Canna Law Blog ™

Canna Law Blog

LEGAL SUPPORT FOR THE CANNABIS BUSINESS COMMUNITY SINCE 2010

Los Angeles Marijuana Seminar, October 3

Posted in Business Basics, California, Events, Federal law and policy, Intellectual Property/Branding, Legal Issues, Licensing, Medical Cannabis, Recreational Marijuana

Four of our firm’s lawyers (three of whom are California licensed) will be speaking at a seminar in Los Angeles on Friday, October 3, on medical and recreational marijuana in California. Hilary Bricken will be chairing the seminar and speaking on cannabis real estate law, Robert McVay will be speaking on the banking and financial issues impacting California cannabis businesses and California banks, credit unions and other financial institutions, and Gregory Buhyoff will be speaking on the intellectual property and trade secret issues that come with California marijuana, and Alison Malsbury will be speaking on “the future of recreational use in California (from a legal perspective).

The seminar will also feature the following:

  • Dale Gieringer, Ph.d, from California NORML and Amanda Reiman, Ph.d, from the Drug Policy Alliance, providing an “Update of Cannabis Laws in California
  • Alex Kreit, from the Center for Law and Social Justice at Thomas Jefferson School of Law, providing a “Local Perspective of Legalized Cannabis.
  • Howard C. Samuels, PsyD, from The Hills Treatment Center, discussing substance abuse.
  • Michael Chernis from Abner Chernis LLC and David Hunter from the California State Board of Equalization, discussing “Taxes and the Treatment of Cannabis Income.
  • Senator Lou Correa, California State Senate District 34, providing “Views of Legalized Cannabis from the State Legislature.”
We are looking forward to seeing you there.

Marijuana Political Donations: A Fine Line Between Love and Hate

Posted in Federal law and policy, General, Recreational Marijuana

A marijuana lobby or super PAC? Unheard of. Until now – thanks in large part to regulation of marijuana businesses.

The legalization of marijuana is doing more than just creating new business opportunities, it is providing marijuana businesses with the need to project a strong and clear voice to lawmakers and state and federal representatives across the nation. At an increasing rate, marijuana businesses are giving (somewhat large) political donations to those in authority and, for the first time, at least openly, those in power are taking the hand-out.

These monetary connections bring up all sorts of issues.

First, if lawmakers and representatives take these funds, are they taking the “drug money” they’ve long loathed and publicly disparaged? Second, if lawmakers and representatives are taking these funds, does this not validate the arguments of the “anti” crowd? Does this not prove that corporate America has infiltrated the marijuana industry and turned it into the next Big Pharma or Big Tobacco.

The broad answer is that marijuana businesses are not hesitating to contribute to political campaigns and to candidates friendly to marijuana and its legalization. And as we all know, power comes from political funding

The Denver Post recently wrote about how marijuana groups have no problems with political fundraising:

The Oregon ballot measure has raised about $2.3 million. A medical-marijuana question in Florida has attracted nearly $6 million. And the Alaska campaign has brought in about $850,000 … Colorado’s congressional delegation alone has received some $20,000 this year from the marijuana industry, according to federal campaign-finance data. The true figure is probably much higher because many donors do not mention the drug in campaign-finance disclosures. The largest federal spender on marijuana advocacy is the Marijuana Policy Project, which plans to donate $150,000 to federal candidates this year, up from $110,000 in 2013.

Though the marijuana industry has made significant political strides, some lawmakers are still hesitant to admit to taking money from marijuana groups and some states prohibit marijuana businesses from financially contributing to political campaigns. For example, Illinois explicitly prohibits such activity. Does this not violate the First Amendment?

Political hypocrisy and antiquated freedom squelching laws aside, the political influence of the marijuana industry is growing — no pun intended.

Seattle’s Second Marijuana Retailer, Uncle Ike’s, to Open Today

Posted in Business Basics, Events, Intellectual Property/Branding

Seattle’s second State-licensed retail marijuana storefront — our client, Uncle Ike’s – is officially opening for business today in Capitol Hill at 23rd and Union. With only one State-licensed marijuana retail storefront previously open (and sporadically operating) in the city, Uncle Ike’s is sure to be a welcome relief for product distribution. In addition to the storefront, Uncle Ike’s also maintains a “glass and goods” shop right next door that is also open for business as of today.

High Above Seattle had some very positive things to say about Uncle Ike’s branding and style:

Speaking of Ian Eisenberg and his portfolio of success, how about the opening of not just Uncle Ike’s Pot Shop, but the grand opening of Uncle Ike’s Glass and Goods as well? In a building on the same lot, close to the pot shop, will be store which sells marijuana paraphernalia such as pipes, bongs, and vaporizers. We think this is a brilliant business move! While it’s against WSLCB regulation to openly advertise that you are a recreational marijuana retail store on your storefront, why not advertise on your second store that you are a “glass shop.” Any customers who drive by and stop to purchase pot paraphernalia will be tickled to find out that they can purchase cannabis just next door.

Washington’s recreational marijuana program is slowly but steadily rolling out and Uncle Ike’s is a company that gets it. As we’ve blogged about over and over (and over), locking down and securing your branding is one of the keys to building and securing your business, your products, and your reputation.

Kudos to Uncle Ike’s!

 

Oregon Municipalities Seek to Tax Recreational Marijuana, But Can They?

Posted in Legal Issues, Oregon, Recreational Marijuana

Oregonians will vote this fall on whether to legalize marijuana for adult/recreational use through Initiative 91. Oregon cities are already preparing themselves by implementing local ordinances addressing the siting and zoning of recreational marijuana businesses. Though to a certain extent Oregon cities being proactive about recreational marijuana regulations is a positive thing, many Oregon cities are turning the heads of marijuana entrepreneurs with their local marijuana ordinances, and not in a good way.

A growing number of Oregon cities are enacting ordinances that impose (additional) local taxes on recreational marijuana businesses — in some cities, as much as 10% on recreational marijuana sales — and many other cities are considering doing the same. It is not clear that Oregon cities have the authority to tax marijuana since Section 42 of Initiative 91 expressly reserves taxation of recreational marijuana businesses exclusively to the State. Initiative 91 also provides that “Sections 3 to 70 of this Act, designed to operate uniformly throughout the state, shall be paramount and superior to and shall fully replace and supersede any and all municipal charter enactments or local ordinances inconsistent with it … [s]uch charters and ordinances hereby are repealed.”

The cities that have enacted their own marijuana taxes are under the impression that their tax ordinances can withstand the Initiative if the taxes are enacted before the Initiative passes. In other words, they believe that their tax votes and the taxes themselves will be grandfathered in and that the Initiative’s prohibition on local taxes simply will not apply to them. We are highly dubious about this “legal” analysis, especially since the Initiative is clear about taxing authority, provides for no grandfathering, and ensures that it will preempt any local ordinances that conflict with it.

Oregon cities seem to believe they are entitled to generate revenue from recreational marijuana given that they will need to spend local funds policing much that will happen when recreational marijuana becomes legal in Oregon. Initiative 91 allocates 10% of the total tax revenue from recreational marijuana to municipalities for local law enforcement, which itself is another legal argument against cities going it alone. The Initiative contemplated how much cities should get in tax revenues from recreational cannabis, and it allocated for that. If Initiative 91 succeeds at the polls, the voters will have spoken not just about legalization, but also about taxation.

After Initiative 91 passes, there will no doubt be many lawsuits against the taxing cities

Initiative 91 allows cities and counties to enact “reasonable time, place and manner regulations of the nuisance aspects of establishments that sell marijuana to consumers if the city or county makes specific findings that the establishment would cause adverse effects to occur.” This means that cities and counties are free to enact reasonable regulations regarding marijuana business  hours of operation and loitering rules. Initiative 91 states that this grant of “nuisance mitigation powers” is in addition to, and not in lieu of, the authority cities and counties already have to regulate businesses within their borders. Oregon cities and counties are also likely to be free to require marijuana businesses secure and pay for conditional or special use to locate in their jurisdictions. We saw these sorts of fees in Nevada where Clark County charged $5,000 for a marijuana special use permit.

Oregon cities have marijuana revenue on their minds. The question is what mechanism they will use to get that revenue and which of those mechanisms will ultimately be found legal. It seems “pay to play” is going to be the new theme for Oregon’s recreational marijuana industry.

 

Marijuana Trademarks

Posted in Florida, Intellectual Property/Branding, Legal Issues, Oregon

A trademark is commonly thought of as a brand or a logo. Think of Nike as a brand and the swoosh as its logo. A trademark can be a word (Nike), a phrase (“Just do it”), a symbol (the swoosh), a design (the swoosh) or a combination of words and designs. The owner of a valid trademark has the right and the ability to prevent others from selling similar goods or services using the trademark or one that is confusingly similar.

Trademark owners generally establish their trademarks in the following three ways:

  1. By using the mark in connection with a good or service in commerce;
  2. By registering the mark with the United States Patent and Trademark Office (USPTO); and
  3. By registering the mark with a state trademark registry.

A registered trademark gives its owner exclusive rights to use the mark in connection with the goods and/or services listed in the registration, and it creates a public record of those rights.

Registering a trademark with the USPTO is the best way to protect one’s mark, but because marijuana is a Schedule I controlled substance under federal law, and because the USPTO will not register a mark if the applicant cannot show lawful use of the mark in commerce, it is difficult to nearly impossible to secure federal registration of a marijuana-related mark. Keep in mind that the Controlled Substances Act makes it unlawful to sell, offer for sale, or use any facility of interstate commerce to transport drug paraphernalia, i.e., “any equipment, product, or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful under the CSA.” The USPTO has consistently refused to register marijuana-related marks for these reasons.

Done right, however, it is sometimes possible to obtain registration for ancillary products that do not contain or facilitate the use of controlled substances. For example, if you produce marijuana-infused chocolates AND you produce and sell chocolates that contain no marijuana, it may be possible to secure a trademark registration that will pertain to the non-infused chocolates you also sell.

When federal registration is not possible, which is the case for most marijuana-related marks, it typically makes sense to register your trademarks with the Secretary of State of one or more states. The problem with this, however, is that if you register your trademark in Oregon, you probably have no protection in Florida. In order to obtain protection in both Oregon and Florida, you would need to register in both states, which means you will need to run trademark searches in two states and make sure that your brand or logo actually qualifies for a trademark, particularly through use, in both states. For more on why a trademark search is so important, read this and note that making sure you can use a particular trademark involves a lot more than just searching a trademark agency’s webpage or performing a quick Google search. A thorough search is necessary to establish that your brand or logo will not infringe any other trademark, whether registered or not.

It is also possible to gain common law rights in a mark that has actually been used, so long as the mark is not confusingly similar to another mark already in use. However, securing trademark rights this way is limited to the geographic area in which you are actually using the mark. So for example, if you sell your medible product in Washington State only, you almost certainly will not have trademark protection in the State of Florida for your brand or logo, unless your brand or logo qualifies for registration in Florida and you register it there.

Bottom Line:  Federal law prohibition of marijuana has greatly complicated the registering of marijuana trademarks, but, if anything, it has increased the value of those marks that are properly secured.

For more on cannabis trademarks, check out the following:

Illinois Cannabis Taxes

Posted in Business Basics, Illinois

By: James Hunt*

Now that the deadline for submitting Illinois cannabis license applications has passed, it is time to look forward to another aspect of the Compassionate Use of Medical Cannabis Pilot Program Act — taxes. 

The Act has generated two new state taxes, the Medical Cannabis Cultivation Privilege Tax (“Cultivation Tax”) and the related Compassionate Use of Medical Cannabis Pilot Program Act Surcharge (“Surcharge”). The Illinois Department of Revenue recently issued regulations on both the Cultivation Tax and the Surcharge.

The Cultivation Tax is imposed on the privilege of cultivating cannabis for medical use. The tax is 7% of the sales price per ounce. The tax is paid by the cultivation center and is not the responsibility of a dispensing organization, qualifying patient, or designated caregiver. However, the new regulations clarify that the cultivation center may seek reimbursement of the tax; the charge may not be identified on the invoice as a tax.

Persons subject to the Cultivation Tax must apply for a certificate of registration from the Department of Revenue. Those already registered with the Department of Revenue under the Retailers Occupation Tax are not required to register separately for purposes of the Cultivation Tax.

The Cultivation Tax is not imposed on free samples of medical cannabis given to a dispensing organization by a cultivation center. Nonetheless, the cultivation center will incur use tax liability on the cost price of the samples given. Furthermore, under the regulations, a cultivation center may not directly or indirectly discriminate in price between different dispensing organizations that are purchasing a like grade, strain, brand, and quality of cannabis or cannabis-infused products. Pricing based on differences in the cost of manufacturing, quantities sold, such as volume discounts or delivery method, are not prevented under the Department of Revenue regulations. Finally, the new regulations impose detailed record keeping requirements on all marijuana businesses.

The Surcharge statutes and regulations are somewhat complex. In general, the Surcharge is imposed on: 1) all taxpayers; 2) deriving income from sales and exchanges; 3) of certain tangible, real and intangible property of an “Organization Registrant.”  In general, an Organization Registrant is a legal entity registered in Illinois either as a cultivation center or as a medical cannabis dispensary. An important point is that liability for the Surcharge is not limited to cultivation centers and dispensaries. The income of certain investors may be subject to the tax.  Specifically, partners and S Corporation shareholders may be subject to the tax even if such partners and shareholders are not themselves a cultivation center or dispensary.

Finally, the taxes with which we are most familiar (e.g. income tax) are often rate based. The Surcharge is a bit different in that the Surcharge is equal to the amount of the taxpayer’s federal income tax liability for the taxable year attributable to transactions subject to the surcharge. Accordingly, a taxpayer must have a clear understanding of his or her federal income tax liability and treatment of asset sales and exchanges before The Surcharge can be analyzed. Finally, the regulations outline several exceptions to The Surcharge, including bankruptcy and certain transfers of registration, acquisitions, and restructurings.

In addition to these two new taxes, cultivators, and dispensaries must still consider other Illinois state taxes such as: Income Tax, Retailer Occupation Tax, Use Tax, Employee Withholding and other local taxes. And, of course, all Illinois marijuana businesses must grapple with 280E under the federal tax code.

 

* Jim is Managing Member of the Law Office of James G. Hunt PLLC. Jim has more than 25 years’ experience in addressing complex multi-state tax issues, as well as, federal and state tax controversies. Jim is licensed to practice law in Illinois and Washington.

They Said it On Marijuana, Quotable Saturday, Part XXXI

Posted in General

Eric Holder’s recent resignation as the Attorney General of the United States means that he can now speak his mind without the chains of Capitol Hill around his neck. And, in this week, for They Said it On Marijuana, Eric Holder graces us with a quote that almost everyone can respect:

I think it’s certainly a question that we need to ask ourselves – whether or not marijuana is as serious a drug as is heroin … [t]he question of whether or not they should be in the same category is something that I think we need to ask ourselves, and use science as the basis for making that determination.

Holder makes good sense by calling for science, not emotion, to dictate our nation’s dialogue over marijuana legalization (or its re-scheduling). And if the science around marijuana is allowed to speak for itself, legalization ought to be imminent.

Holder’s lasting legacy for the marijuana industry will likely be the Department of Justice’s decision not to pursue legal action to strike down either Amendment 64 in Colorado and I-502 in Washington State. And out of Holder’s leadership also came the most recent Cole Memo which provided states with guidelines to establish “robust” marijuana regulatory regimes necessary to help forestall federal law enforcement intervention.

We hope that Eric Holder’s replacement shares his view that science should guide us in formulating our marijuana policies. Is that asking too much?

How To Choose Your Cannabis Law Firm

Posted in General

With our blog and our Facebook page continuing to gain readers nationwide, and as our own cannabis clients expand into states in which our law firm has no licensed lawyers, cannabis businesses are regularly asking for our advice on who they should hire as attorneys in various states. Just this week we were asked about Massachusetts, Maryland, Connecticut, Texas, and Hawaii. Since we do not have lawyers licensed in any of these states, we have absolutely no dog in those fights. We’ve even been retained (and paid) to help a client find the right lawyer.

When asked by a non-client what law firm to hire in a state that our lawyers do not cover, we are reluctant to name names. So instead, we give a few minutes of advice on what to look for to find the “right” law firm. This post is intended to do the same thing: to provide guidelines for choosing the right law firm for your cannabis business, which guidelines we intend to use as a quick reference/link in the future.

Here in somewhat random order are some of the criteria we suggest that you employ in your cannabis business lawyer search:

1. We almost always favor small law firms over solo practitioners because one lawyer simply cannot sufficiently cover and address all of the things required to represent a cannabis business, including the following:

  • Corporate law
  • Contract law
  • State licensing
  • Real estate law
  • Intellectual property law
  • Administrative and compliance law
  • Employment law
  • Litigation

2. We do not recommend law firms that do nothing but cannabis law. How good can a law firm be if it does only one thing and that thing only recently came into existence? If they do nothing but cannabis law, you have to wonder how much work they had before cannabis. You should try to choose with a law firm with lawyers who were doing deals and licensing work even before cannabis was legalized.

3.  We never recommend law firms essentially made up of lobbyists and/or criminal defense lawyers if clients have business and/or corporate needs. Lobbying lawyers are great for lobbying and criminal lawyers are great if you are facing jail time, but cannabis businesses are legal businesses and so they need lawyers who above all else know business law and work exclusively in that realm.

4.  We use various other factors to judge a law firm, including its clients (though many firms, including ours, do not list clients so as to protect client privacy), the schools its lawyers attended, the rankings of its lawyers on various lawyer ranking sites, its lawyers’ speaking engagements and publications, and its reputation among the lawyers we know in that city.

5.  Finally, like your lawyer. We realize most people don’t “like” lawyers, but when you find yourself shopping for one to assist you with your cannabis business, it is important that you find someone who is a good fit for you. You should try to meet with (or at least speak over the phone with) an attorney before deciding to hire him or her. If you don’t get a good vibe, if you feel the attorney is too stuffy, or if you are just not satisfied with the answers you are getting to your questions — take a pass. If you have followed the advice above, there is nothing wrong with going with your gut here. The attorney-client relationship should be one built on trust and compatibility, and this is even more important when wading into the murky waters of legalized marijuana.

Nevada Medical Marijuana Infographic: The Legal Basics

Posted in Legal Issues, Medical Cannabis, Nevada

Below is an infographic highlighting need-to-know information regarding medical marijuana in Nevada. Probably the most interesting and distinctive aspect of Nevada’s medical marijuana regime is that it allows out of staters with a medical marijuana card to buy medicine in Nevada. And since Nevada alone gets around 4.5 million tourists a month, we (and pretty much everyone else) are expecting medical cannabis to be huge in Nevada…huge.

Click to Enlarge for Optimal Viewing

Illinois Cannabis Applications: From The Front Lines

Posted in General, Illinois, Licensing, Medical Cannabis

The deadline to submit an application to the Illinois Department of Financial and Professional Regulation or Department of Agriculture to run a dispensary or grow facility (respectively) came and went on Monday this week. With applications complete, the conversation now turns to how many applications were submitted and when decisions might be made.

Yesterday afternoon we learned that the state received 211 applications for the 60 dispensary licenses that will be awarded, and 158 grower applications for a mere 21 cultivation center licenses. Clearly competition will be stiff, particularly on the grow side, but nowhere near what some had predicted. Just a week or so ago, numbers in neighborhood of five to seven hundred were being tossed about — numbers we thought were overly optimistic. Our best guess, based upon our own conversations with potential and actual clients and those already in the industry, attendance at various local cannabis events, the hefty application and accompanying fees, and the fact that Illinois only has a 4-year pilot program in place, was that there would be an average of around 4 applications per available dispensary license. Guessing at the number of possible grower applications was harder – though the fee just to apply was $25,000 (and another $200,000 to get your license and open your doors), the grow side is widely seen as the more lucrative part of the business, especially in Illinois where so few will supply the entire state. In that regard, the number of people willing to roll the dice on the grower application is not too surprising.

As reported in today’s RedEye, the director of Illinois’ medical cannabis pilot program Bob Morgan was pleased with the number of applications received, and has high hopes that the competitive process will result in a quality medical cannabis marketplace in this state. Morgan also clarified that applications would be first given a once-over for completeness, and applicants given a chance to cure any defects (though we suspect glaring omissions may still get your app tossed).

So, who were all these applicants? Our lawyers were in the application line on Monday afternoon, and like much of the industry, it was a mixed bag. There were applicants with lawyers or consultants in suits, applicants barely out of college in jeans and t-shirts, locals and out-of-staters. Nearly everyone looked a little frazzled, but the atmosphere was generally congenial (some who had forgotten to seal or label their original unredacted application were passing rolls of Scotch Tape and Sharpies). The Sun Times reported that “dozens” were in line at 3 pm and “hundreds” of applications were received Monday, but that was not our impression. At 3 pm (the time by which you had to be in line to meet the deadline) there were probably 25 or so queued up, but rumor had it the office was quiet just an hour before. DFPR officials that were processing receipt of applications did not seem like they had been mobbed all day.

We snuck a peek at the notes of one official who was tallying which district each dispensary applicant was applying in, and, from that cursory glance, it looks to us like there may be a handful of districts where one or two, or maybe even no applications were received. The state has said before that if no acceptable application is received for a particular district, it will reopen the application window. Based on what we saw Monday and the overall numbers, we are guessing this may happen for two or three districts.

Assuming the application window is reopened, we would expect a tight timeline for those applications – probably starting in the next month. The numbers of applications received in each district is supposed to be announced late next week, so by then officials will know if there are districts with no applicants, and will likely have taken a look at the districts with only one or two applications. Given that the state wants decisions reached by the end of the year (though we might say by Thanksgiving, even), any new applicants will have to have submissions ready in the very near future.