basic concept, but I tweaked it a little bit. They were charging for both the cannabis and the caregiving expenses. You are charging more for caregiving expenses than what would cover the price of the cannabis, but you are effectively giving away the cannabis. Conceivably, you are no longer stymied by Section 280E because you aren’t selling an illegal Schedule I drug; you are selling caregiving expenses and just giving away the cannabis.

You would still have to have a license as a dispensary. That wouldn’t change. However, depending on how your state has written the cannabis laws, this strategy may get you out of the oppressive state taxes on cannabis. Remember that you aren’t selling it. You are offering a caregiving service that may or may not include free cannabis.

NOTE: there is NO case law that supports this. This is simply one person looking at caregiving, cannabis, and other therapies from a holistic medicine approach.

Will you be audited?

Any strategy you employ to avoid Section 280E will open you up to scrutiny by the IRS. You need good professional help in employing the strategies listed in this article.

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A prison chain-link fence.

Harsh Sentencing Laws in Ala. Imprisoning Non-Violent Offenders for Life

3/23/2017

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According to figures from the Alabama Sentencing Commission, as of Oct. 17, 2016 more than 80 percent of the state’s 220 prisoners convicted of first-degree cannabis possession – defined as more than 1 kilo or 2.2 pounds – are black. That figure is wholly disproportionate to the state’s population, which according to U.S. Census Bureau data from July 2015 is 27 percent black and 69.5 percent is white.

In Alabama, harsh sentencing laws for repeat offenders and drug traffickers lead to life sentences, according to a report from AL.com. Richard Bolden was convicted in February 2015 of trafficking cannabis after police found him in possession of 2.4 pounds of cannabis – slightly above the state’s kilo threshold and cause for the trafficking charge. Although prosecutors could not prove he actually sold the drug, he was sentenced to life, despite the fact his criminal record contained no violence. Without that extra weight, Bolden would have been sentenced to 10 years.

“All over the United States they are legalizing the use of marijuana while here in Alabama people are being convicted to life sentences,” Bolden wrote in a 2016, jailhouse letter to AL.com. “My charge should have been reduced to possession but because the prosecutor knew he could give me a life sentence because of my one prior [Class A] conviction out of the state of Florida he pursued my case viciously.”

According to the report, police built a case based on “constructive possession” – meaning drugs were found in his home and deemed to be his – but Bolden maintains that the search was conducted illegally. In 2015, Alabama Criminal Court of Appeals Judge J. Elizabeth Kellum denied his appeal that the search was improper. Her colleague Judge Samuel Henry Welch dissented in the opinion, concluding that “the warrant was so lacking in probable cause ‘as to [as] render official belief in its existence entirely unreasonable.’”

“[T]he affidavit overwhelmingly presents only [Dothan Police] Officer Mock’s pure speculation that illegal drugs were probably in the trailer on Eddins Road at the time the warrant was issued,” Welch wrote in his opinion.

Alabama Supreme Court Justice Roy Moore – who is currently serving a suspension for telling probate judges to defy federal gay marriage orders – has also spoken out against the state’s sentencing laws, urging the legislature “to revisit that statutory sentencing scheme to determine whether it serves an appropriate purpose.”

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The advent of the legalized cannabis industry has driven up industrial real estate prices.

Cannabis Industry in Sonoma County, Calif. Boon for Industrial Properties

3/22/2017

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The industrial real estate market in Sonoma County, California is in a boom period thanks, in part, to the legal cannabis industry, according to a North Bay Business Journal report. Prices of industrial properties used for cannabis rose from full asking price or more in 2016, reaching 20 to 25 percent premiums above non-cannabis buildings; and that premium has risen to 50 percent so far this year.

One of the more notable transactions last year – and the largest – involved a 150,000-square-foot six-building deal to CannaCraft for nearly three times the previous price less than a year prior.

At year-end in 2016, the vacancy rate in the market was 5.8 percent which was unchanged from year-end 2015 figures; however the rate fell to 5 percent in the third-quarter of the year – representing a stable market.

Although most building owners have loans secured through a federally insured bank, the deals still come with a considerable amount of risk as cannabis remains a Schedule 1 narcotic under federal law – and the feds could seize the property if they decide to enforce those laws.

According to the report, Sonoma County is considering a proposal to move the cannabis industry indoors and away from rural-residential zones, which would only increase the demand for industrial properties located in cannabis-approved zones.

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The purple glow of LED lights inside of a licensed Washington cannabis cultivation site.

Steep Hill Announces Partnership with iCAN Israel, Plans R&D Lab

3/22/2017

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Steep Hill Labs will bring its talents to Israel, announcing that the company has entered into a joint venture with iCAN: Israel-Cannabis. The partnership will see Steep Hill open an analytical, genetic, and research and development lab in Israel to further cannabis research.

“We believe that Israel is the epicenter of cannabis research and development,” Steep Hill CEO Jmichaele Keller said in a press release. “We look forward to its role in leading the evolution of medical cannabis worldwide.”

The announcement was made at Israel’s medical cannabis conference CannaTech, during which Steep Hill also announced their Xcerpa technology that allows long-term storage of cannabis DNA. The technology “impregnates” a card with a cannabis DNA sample that allows it to be legally transported globally. The technology will allow researchers in both the U.S. and Israel to access and research the genetic information contained on the cards.

“We’re doing more research in Israel than anywhere else. We have destigmatized cannabis and we have a medical approach to cannabis,” Saul Kayem co-founder of iCAN said during his remarks at the conference. “We’re seeing medicalization and we’re seeing reform happening quicker than anywhere else. It might take two years, it might take five years, but it will happen.”

Steep Hill opened the first commercial cannabis lab in the U.S. in 2008 and was named by Wealth Daily as one of the top 5 legal cannabis companies to watch this year.

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The State Capitol Building of Ohio in Columbus, Ohio.

Ohio Proposes Regulating Medical Cannabis by THC Weight

3/22/2017

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Most medical cannabis states dispense their cannabis flower and extracts according to total weight in each transaction. Edibles and topicals often have THC content listed, but like flowers and extracts, supplies are based on total weight or volume. Ohio, who recently passed a full plant medical cannabis bill via the legislative process, is proposing to dispense all cannabis products using a THC weight approach, in which they set a maximum amount of THC allowed over a 90-day period.

In a fact sheet released by the Ohio Department of Pharmacy, the agency seeks to clarify the definition of a 90-day supply of various forms of medical cannabis by proposing to regulate THC across delivery methods, similar to Morphine. Using 30 studies and 90-day supply limits from other states as reviewed by an expert panel, regulators set the 90-day supply of THC at 45 grams — that’s 45 grams of THC, not flower, for a patient’s entire regiment of flower, oils, edibles, and topicals.

Under the rules, plant material is divided into two tiers. Tier one cannabis flower ranges from 0-23% THC content and patients would be allowed to purchase up to 6 ounces of it every 90 days. Those seeking tier two cannabis, with a THC content of 23.1-35%, are allowed up to four ounces per 90-day time period. Citing flower and oil bioavailability ratios as 1 to 1, extracts would be dispensed within the same 45-gram threshold. Due to their greater bioavailability, officials set the limit for edible THC at 9 grams and topicals at 19.8 grams.

Dr. Jahan Marcu, Chief Science Officer for Americans for Safe Access, is not so sure about the new system. “The two-tier system appears to be using faulty lab results,” Dr. Marcu said.

Naturally, this is an immediate red flag. “Most cannabis doesn’t test much higher than 25%, so putting an entire tier from 23.1% to 35% is suspect,” Dr. Marcu said. “In order for the system to work, Ohio must use valid lab results — which is not an easy task when testing cannabis. We’ll have to wait and see if this works since it’s not been tried before.”

“It’s hard to regulate a Schedule 1 narcotic like cannabis similar to a Schedule 2 narcotic like Morphine,” concluded Dr. Marcu. “We’d welcome Ohio into the effort to reschedule cannabis.”

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