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Since joining Harris Bricken in 2010, Hilary has earned a reputation as a fearless advocate for local businesses. Hilary’s clients—start-ups, entrepreneurs, and companies in all stages of development—value her bold approach to business strategy.

American lawyer in BarcelonaI spent last weekend in Barcelona attending Spannabis. Our Barcelona lawyers constantly get inquiries from serious international businesspeople wanting to start a cannabis social club or some other sort of cannabis business in Spain. And with more than 200 medical marijuana social clubs in Barcelona alone, I wanted to go there to meet with key industry players to learn more about what is going on with marijuana in Catalonia’s capital city and in the rest of Spain.

Barcelona and medical marijuana felt to me like some combination of California, Oregon, and Washington seven years ago. Namely, it feels like an unregulated, quasi-commercial gray market chalk full of “collective” non-profits and rotating patient members, unclear laws and inconsistent enforcement of those laws. For a breakdown on the current medical marijuana laws in Spain and in Barcelona, go here. This unclear and pioneer atmosphere was also in full force at Spannabis, which was in many respects just like pretty much every other marijuana trade show/expo I’ve attended in the United States: light on serious education about marijuana laws and regulations and heavy on promoting marijuana consumption and on seeking to preserve the counter-culture. But with cannabis cups and consuming events dwindling in the U.S. from increasing state marijuana regulations, I would be remiss if I did not mention how the Spannabis fairgrounds managed to maintain a steady cloud of overhanging marijuana smoke from its more than 3,000 attendees who openly and consistently consumed despite the presence of law enforcement.

Spannabis had only a single panel on the legality and rules surrounding Barcelona’s (mostly medical) marijuana social clubs and the panelist gave little detail or explanation about the law that enables cannabis clubs to operate. That panel was made up of one criminal defense attorney telling attendees about the national and local government’s conflicting policy positions on health and law enforcement and the rights of individuals to consume cannabis for medical use. Needless to say, since our cannabis lawyers represent the business side, I didn’t this panel very helpful. More importantly, this panel served as just another indication that Barcelona and Spain as a whole have just not yet really “arrived” yet as destinations for those seeking to form and operate a cannabis business fully compliant with local (in this case Barcelona), provincial (Catalonia) and federal (Spain) laws. Fortunately, our Spain lawyers mostly focus on representing ancillary cannabis businesses and CBD businesses, along with the standard fare of helping foreign companies in all industries seeking to form a business in Spain and make a go of things there.

But as many in the industry there were quick and emphatic about telling me, the cannabis scene in Barcelona and in Spain is slowing maturing and slowing getting “more legal.” As we wrote just last week, the regional Parliament of Catalonia has proposed reforms in line with a 2014 initiative advocated by Regulacion Responsible in advance of the 2014 Spain national elections. The initiative’s aim was to create a framework for the national reform of cannabis laws to permit regions like Catalonia and cities like Barcelona to set their own cannabis policies. Though the 2016 legislative initiative stalled, it has recently reemerged and anticipation is building for a revised version of this bill that would mean increased regulation for legalized marijuana businesses on a regional basis. Given the inconsistent enforcement of current laws (within both Catalonia and Spain) and the lack of meaningful or comprehensive business regulations, such reforms cannot come soon enough to better protect and give more structure to those cultivating and distributing marijuana for and to patients. Patients would also benefit from such regulation as it would increase both transparency around the sourcing of cannabis products and cannabis quality assurance standards.

Even though marijuana social clubs in Spain exist in a risk-laden gray area, it’s clear that manufacturing and distributing CBD is a popular and, more importantly, legal practice in Spain and Barcelona (in contrast to the United States). Indeed, the majority of booths on the exhibitor floor at Spannabis focused on hemp seeds (there was even a company there from Humboldt County) and CBD-based products. Manufacturing and distributing cannabis paraphernalia or equipment used for consuming, cultivating or handling are also legal and ancillary companies are alive and well in Barcelona, just like in most of the U.S. This is why foreign investors looking at Spain are mostly focusing on financing, starting, managing or assisting ancillary companies and not so much on marijuana social clubs, all of which are non-profit because of existing laws prohibiting commercial “trafficking.” The Arcview Group (well-known for angel investments in ancillary marijuana businesses) held an investor meeting in Barcelona for the first time last week.

Barcelona’s medical marijuana marketplace remains immature and risky (these were the words used by many of those with whom I spoke while I was in Spain), but it no doubt has tremendous potential. Once local governments in Spain are given the freedom (and they might soon) to take the reigns on cannabis regulation and to create a better business atmosphere for cultivators, manufacturers, and distributors, Barcelona will no doubt quickly become a major marijuana city in terms of popularity, investment, and access. The lawyers in our Barcelona office can hardly wait.

Cannabis tax lawyer 280EWhen folks in the medical and adult use marijuana industries hear “280E,” they tent to shudder since they know it means a large protion of their revenues will be going to the IRS without the usual deductions. However, just this week, Grover Norquist, a GOP political advocate and the well-known president of Americans for Tax Reform (which favors repealing 280E), opined that our GOP-led Congress may enact sweeping tax reform this year that would reduce the stress of 280E on state-legal marijuana businesses by lowering corporate income tax rates.

In case you missed it, 280E is the provision of the Internal Revenue Code creates such an onerous tax burden for cannabis businesses because it provides as follows:

“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

Congress passed 280E in 1982 in response to a Tax Court ruling that a taxpayer could deduct expenses relating to his sales of cocaine, amphetamine, and marijuana. Deductible expenses included the costs of packaging, travel, and even scales used to weigh the illegal substances. This is no longer possible in the world of 280E.

Since cannabis is a Schedule I controlled substance, the IRS uses 280E to disallow marijuana businesses from deducting their ordinary and necessary business expenses. The result is that marijuana companies — regardless of their legality under state law –face higher federal tax rates than similar companies in other industries. There are differing opinions on the level of tax rates imposed on marijuana companies – from 40% to 70% to as high as 90% – all of which are higher than the 35% corporate tax rate paid by most other businesses in the United States.

But if Norquist’s predictions are accurate, there may be a bit of light at the end of the 280E tunnel for cannabis businesses. though if Norquist’s predictions are accurate. In an interview with MJ Business Daily, Norquist stated:

There’s a big tax bill this year – the tax reform package that takes corporate rates to 20% – which solves some of the problem for marijuana producers because now you’re paying 20% on all your sales instead of 35%. But we still need to get normal and reasonable and legal deductions made legal and normal for the marijuana industry, as well as for all other industries. Marijuana could get into that package if some of the libertarian Republicans made that a condition of voting for the whole package.

*  *  *  *

So, as we build support for a fix, we need to build support state by state, where we say, “Look, you don’t want federal tax law used to gut the effectiveness of federalism. Because you could say something can be legal at the state level, but if the federal government is going to tax it into oblivion, you really haven’t allowed federalism at all.

Norquist then went on to predict these tax law changes will occur within the “next few years.” Though our cannabis tax lawyers do see cannabis tax changes coming, they are less confident than Norquist on timing. There has been no successful standalone 280E fix bill in Congress and the current presidential administration’s back and forth policies on marijuana legalization make predicting such federal action difficult. But with legalization in California and marijuana reform in 28 other states and more coming soon, the odds of Congress rectifying this tax situation are increasing. We cannot and should not expect favorable 280E changes from either the Tax Court or the IRS unless and until Congress mandates such changes. It is therefore good to know that such changes are at least on the table.

Cannabis due diligence
Know the red flags and find them.

Our marijuana business attorneys handle lots of purchase transactions for marijuana businesses. These deals often involve two sides rushing to complete a transaction handled by a business broker who doesn’t know or care about the applicable marijuana laws. The worst case scenario is when a company asks us to review a purchase agreement drafted by the seller without having done any due diligence on the potential purchase. Buyers of businesses (like investors) take the lion’s share of risk, which is why buyer due diligence is key. Before buying a cannabis business you should know exactly what assets and liabilities you will be taking on.

The below are the top 5 due diligence items you need to protect yourself and your money (for sellers, check out Preparing to Sell Your Marijuana Business):

  1. State and local law compliance. This is by the number one due diligence item for buyers. State and local law compliance varies greatly by state and by county and by city and you have to know what state and local licensing or permitting is required for a given marijuana business before you purchase it. I cannot tell you how many times we have had buyers come to us thinking they are buying a licensed marijuana business only to find out that the license is only pending and has not actually been issued or that the cannabis business is facing license revocation for rule violations, or that the municipal law has changed and the business must re-locate to continue operating. Before buying a cannabis business you should, at minimum, confirm that the company you will be buying is in good standing with the Secretary of State and the regulators and you should review its proof of licensing and permitting and its history of administrative violations, including any written warnings. If you fail to do this, you may find yourself with a cannabis business without a license to legally operate or that is about to lose it.
  2. State law procedures for ownership changes. Marijuana businesses are heavily regulated and there are onerous state law procedures in place for changes in ownership. Generally, the seller must disclose the buyer to the state and the buyer must be successfully vetted by the relevant regulators. Buyers and sellers of cannabis business cannot undertake these sales like any other business. No matter what any seller or broker may tell you as the buyer about the ease of the transaction, you as the buyer should ensure that the sale can comply with applicable state law requirements for changes in ownership and that the purchase and sale agreement accounts for the timing of performance obligations set forth in that purchase and sale agreement. We have had company’s come to us after the fact that have lost their earnest money for not closing quickly enough on deals where the closing date was impossible to meet from day one.
  3. Corporate authority. Ownership disputes are common in the marijuana industry because many marijuana operators still neglect (to their detriment) to put their corporate and contractual relationships in writing. We often see cannabis business buyers who (based on the word of a single seller in a multi-owner entity), believe they are free and clear to purchase all the stock in a corporation or all of the membership units in an LLC when they actually are not. Purchasers must get copies of all bylaws and subscription agreements when contemplating buying a corporation and they must get a copy of the current operating agreement for an LLC to know whether the seller has authority to sell their (or all of the) membership interests in the business. Failing to secure this authority will violate the seller’s corporate obligations and the sale can likely be undone. If all of the existing owners do not agree to the buy-out or transfer or there is a right of first refusal on sales or transfers, the buyer (and the seller) are going to have serious issues enforcing the purchase agreement.
  4. Real property. When you buy a business, you typically buy all of its assets, including any real estate it owns or has an interest in. Buyers therefore need to get a list of all real property owned and leased by the business that is to be sold. Most importantly, you want to know if the company you are seeking to buy is locked into a long-term lease or whether you’ll be able to re-locate it upon buying it. Many buyers have their own property on which they want to run the cannabis business and for these buyers, the ability to move the business can be key. If there is a lease, you want to know its terms and whether you can or want to comply with it. And because boilerplate leases don’t cut it in this industry, you need to make sure that lease sufficiently covers your issues when it comes to state and local law compliance and the federal law conflict.
  5. Financial liabilities. Again, because too many marijuana business owners don’t memorialize their business and corporate relationships in writing, you as the buyer must thoroughly vet the business’s financial liabilities. You want an agreement that requires the seller to have disclosed every handshake deal with every consultant, investor, and service provider so you know what you’re getting and to whom you’re financially obligated and so that if an undisclosed problem arises, it is the seller’s financial problem, not yours. This should include any instrument that grants a security interest from the cannabis business you are buying to a third party.

To mitigate against anything your due diligence investigation might miss, you need comprehensive and solid seller representations and warranties in the purchase and sale documents. But even skillfully crafted representations and warranties may not be enough to capture all of the liabilities that fall through the cracks, especially if your seller lacks the financial wherewithal to pay for them. So, do your due diligence or buyer beware.

Cannabis laws on public eventsI’ve said it before and I’ll say it again–more state regulation of marijuana is going to lead to fewer and fewer cannabis cups and similar marijuana events and this in turn will force the purveyors of such events to get creative. Case in point: the 2017 High Times Cannabis Cup on the Moapa Band of Paiutes reservation in Nevada near Las Vegas. The most recent update on this particular Cup is that despite receiving two warning letters from U.S. Attorney David Bogden, the Tribe is moving forward this Saturday with the Cup as planned.

The High Times Cannabis Cup, and others like it, revolve around events that assess the cannabis and cannabis products submitted to them by local competitors. At their core, these cups are commercial boons for the sponsors who use them to increase their brand recognition and for the local marijuana businesses that perform well and can use their good performances to tout their products for months and years down the road. Having the right to label your cannabis products as a “High Times Best In (fill in the blank)” is not an honor to be taken lightly in the marijuana industry where such accolades can and do influence cannabis buying decisions.

Even cannabis-friendly states have myriad prohibitions against selling or even gifting cannabis without specific state operational licenses. And virtually all states prohibit consuming cannabis in public and even quasi-private spaces. For example, High Times had to cancel its cannabis cup in Seattle in 2015 because such an event would have violated Washington State’s “sampling” laws that allow only state-licensed marijuana businesses and not consumers to “sample” cannabis products. High Times also had to cancel its Cup in both Denver and Pueblo, Colorado last year because Colorado restricts public cannabis consumption. I assume High Times chose to host this upcoming event on Moapa tribal lands because Nevada’s medical marijuana laws would not allow for such an event and because the Tribe can enact its own ordinances allowing for such Cups.

Given the Wilkinson statement regarding Tribal cannabis from and the Cole Memo regarding federal enforcement of its cannabis laws, it’s easy to see why the Moapa Indians are trying their hand at hosting this Cup. Nonetheless, tribes that have tried to legalize or “medicalize” marijuana on their lands have been met with mixed reactions and enforcement by the federal government (see here, here, here, here, and here). The Moapa are no exception.

On February 16th and 23rd, U.S. Attorney Daniel Bogden sent “warning letters” to the Tribe concerning this upcoming cannabis cup, reiterating that marijuana remains federally illegal and that the Tribe has an “incorrect interpretation” of the Cole Memo and Wilkinson statement. Bogden’s letters also reminded the Tribe that neither the Cole Memo nor the Wilkinson statement alter the power of the federal government to enforce federal laws on tribal lands. At no point in his February 16th letter did Bogden threaten to shut down the Cup. But Bogden’s February 23rd letter states that his office communicated with tribal officials and his understanding is that no cannabis or cannabis products will be present at the Cup. He also writes that High Times’ promotion of this event mentions nothing about the prohibition on cannabis and he asks the Tribe to confirm their understanding on this prohibition matches his. Given that the heart of these High Times Cannabis Cups are the competitions for best cannabis products, one has to wonder if there’s any advantage to High Times having the Cup on tribal lands at this point.

Since Bogden’s warning letters come on the heels of White House press secretary Sean Spicer’s comments about the likelihood for increased federal enforcement in states with recreational marijuana programs, many are wondering if Bogden’s actions are the beginning of what “increased enforcement” may look like. We do not believe so; we think this federal intervention is just another example of the Department of Justice’s continued unpredictable treatment of tribes and cannabis and its varying regional positions on cannabis.

Time will surely tell…

Recreational marijuanaWhite House Press Secretary Sean Spicer spoke today at a press conference on how he expects the Department of Justice to handle state-legal marijuana in America. In response to a question on how the Trump Administration will handle recreational marijuana, Spicer had this to say:

Well I think that’s a question for the Department of Justice . . . I do believe you’ll see greater enforcement of it. Because again there’s a big difference between the medical use … that’s very different than the recreational use, which is something the Department of Justice will be further looking into.”

There’s a big difference between [medical marijuana] and recreational marijuana, and I think when you see something like the opioid addiction crisis blossoming in so many states around this country, the last thing we should be doing is encouraging people. There is still a federal law that we need to abide by when it comes to recreational marijuana.”

Regardless of Spicer’s factually wrong take on the relationship between marijuana and opioid use, marijuana industry folks should not fret just yet.  Out of everything Spicer had to say, the key point is that marijuana enforcement falls on the Department of Justice and Attorney General Jeff Sessions. The job of the Press Secretary is “to act as spokesperson for the executive branch of the United States government administration, especially with regard to the President, senior executives, and policies” and the fate of the marijuana industry is not going to be decided in one White House press conference by the White House Press Secretary. The Department of Justice has so far declined to comment on Spicer’s briefing. It also bears mentioning that the Cole Memo setting out how the Department of Justice will treat state-legal marijuana (both medical and recreational) is still alive and well.

The bottom line. Though it is certainly unsettling to listen to Spicer predict increased enforcement of recreational marijuana businesses and to use stupid opium trope to boot, it is not time to lose heart or cash out. Will the jobs-focused Trump Administration really want to shut down cannabis businesses in multiple states and add a slew of hard-working people to the unemployment rolls? I don’t think so, but of course only time will tell.

 

How to sell a California cannabis businessSince passage of the Medical Cannabis Regulation and Safety Act (“MCRSA“) and Proposition 64, one of the top questions our California marijuana lawyers have been getting from existing medical marijuana operators is “how can I sell my medical marijuana collective?” Of course, many collectives are not hard-pressed to find willing buyers. In the City of Los Angeles, for example, where only 135 Proposition D-compliant dispensary collectives are allowed to exist (which will also receive priority status from the City under the MCRSA and Prop. 64 in the event Measure M passes on March 7th), buyers are lining up to try to buy LA dispensaries that can get them into that market. There is also plenty of buyer interest in other California collectives that can demonstrate continuous operation and good standing with their local jurisdictions to qualify for “priority status” under both the MCRSA and Prop. 64.

But here’s the big issue: neither the MCRSA nor Prop. 64 repealed Proposition 215 and Senate Bill 420, which together make up California’s current and very vague medical marijuana laws. What this means is that all medical marijuana collectives must still operate as non-profit entities unless and until the application period opens for licenses under the MCRSA or Prop. 64. And just to further complicate matters, “collective” is an industry term of art; it is not a specific type of California legal entity and you are not going to find it in the California Corporations Code. One of the main reasons for California’s “collective model” is that the California Attorney General’s office issued a memo in 2008 with its interpretation of the medical marijuana laws that concluded those laws forbid the sale of medical marijuana for profit and, therefore, only “non-profit operation” would be allowed in the event qualified patients were to “collectively or cooperatively” cultivate and distribute medical cannabis to other qualified patients.

As a result of that 2008 memo, most qualified patients form nonprofit entities to handle their “commercial” medical marijuana activity. They typically form nonprofit mutual benefit corporations (“NPMBCs”) that they refer to as “collectives.” In turn, it isn’t possible to “buy” a collective. Why? Because there’s no equity or stock to purchase. Of course, there are other solutions to this non-profit conundrum, but they must be carefully considered and well thought out by both a prospective purchaser and the collective.

In NPMBCs, the articles of incorporation and the bylaws govern the collective’s every move and decision–but the bylaws really govern the day-to-day activity and decision-making authority of the members. For example, NPMBC bylaws will have provisions that dictate, among a slew of other things, admission of new qualified patient members and what they must do to maintain their membership in the collective. In addition, well-drafted bylaws also typically will address the voting rights of the members and directors. Under the California Corporations Code, a prospective purchaser cannot buy the stock of a NPMBC (because none is authorized or issued). The California Corporations Code does however permit membership transfers if the collective’s bylaws allow them, and these transfers are fairly unrestricted unless the bylaws specifically create restrictions around them.

Section 7320 of the Corporations Code governing NPMBC membership transfers states the following regarding the transfer of membership rights:

Subject to [member voting restrictions in the bylaws]:

(a) Unless the articles or bylaws otherwise provide:

(1) No member may transfer a membership or any right arising therefrom; and

(2) Subject to the provisions of subdivision (b), all rights as a member of the corporation cease upon the member’s death or dissolution.

(b) The articles or bylaws may provide for, or may authorize the board to provide for, the transfer of memberships, or of memberships within any class or classes, with or without restriction or limitation, including transfer upon the death, dissolution, merger, or reorganization of a member.

(c) Where transfer rights have been provided, no restriction of them shall be binding with respect to memberships issued prior to the adoption of the restriction, unless the holders of such memberships voted in favor of the restriction.

The ideal situation is usually one where the bylaws create two classes of membership: usually directors who manage the NPMBC and qualified patient members who access the NPMBC for medical marijuana, with the directors being the only ones who vote on management decisions affecting the NPMBC. The bylaws usually also allow for director membership transfers (presumably with a fee), without requiring a vote of every single qualified patient who has ever become a member of the NPMBC. In turn, directors can sell their memberships to prospective buyers who can then take over and operate the NPMBC until MCRSA and Prop. 64 licensing.

Unfortunately, nearly all of the NPMCB bylaws our California cannabis lawyers have seen on the deals on which they have worked are a mess, largely because most of the lawyers in California that do cannabis law are criminal lawyers not corporate transactional lawyers. Much of the time, the NPMCB bylaws do not contain a provision allowing for membership transfers or they require every single member of the collective vote on such a transfer because they lack multiple membership classes or voting exceptions. In these situations, it is sometimes possible to set up a system where the departing directors provide notice to every single qualified patient member that new directors could take over the board of directors and those new directors might vote to pay the departing directors a fee for services to be rendered to the NPMBC after-the-fact. For example, the new directors could vote to hire the departing directors in a consultant capacity and pay them a fee for that work. Though neither ideal nor efficient, this is one of various workarounds that can be done to transition the management of an NPMBC with bad bylaws.

The bottom line is that non-profit collectives cannot be “purchased,” and it takes good bylaws (or convoluted workarounds) to be able to transition from one group of directors to another. So, if you are looking to “sell” or “buy” a California cannabis business, be sure that the relevant bylaws allow for such a change and that your transition documents are in-line with what the bylaws actually allow. If such care isn’t taken, the buyer can be left with nothing but an empty wallet and the collective may find itself in direct violation of California’s Corporations Code and an expensive and painful lawsuit as well.

Cannabis Business LawyersOur cannabis business lawyers are always getting pitched on “creative solutions” to the cannabis industry’s banking problem. Because marijuana is still federally illegal, most banks will not provide financial services to marijuana businesses, even though FinCEN issued guidelines to allow financial institutions to provide bank accounts to the state-legal pot businesses. Many tout Bitcoin as the solution.

Bitcoin is viewed as the world’s first completely decentralized currency. Unlike the Dollar, the Euro, the Yuan, etc., no central government manages or backs Bitcoin. It is also called a “cryptocurrency” — a digital currency that uses encrypted services to generate units of the currency and to transfer funds.  You can read primers on it here and here. Using a Bitcoin wallet enables customers and businesses to engage in transactions without using paper currency and without going through an intermediary institution like a bank. Its chief appeal to the marijuana industry is that allows for currency transfers with little to no need for a bank. There are though significant issues involved with using Bitcoin in the marijuana industry and law enforcement associates Bitcoin with the illegal narcotics trade (see the Silk Road).

At the beginning of January, Washington State Senator Ann Rivers (who was instrumental in securing passage of SB 5052, which essentially wound down Washington’s existing medical marijuana cooperative system) proposed a bill to ban Bitcoin in Washington State’s marijuana marketplace. Senator Rivers says that her proposed bill to ban Bitcoin was brought to her by “an organization” looking to preserve “the transparency that we have in our legalized marijuana system in our state.” The eight-page SB 5264 adds to the definitions section of RCW 69.50.101 (Washington’s Controlled Substances Act) the term “virtual currency,” and then proceeds to ban it for marijuana sales. Under the bill, “virtual currency” would be defined as follows:

a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government. “Virtual currency” does not include the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.

The bill then states that “[a] marijuana producer, marijuana processor, or retail outlet must not pay with or accept virtual currency for the purchase or sale of marijuana or any marijuana product.”

The Bitcoin ban bill was debated at length in Olympia and Senator Rivers’ cited to the Cole Memo prohibiting the “shrouding” of anyone who participates in Washington’s marijuana industry as its justification. Senator Rivers contends that BitCoin can’t meet the 2014 FinCEN transparency guidelines. Tom Parker and Kenneth Berke of PayQwick also testified that Bitcoin does not satisfy FinCEN transparency guidelines and allowing it for Washington State marijuana businesses will invite federal enforcement and thereby harm the cannabis industry as a whole. On the other side of the argument, Ryan Hamlin and Jon Baugher of POSaBIT testified that BitCoin is perfectly traceable, auditable, verifiable, and transparent, and that the state needs to better understand BitCoin transactions before it bans its use in the marijuana industry. James Paribello, legislative liaison for the Washington State Liquor and Cannabis Board, testified that the Board essentially has no opinion on the use of BitCoin or its proposed ban, so long as the Department of Financial Institutions allows it, which it currently does.

Given the uncertainty of the state-legal marijuana industry under Trump and Sessions and the precarious staying power of the Cole Memo and the FinCEN guidelines, Bitcoin may just be too risky for Washington State’s marijuana industry. But if the state can get educated about and comfortable with BitCoin, virtual currency may be here to stay in the Evergreen State’s marijuana industry.

Stay tuned.

The Emerald TriangleCalifornia Cannabis: Trinity County is a legendary marijuana cultivation region in California. Since passage of the Medical Cannabis Regulation and Safety Act (MCRSA), the three counties that make up the Triangle, Mendocino, Humboldt, and Trinity, have all been examining local marijuana regulations for cultivation. With Proposition 64, it’s becoming ever more important for local governments to set rules for their local marijuana markets through local licensing and permitting, and the Emerald Triangle has begun doing exactly that.

To date, Humboldt has adopted regulations and their application window for cultivation permits has come and gone. Mendocino is still weighing permitting and zoning ordinances in deciding how to regulate cultivation within its borders. Most recently, Trinity County decided to extend its deadline for commercial cultivation registration to February 28th.

So, if you haven’t had the chance to apply for a Trinity cultivation registration permit, you still have a bit of time to do so. And here’s what you need to know to secure one of those coveted permits from the Trinity County Planning Department:

  1. Trinity is only allowing for cultivation under the MCRSA and Proposition 64 at this time. And under cultivation, Trinity will only permit Type 1, 1B, 1C or Type 2 or 2B cultivators, which represent relatively small-sized grows.
  2. Applicants have to show that they’re registered with the North Coast Regional Water Quality Control Board and that they’re in good standing with the Board’s order (#2015-0023) regarding waste discharge and water quality.
  3. Applicants have to apply for and secure a Board of Equalization (BOE) seller’s permit.
  4. You cannot have any “serious felony convictions” or a Schedule I, II, or III felony (excluding non-serious felony convictions for marijuana-related crimes).
  5. Applicants have to demonstrate at least one year of residency in Trinity County prior to the application date.
  6. Applicants have to submit an accurate site plan of the entire parcel.
  7. Applicants that are business entities have to provide a breakdown showing the ownership of the entity.
  8. Proof of a deed to the cultivation land or a lease authorizing cultivation on the proposed land is required.
  9. Applicants have to provide to the County one of the following documents:
    1. Documents of incorporation
    2. Documents of taxes paid to BOE
    3. Proof of contracts with dispensaries
    4. Receipt of a BOE Seller’s number
    5. Employer Identification Number
  10. Only one application countywide may be submitted on behalf of one person, entity, or per legal parcel.
  11. Grow site registration is limited to 500 applicants. Thus far, County records show only 12 registrations have issued.
  12. There are also various setback and zoning requirements where marijuana cultivation is not allowed, including the following:
    1. Within 1,000 feet of any youth-oriented facility, a school, any church, or residential treatment facility and within 500 feet of an authorized school bus stop.
    2. In any location where marijuana is visible from the public right of way.
    3. A legal parcel without a permitted/legal housing structure, or without an active building permit.
    4. Within the Trinity County jurisdiction of the Whiskeytown-Shasta-Trinity National Recreation area and within the lease lots within the Ruth Lake Community Services District.
    5. Within the Timber Production Zones with an exception for applicants who can show enrollment under/compliance with the Regional Water Board’s order #2015-0023.
    6. Within the R1, R2, and R3 zones.
    7. Within 350 feet of a “residential structure” on any adjoining parcels.
    8. Within 30 feet from any property line.

Applicants also must satisfy a variety of performance to keep their registrations, including noise level standards, surface water restrictions, water diversion restrictions, erosion restrictions, fencing, security and storage requirements, lighting restrictions, and applicable California Fire and Fish and Wildlife standards.

As for fees, for 2016 Type 1 and 2 grows, you’re looking at a $2,500 fee “plus $1,000 towards the general plan update.” For registration after 2016 (assuming the County still allows it), Type 1 and 1B cannabis grows will have to pay $4,000 plus $1,000 towards the general plan update, Type 1C grows will have to pay $2,000 plus $250 towards the general plan update, and Type 2 and 2B grows will pay $5,000 plus $1,000 towards the general plan update.

Trinity’s commercial cultivation program permit application is relatively straightforward. Applicants must first schedule an appointment with the Department of Planning and then submit their application (with all required documentation and attachments) at that appointment. The actual permit will only issue after your cannabis cultivation application is approved and and after an initial onsite inspection ensures your application actually reflects what you’ve built out and set up for your marijuana grow site.

With February 28 fast approaching anyone interested in securing a Trinity County cultivation license should definitely get moving right away to gather up the documentation necessary to submit a top-tier and timely application to the County.

 

Los Angeles Cannabis lawyersSince passage of Proposition 64 in California last November, our California cannabis lawyers have been getting calls nearly non-stop about what it takes to secure a license to operate a marijuana business in the City of Los Angeles. Some are asking us about buying a Proposition D-compliant dispensary state license now to secure a California retail cannabis license in the future.

Because of Proposition D, there is no legal avenue for anyone to start new marijuana businesses in the City of Los Angeles or for anyone to legally purchase any of the 135 existing Proposition-D compliant dispensaries. But the tides may be shifting for the L.A. marijuana scene. On March 7 of this year, Angelenos will be voting on two ballot initiatives that could bring more regulation and oversight to marijuana businesses within Los Angeles city limits and that may, under certain circumstances, allow for an expansion beyond the existing 135 marijuana dispensaries.

In case you missed it, Proposition D, which passed in 2013 and was implemented in 2014, was intended to reduce the number of dispensaries within Los Angeles city limits to 135 – the number of dispensaries operating before September 14, 2007. A 2012 UCLA study estimated that Los Angeles had at least 472 dispensaries, and the city estimated that in 2013, when Proposition D passed, the city had around 700 dispensaries. Over the last few years, the City of Los Angeles has shut down hundreds of medical marijuana businesses that failed to meet Proposition D requirements for immunity. But new dispensaries pop up to replace those that have been shut down. The city has also fought hard to enforce a ban on cannabis deliveries and the California Court of Appeals has upheld that ban.

Los Angeles’s medical marijuana situation is reflected in California’s Medical Cannabis Regulation and Safety Act (“MCRSA“) of 2015. The MCRSA requires all applicants to first secure “local approval” before they can receive a California state cannabis license, with local approval meaning some form of local license, authorization, or permitting. Under the MCRSA, Los Angeles essentially received a carve out to be able to continue enforcing its Proposition D, regardless of whether a marijuana business receives a state license.

Then, realizing that Proposition D does not qualify as local licensing, permitting, or even authorization (since it’s really just a registration and taxation measure), combined with the fear that Los Angeles may never enact any form of “local approval” to enable marijuana businesses to secure state licenses, the California State legislature, tried to pass AB 2385, which would have dropped the local approval requirement for Los Angeles. Under AB 2385, marijuana business applicants under the MCRSA that could show compliance with Proposition D would be eligible to receive a California cannabis license. However, the governor vetoed AB 2385. Because Proposition 64 itself provides no special treatment for Proposition D, Los Angeles marijuana businesses will still need to comply with local laws to open their doors under the new recreational laws. What all of this means is that Los Angeles could be stuck with Proposition D and that means it will either have no medical marijuana businesses at all or only the 135 existing dispensaries assuming they all go recreational.

Until perhaps March 7. On March 7th, Los Angeles will vote on two ballot measures to replace Proposition D, which can only be repealed and replaced by a vote of the people. The first ballot measure, called the Cannabis Enforcement, Taxation and Regulation Act (“CERTA“), is backed by the City of Los Angeles. The second ballot measure is called the Los Angeles Marijuana and Regulation Safety Measure and that one was drafted by the United Cannabis Business Alliance Trade Association (“UBCA”).

The CERTA measure sets the stage for the City to enact whatever rules and laws necessary to regulate City of Los Angeles “cannabis activity” in the context of California’s new marijuana laws, while also creating new criminal and nuisance penalties and implementing new business taxes on marijuana sales. It also gives priority status in “processing of applications” to the existing 135 Proposition D dispensaries, but it does not say that the City is limited to regulating only those 135 dispensaries nor does it forbid the City from creating regulations for other marijuana businesses like cultivators and manufacturers.

The UCBA  ballot measure is much more comprehensive than the CERTA. This measure would create the Los Angeles Department of Medical Marijuana Regulation to oversee the Collective Commercial Cannabis and Commercial Cannabis permit programs, which would cover both medical and recreational marijuana businesses. This measure would also allow for permitting of cannabis cultivation, manufacturing, transportation, testing, and distribution businesses. Like the City supported measure, this measure too will give licensing priority to existing 135 Proposition D dispensaries; it calls for mandating that the City continue to allow these 135 cannabis dispensaries to operate and for these dispensaries to get their required permitting ahead of any new dispensary applicants. It also provides that if not all of the 135 existing dispensaries apply for and receive the required permitting, the City may allow additional dispensaries to participate in the Los Angeles cannabis market and that the City cannot have less than 135 dispensaries in operation. The measure also sets forth how the permit application process will work and the zoning and setback requirements required for all permit applicants.

Importantly, as of December of last year, UCBA has decided to formally support the City ballot measure. Nonetheless, the UCBA measure will still be on the ballot in March.

Though Forbes is predicting L.A.’s medical marijuana market could reach $1 billion, that’s not going to happen anytime soon unless the City starts allowing for significantly more marijuana commerce. The March 7 vote is crucial to the future of marijuana in Los Angeles as it will determine who can run or invest in a marijuana business in the City of L.A. and what it will take to do so.

Stay tuned.

Cannabis Business LawyersAs cannabis business attorneys, we tend to have a good pulse on what is going on in the cannabis industry and especially on the false claims people make about the cannabis industry. I’ve previously written about the top ten industry red flags and the top ten industry red herrings. In this post, I discuss the top six bogus claims we keep hearing about the marijuana industry:

  1. President-elect Donald Trump and appointee U.S. Attorney General Jeff Sessions will not impair state-legal marijuana. Nobody can know or even predict what this new administration will do with state-legal marijuana. President-elect Trump has been all over the place on cannabis and who’s to say whether he will remain consistent on states’ rights when it comes to marijuana (despite his campaign rhetoric)? What we do know is that so long as Congress continues to renew the medical marijuana protections in the appropriations riders, state law-compliant MMJ operators are unlikely to be shut down by the Department of Justice. Unfortunately, the same cannot be said of recreational marijuana businesses. Both a lot and a little has been made out of Jeff Sessions‘ confirmation hearing, but the bottom line is that he really didn’t say much one way or the other that helps to discern what will happen with cannabis in the next four years. In the end, it’s anyone’s guess as to what Trump and Sessions have in store for state-legal marijuana.
  2. CBD-Oil is legal everywhere in the U.S. Many “CBD” companies tout this claim and many consumers believe it to be true. CBD is not legal everywhere. The DEA considers CBD with active THC to violate the federal Controlled Substances Act and it recently made this clear when it announced that it considers CBD derived from hemp to be illegal and made clear that it will be stepping up enforcement actions against online and interstate CBD sales. We’ve previously written on how the FDA goes after anyone making medical claims for CBD, whether for humans or pets.
  3. Florida medical marijuana is going to be huge. I have been getting a steady stream of calls and emails from folks wanting a Florida medical marijuana license or to start preparing for registration to start a Florida cannabis business under Amendment 2. Far too many of these people see Florida as an opportunity for nearly guaranteed riches. The problem is that Florida cannabis is already dominated by seven Charlotte’s Web nurseries and this will not change unless Florida opens its medical marijuana marketplace to others. Not only that, even if Florida allows new applicants for cannabis licenses, its application process will surely be expensive, lengthy, and full of red tape. So though Florida’s cannabis industry will eventually be huge, in the meantime, patience is called for and you should avoid any and all “how to get rich quick on Florida cannabis” seminars and pot “colleges.” In the meantime, here’s our primer on some of what you can and should do now to prepare for Florida licensing/registration.
  4. I’m just a landlord to a marijuana business so I cannot be criminally liableUnfortunately for landlords, they can face criminal prosecution for aiding, abetting and conspiracy under federal law and also asset forfeiture. Just look at what happened to the landlord in the Harborside case if you still believe otherwise — thankfully, that case was eventually dismissed. If you are a landlord to a cannabis business, you should get educated on your criminal liability and on federal and state forfeiture laws. Most importantly, your lease agreement should be drafted to ensure your tenant behaves.
  5. Yesterday, I was a criminal defense attorney. Today, I’m a marijuana securities and business lawyer. We hear of this sort of claim constantly and guess what, 99 times out of 100, you would be better off using a business lawyer with no cannabis experience than a criminal cannabis lawyer who now claims to know complex business and securities laws overnight. The sad truth is that criminal cannabis lawyers in states that have legalized cannabis are finding themselves without clients and they are having to scramble to re-brand themselves as cannabis business lawyers. But branding and reality are two very different things, and firms with actual expertise in both business law and marijuana regulatory law are far too often called on to clean up expensive messes left by these unqualified lawyers. For tips on how to choose an experienced cannabis business attorney, go here.
  6. The cannabis industry is worth billions so I need to invest now, now, now. I never tire of writing about the hustlers and hucksters who insist investors immediately dump gobs of money into the marijuana industry. I received an email just last week with the following advertisement:

 

The $100 billion marijuana industry is dominated by penny stocks. With legalization sweeping the country, these penny stocks have already begun skyrocketing in price. Take action TODAY, and you have a once-in-a-generation opportunity to turn a tiny $50 investment into an absolute fortune.

Federal illegality makes it difficult to secure a bank account and the IRS continues to tax the industry to death under 280e. Cannabis investors can face criminal liability (just like landlords) and they can find themselves subject to asset forfeiture for financially supporting illegal entities and activities. Due to the newness of this industry, fraud is not uncommon. Investment in the ancillary, support sectors (like tech or real estate development) is a bit more straightforward and a bit less risky, but all investors in cannabis need to be vigilant, especially until we get a better feel for what the Trump administration has in store for us. For more on marijuana stock fraud and scams, see here and here.

So the next time you hear anyone make a too-good-to-be-true statement about the cannabis industry, at least be sure to check it out before buying in.