A couple of days ago, The New York Times quoted one of our cannabis business lawyers, Hilary Bricken, in an article entitled, Providers of Medical Marijuana Face New Fears. The article was on Washington State’s efforts to greatly restrict (perhaps even kill) the medical marijuana collective garden system in favor of a recreational marijuana only regime and Hilary was quoted on that issue:
A medical marijuana user will certainly be able to enter a shop and buy marijuana once the new stores are open in June, but the old system of medical advice and supply, however flawed or beloved, is over, say both critics and supporters of the new rules.
“Prepare for the end,” said Hilary Bricken, a lawyer in Seattle who works mostly with the marijuana industry, summarizing the advice she is giving her medical marijuana dispensary clients.
Washington State’s struggles — and the inevitable comparison with Colorado’s different, smoother path toward retail marijuana — are being watched around the nation, Ms. Bricken and other legal experts said.
A number of media outlets have misinterpreted Hilary’s New York Times quote to mean that small artisinal marijuana businesses are being crushed and will never be able to survive in the face of “Big Cannabis.” Hilary never said that and neither she nor any of our other marijuana business lawyers believe that.
Hilary’s “prepare for the end” advice was directed at medical marijuana collective-garden-based dispensaries in Washington State only. That advice makes sense for Washington State because the politicians (with a lot of prodding from the Federal Government) have consistently made clear that the existing medical marijuana system is untenable and must eventually be submerged into the overarching recreational cannabis system. So in other words, if you do not soon get a recreational cannabis license to allow your cannabis business to operate legally in Washington State, there will eventually come a time when the government will shut you down. That is “the end” to which Hilary was referring. Hilary was voicing no opinion whatsoever regarding the future of the “little guy” in marijuana.
But that is not how other publications are seeing it:
- The Wire/Yahoo News did an article, entitled, Will Big Marijuana Crowd Out the Little Guy? using Hilary’s “end” quote to support the claim the following claim: “As more states move to legalize marijuana and seek tax and other economic benefits from the drug, small-scale artisanal marijuana growers are being squeezed out. Welcome to the days of Big Marijuana.”
Nothing could be further from the truth.
To clarify, there is a difference between medical and artisanal and there is a difference between what is happening to MMJ in Washington State and what is happening in the various other cannabis regimes around the country. And though we do believe the future for medical marijuana collective garden dispensaries (only) is grim in Washington State, we strongly believe that the future for artisinal cannabis businesses is incredibly strong in most states in which marijuana is legal and will be legal.
In addition to representing cannabis businesses, we also represent artisinal alcohol producers and we see the marijuana industry as eventually going the way of the beer and wine and spirits industry, where there will be a handful of really huge players on the one hand and a ton of smaller (mostly regional) players on the other hand. We (including Hilary) are incredibly optimistic about our clients’ futures, both our large clients and our small clients, other than those of our clients in the medical cannabis industry in Washington State who are not also in line for a recreational marijuana license.
In other words, we see a very bright future for all sizes of cannabis businesses.
How do you see our industry developing?
This just in. The California Democrat party just unanimously approved adding marijuana legalization to its party platform.
We have been saying/hearing (both from our own California licensed attorneys and from others) that we should not be expecting legalization until 2016, but in light of this recent democratic push, we are moving up that timetable and predicting that California will be full-on legal for recreational marijuana (a/k/a adult use cannabis) by late 2015.
The California fast track cannabis legalization push has begun.
In my home state of Iowa, voices of medical cannabis advocates have grown in recent months from mere whispers to outspoken support. In December, the Quad City Times ran a piece on the Faces of Medical Marijuana in Iowa, which received a lot of interest. A bill introduced in the Iowa Senate was killed the same day it was introduced back in February, but efforts have continued this week to educate lawmakers and to create awareness about the benefits of MMJ for the seriously ill. On Wednesday, the Iowa Senate’s Commerce and Ways and Means Committees heard from patients and their families (as well as from a neurosurgeon and a pharmacist), on the ways in which MMJ can give them a better life. Still, there is little promise that anything will come of these hearings in the current legislative session, the Iowa City Press-Citizen reports. Instead, the legislature is occupying itself with legislation on fireworks and ATVs. Way to go, guys.
As far back as 2010, 64% of Iowans supported legalizing marijuana for medical purposes, according to the Press-Citizen. But the balance of power in Des Moines (Democratic Senate, Republican House and Governor) could continue to be a significant roadblock to legalization proponents. Law enforcement’s stance is unknown, but horror stories of prosecuting patients (like this one) still occur. Governor Terry Branstad’s stance against legalization is no secret (read also here). Though Branstad’s office purports to be putting out the truth about legalization, it is worth noting that many of his stated health concerns have to do with smoking marijuana, as opposed to other forms of use. Branstad also frames many of his objections around chronic use by minors, which, with exceptions for the chronically ill, no one is advocating for. Particularly insulting are the Governor’s assertions that the legalization movement resembles Big Tobacco, and that outdoor grows will create environmental hazards (as many Iowans know, Branstad has never been particularly concerned about the environment).
If the tide is going to turn in Iowa, voters, patients, and doctors will need to speak louder and increase the pressure on their legislators. The Republican advantage in the House is narrow, and many editorial boards are getting behind legalization (read here, here, and here). The Des Moines Register reports today that this week’s hearings have really piqued interest among lawmakers, and may be finally opening some minds, if even just a crack.
This is the second post in our ongoing series of Saturday posts featuring great quotes regarding cannabis, mostly from public figures.
This one is from televangelist and prepetual nutcase Pat Robertson, the point of which is not to show that even a broken clock is accurate twice a day (once if digital) but to arm our readers with a quote that they can use with a particular crowd. This comes from a 2012 New York Times interview:
I really believe we should treat marijuana the way we treat beverage alcohol. I’ve never used marijuana and I don’t intend to, but it’s just one of those things that I think: this war on drugs just hasn’t succeeded.
We are going to find out over the next couple of years whether businesses that studiously follow state and federal tax rules can survive and thrive as real businesses. We have blogged before about I.R.C. 280E, and how challenging it makes operating a marijuana business. We can talk your ear off about how difficult the taxes are to comply with in theory, but in this post I am going to dive into the numbers to actually show how burdensome the current state and federal tax systems can be.
Imagine that you are a retail cannabis operator in Washington State, and you buy a packaged gram of marijuana at wholesale for $5.00, including the 25% excise tax at that level (which is a price that the producers/processors will not be thrilled to accept.) You turn around and sell it for $10.00, plus the 25% excise tax, making a total of $12.50. Of that $12.50, you keep $5.00. Well, you do not actually keep it, as that $5.00 is needed to pay your rent, your electric bill, your employees, your accountant, your lawyer, your security company, etc. The real kicker, though, is that your federal tax is not based on the $5.00 you actually received, minus your costs. It isn’t even based on a total of $5.00. The IRS will claim that your income after cost of goods sold was $7.50, as they will include the excise tax as part of your income, and they will not let you deduct even that! The IRS will treat the money that you received only to hand off to state tax authorities as taxable income.
So, going back to our example, if your average tax rate is 30% and the taxable income is $7.50, we are looking at an additional tax expense of $2.25 taken from your $5.00. This means that you will be left with only $2.75 out of every $12.50 (not including sales tax) that the customer gives you. In other words, from every $12.50 sale that you make, you will have only $2.75 left over to pay all of your expenses. Obviously very little to nothing at all is left over as profit.
So, what do you do? You jack up the prices. $10.00 per gram is yesterday’s news; let’s make the new price $15.00 or $22.00 per gram. Every time retailers crank that lever, however, the black market thrives. As cities and counties pass pro-black market bans on legal marijuana businesses — some of them downright hypocritical — illegal competitors will remain entrenched. If cannabis businesses do not get tax relief from either the state or federal government while this market develops, we may find that we do not have a legal market for very long.
With marijuana legalization (rightly) sweeping the nation, it has become too easy to think that nationwide legalization is both inevitable and imminent. But it’s not.
There are still plenty of states (Alabama, Maryland, Texas, New Hampshire, Connecticut, Indiana, and Missouri come first to mind) sticking to the same Just Say No attitude that has failed the Federal government in its war on pot. Why are these states stuck stuck in a time warp that makes them so reluctant to engage in some type of marijuana law reform? Their answers are just as bad as the Feds.
The governors of Maryland and New Hampshire allege that high rates of abuse have made them think twice about recreational legalization. The addiction statistics are of very little value right now until we have an opportunity to see what happens when pathbreaking states like Washington and Colorado proceed in their recreational programs. But on the flip side, we do have hard numbers of people incarcerated (especially of people of color) from the criminalization of marijuana and we also have hard numbers setting out the exorbitant amount of money the US spends on marijuana prohibition.
Alabama’s Governor Robert Bentley is against any type of legal reform involving either recreational or medical marijuana and at the National Governors Association meeting last week in Washington, D.C., the governors of Texas, Connecticut, Indiana, and Missouri all stated on CNN’s State of the Union broadcast that they have no interest in legalizing pot for adult use in their states.
So, if you’re in one of these seven deadly states, you can at least take heart from the fact that twenty states and Washington D.C. have fairly liberal marijuana laws on their books and many more are leaning towards full blown legalization (with Alaska and Oregon both expected to go that way this year). There is going to have to be a tipping point at which Congress will have to begin a real dialogue over federal legalization and that alone could change things in these short-sighted states.
There is a shelf-life on the failed war on drugs in all states and the sand is running down in the hourglass even in these seven deadly states.
This morning, the Washington State Liquor Control Board will be issuing its first licenses for marijuana production and processing under its new recreational marijuana regime. One of those license applicants is from Spokane, which is ironic given the city’s previously unfriendly attitude towards marijuana. And, as KXLY out of Spokane reports, LCB Member Chris Marr has confirmed that ten applicants are in the final inspection stage of the marijuana licensing process.
Marr told the media that, in the final inspection stage, potential growers have an investigator from the LCB walk through the facility to make sure it complies with I-502 guidelines (applicants must request these inspections). The applicants must show that the surveillance on their cannabis plants is operational and they must also show that they are sticking to the plans they submitted when they applied for a license last year.
Once the license is awarded, Marr says the grower can start moving plants into the facility to start providing product for the state’s marijuana market. The LCB says that its licensing grants will be staggered to help with supply and also because there are so many inspections to do.
Despite this progress on the production side of things, Washington has still not held a single lottery to determine who will be licensed to sell marijuana to the public for recreational use. KXLY reports that these lotteries are set to begin in mid-April.
If you want to catch a glimpse of one of Washington State’s first recreational marijuana licensees, be sure to tune in to watch the LCB’s monthly meeting at 10 a.m. (PST) today.
It’s prime time in Oregon for entrepreneurs who want a shot at getting a state medical marijuana license. It is, however, important to remember is that the rules set out by the Oregon Health Authority (OHA) are temporary. Regulatory rules are never final and are always changing, so be prepared to roll with the state’s punches. Our cannabis lawyers can tell you horror stories in other states involving ever changing rules. If possible, avoid spending money on something that may prove unnecessary a few weeks later due to a rule change.
It is also important that you know the details of Oregon’s marijuana program if you are going to be seeking a license and then operating under that program. Here are the key provisions:
- Only Oregon residents may apply for a license (but there’s no time limit on that residency requirement).
- No person convicted of having manufactured or delivered a Schedule I or Schedule II substance in the past five years will be allowed to register a dispensary. Persons with more than one conviction for manufacturing or delivering are permanently banned from operating dispensaries.
- Applicants will undergo a criminal background check and be fingerprinted.
- Applicants must have a registered business with the Oregon Secretary of State (or must have a business application pending); applications for a dispensary as an individual person will not be accepted.
- No dispensary may open or operate within 1,000 feet of a primary or secondary school.
- No dispensary may open or operate within 1,000 feet of another dispensary. Applications for competing locations will be processed on a first-come, first-served basis.
- Distance measurements from schools and other dispensaries are “as the crow flies.”
- All medical marijuana distributed through dispensaries must be tested for pesticides, mold and mildew, and may not be distributed if contaminants are found.
- There must be a strong security system in place.
- Applicants must submit a floor plan of the facility that has marked and labeled all points of entry to the facility, all secured areas, and the proposed placement of all video cameras.
- All product brought into and dispensed from the facility must be tracked and traced.
- A dispensary may not be located in the same place as a registered grow.
- Applicants must submit documentation that their proposed facility complies with current zoning restrictions.
- The OHA will visit and inspect each dispensary and audit its financial records at least once a year.
Fees. The initial application fee is $500 and it is non-refundable. The initial registration fee (once approved for the license) is $3,500.
Local government control. OHA’s website on marijuana dispensary applications makes clear that it has no authority over local government decisions to implement their own marijuana regulations. This means that even if you obtain a state license to operate, your city or your county can stop you from opening your dispensary based on their own restrictions. In fact, the Oregon senate and house are looking at different amendments to SB 1531 and whichever ends up passing will determine whether cities and counties can ban medical marijuana dispensaries or just regulate them. This is the sort of uncertainty we were talking about above.
Schools. Oregon’s revised marijuana laws prohibit marijuana businesses from locating within 1,000 feet of schools. The state was helpful enough to actually provide applicants with a school tracker map, but it also made clear that its map may not include all schools in the state. This means that you will need to make sure on your own that your proposed location actually complies with the footage requirements and we recommend that you do so before you spend money on your space.
For profit? ORS 475.314 mandates that “a medical marijuana facility may reimburse a person responsible for a marijuana grow site under this section for the normal and customary costs of doing business, including costs related to transferring, handling, securing, insuring, testing, packaging and processing usable marijuana and immature marijuana plants and the cost of supplies, utilities and rent or mortgage.” It is not at all clear that reimbursement includes a sales price or surplus costs. This ambiguity in the law means that it is not clear that entrepreneurs will be allowed to compensate each other for services rendered and that cannabis businesses will be able to operate as for profit entities in Oregon.
At 8:30 a.m. today, Oregon entrepreneurs were finally able to apply online with the Oregon Health Authority for a license to run a dispensary or grow facility under House Bill 3460. Similar to other strict marijuana regimes, marijuana businesses in Oregon will now face footage requirements from sensitive uses and from each other, business registration requirements with the State, residency requirements, and other regulatory mandates relating to security and traceability. Specifically, applicants will need to submit a security plan and an inventory control system plan to the Health Authority to be eligible for a license. Having worked with hundreds of cannabis businesses in states outside of Oregon on such plans, we can tell you that they can be very complicated.
Right now Oregon is estimated to have around two hundred dispensaries operating the states old marijuana regime and it is expected that most of these dispensaries will be registering with the state under its new regime. Oregon’s Health Authority has two employees assigned to process applications, which will be handled on a first-come, first-served basis. There is no firm deadline on how long it will take the state to process these applications. Two state inspectors have been assigned to visit each of the dispensaries within the first six months after they are registered.
Despite Oregon’s efforts to clean up its marijuana program, just like in Washington (and elsewhere), entrepreneurs are sure to face at least two major hurdles during the licensing process: 1. locating themselves in state-compliant areas (away from schools, etc.) and 2. wading through local law regulations.
It is up to applicants to ensure that they are not located near a school. Having done this drill in Washington with many of our clients, we suggest that you retain a qualified surveyor to ensure that your proposed location is not next to any schools. Oregon has its own school tracker map, but it has made clear that not every school is on it. The state has also made clear that if a school opens up within 1,000 feet of a dispensary after that dispensary has already started operating, the dispensary is the one that has to move.
Even if you do find that sweet spot not near any schools, some cities and counties in Oregon still are refusing to allow marijuana in their jurisdictions and are doing all they can to keep their bans in place. This is why you should also be sure to check in with your city or county council to ensure that your proposed dispensary will be in a location where you can actually open your doors once you get the dispensary license. Oregon state law also limits marijuana facilities to areas zoned commercial, industrial, mixed use or agricultural, so do not even try to locate your dispensary in a residential or a commercial zone unless you want to waste time and money.
Based on our licensing experience in other states, we also feel compelled to warn you to expect multiple rule changes from both Health Authority and your local cities and counties as medical cannabis licensing in Oregon progresses.
It’s now official. On August 19, Alaska voters will be voting on whether to legalize recreational marijuana in that state. The Washington Post reports the following on this upcoming initiative:
As in Colorado and Washington state — where the substance was legalized as of the start of the year — the Alaska measure would allow adults 21 and older to own, smoke and buy the drug while also allowing individuals to grow up to six marijuana plants.
It would be regulated by the Alcoholic Beverage Control Board or a newly created Marijuana Control Board. Unlike the Washington and Colorado policies, Alaska’s would tax pot at a flat $50 an ounce rather than using a percentage of the cost. It would be paid by the cultivator of the plant. The state estimates it will cost between $3.7 and $7 million to implement in the first year.
Alaskan voters approved marijuana for medical use in 1998 in a 59 percent to 41 percent vote. But a similar initiative to approve the substance for recreational use two years later failed by the exact same margin.
Though Alaska typically votes Republican, its Republicans tend to have a libertarian streak and it is widely believed that Alaska will get the votes this time around, making it the third state (Washington and Colorado being the first two) with legalized recreational cannabis. Oregon (which just today started a dispensary registration system for medical marijuana) is expected to legalize recreational marijuana via a November initiative.
Our cannabis lawyers are already working with a number of companies that have plans for marketing their branded products in all three Pacific Northwest States, once legalization is complete and we will be posting tomorrow on how that can be legally accomplished.