Cannabis researchA few months ago, the National Academies of Sciences, Engineering, and Medicine published a study of studies, reporting on the cumulative research to date on marijuana in a paper titled “The Health Effects of Cannabis and Cannabinoids.” There was some initial buzz, but only recently has the media really dug into the report — including a well-written summary by Vox’s German Lopez as part of his 4/20 reporting.

The report examined both positive and negative health claims related to cannabis. First, here’s a look at some of the baseline conclusions:

  • Potential Negative Effects of Using Marijuana:
    • Research does not show cannabis increases the risk of cancer, except for one subtype of testicular cancer for which there is moderate evidence of increased risk.
    • No clear answer if cannabis has any effect on the cardiometabolic system (heart attacks, strokes, diabetes).
    • Smoking cannabis is associated with chronic coughs, but not clear if it leads to asthma or harms lung functioning.
    • Limited evidence regarding cannabis effects on the immune system.
    • Cannabis does increase the risk of automobile accidents.
    • Cannabis use by pregnant women is associated with lower birth weights in offspring.
    • Cannabis use by adolescents is related to lower level academic achievement and decreased future income.
    • Cannabis use likely slightly increases the risk of developing schizophrenia and other psychoses, but it does not increase the risk of developing depression, anxiety, or PTSD.
  • Potential Therapeutic Effects of Using Marijuana
    • Cannabis is effective as an antiemetic (anti-nausea) for people undergoing chemotherapy.
    • Patients with chronic pain consistently report a reduction in symptoms.
    • Patients with multiple sclerosis report a decrease in spasticity symptoms.

The report examined a bevy of other claimed therapeutic uses for marijuana, but the research did not generate sufficient information to back up those claims. For example, some of the primary data indicates cannabis use may decrease the size of certain brain and spine tumors called glioma, but with only one limited study to go on, the National Academies team didn’t have nearly sufficient evidence to show this was proven.

The overwhelming takeaway from the report was that significantly more research is needed to further understand cannabis’s effects on the human body. We have previously written about obstacles to cannabis research. There are reputational worries, where many universities still wring their hands over the politics of engaging in marijuana research. In 2014, the University of Arizona fired Suzanne Sisley, a psychiatrist studying cannabis use for PTSD, and Sisley has consistently maintained that her firing was simply because her research involved marijuana. Even when researchers have sufficient institutional backing to perform their work, the logistics of getting cannabis to study are extremely challenging. The marijuana available from the National Institute of Drug Abuse’s facility at the University of Mississippi sometimes does not even resemble marijuana as much as old dried out cooking herbs. Even though the DEA under President Obama took steps to allow other facilities to grow cannabis for research purposes, no other facilities have been approved.

All told, just about every reasonable person agrees more systematic cannabis research would be reasonable and helpful. On Saturday April 22scientists marched in Washington, DC and elsewhere in support of “robustly funded and publicly communicated science as a pillar of human freedom and prosperity.” March participants rallied for many topics, including marijuana research. The cannabis industry should continue to support these efforts — good science is always beneficial.

Buying and selling cannabis businesses We like to blog about buying and selling pot businesses. It’s a rich topic and the transactions can be memorable for both entrepreneurs and attorneys. In our recent posts, we have canvassed subjects from diligence items for buyers to checklist items for sellers. We also have covered important transactional topics such as how much your cannabis business may be worth and what you can actually sell. Today’s entry covers a structural part of many business sale agreements: the earn-out.

An earn-out is a contractual provision that entitles a seller to additional compensation in the future, if the business achieves stated financial goals. Earn-outs are used when the asking price for a business is more than a buyer is willing or able to pay up front. A well drawn earn-out can bridge the valuation gap between an optimistic seller (pretty much all of them) and a skeptical, cash-strapped, buyer (just some of them). It can also provide a buyer with additional financing. In an industry where hard money is the rule and bank loans are not available, that can be compelling.

The primary objective in an earn-out is to allow the buyer to make payments over time. The earn-out may also require the seller to step into a consulting role post-sale, and actually “earn” the post-transaction payments. In those cases, it is important to clearly outline the parties’ expectations. This scenario makes for a less clean break, but sometimes a seller has invaluable expertise and experience—particularly in a local marijuana market—that can be passed along with the sale.

In addition to seller support, there are many factors to consider in negotiating an earn-out agreement. Five important ones include: (1) the earn-out period; (2) payment structure; (3) payment schedule; (4) performance matrices; and (5) accounting standards. Earn-out payments may also be capped or uncapped, and the parties can stipulate that future events (like federal enforcement action, for example) will offset earn-out payments. Depending on the type and size of the deal, and the parties’ personalities, an earn-out can be simple or extremely complex.

If the goal is to keep things simple from both a payment and audit perspective, the parties will choose an easy-to-peg accounting and payment metric. For example, sellers often suggest an earn-out based on sales, because this line item is never disputed and the calculation is simple. A buyer, on the other hand, may push for an earn-out based on net income, as this metric accounts for all nuances of a business’ operations. A middle road would peg the earn-out at a multiple of EBITDA, usually over a certain number and in each relevant year. Ultimately, simpler calculations mean fewer disputes.

Given the nature of federal law, the earn-out metric for a pot business must also consider factors mainline businesses needn’t entertain. One of these is the oppressive effect of IRC 280E, the tax code provision that cuts into marijuana business profits. Another is licensing implications at play in the relevant state: readers of this blog know that states have strict rules on who can hold a financial interest in a pot business, and how that interest may be postured.

At the end of the day, many deals in the cannabis industry are structured to account for a lack of institutional financing. Like the marijuana sale-and-leaseback or the ubiquitous seller carry, an earn-out may be a way for a cash-light market entrant to gain a toehold in state-legal cannabis. We expect that earn-outs will remain an attractive option for the industry until things change at the federal level. Given the current shape of things, that could be a while.

Happy 4/20.

California cannabis San BernardinoCalifornia has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we plan to cover who is banning, who is waiting, and who is embracing California’s change to legalize marijuana — permits, regulations, taxes and all. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on Yuba County, and before that, Marin CountyNevada County, the City of Lynwood, the City of CoachellaLos Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey County and the City of Emeryville.

Welcome to the California Cannabis Countdown.

Location. Ah, San Bernardino County, part of the fearsomely named Inland Empire. The county is located in southern California and it is the fifth most populous county in the state and the twelfth most populous county in the United States. With a geographical area covering 20,105 square miles, San Bernardino County is the largest county by area in the United States. When you fly into San Bernardino County for the first time you’ll probably take a second look at your ticket when you see Ontario as your destination. You will also notice the majestic San Gabriel Mountains and you’ll also feel the winds whipping off of them and making you wish you had driven and not flown.

History with Cannabis and Current Cannabis Laws. In 2011, the San Bernardino Board of Supervisors adopted ordinance No. 4140 banning medical marijuana dispensaries and outdoor cultivation in the Count’s unincorporated areas, with a minor exemption for one or two people to cultivate their own cannabis indoors. It wasn’t then surprising that the Board of Supervisors moved in 2016 to ban all commercial cannabis activities within San Bernardino County with ordinance 4309 (now Chapter 84.34 of the County Code). Section 84.34.040 of this new ordinance provides for the following exemptions:

The prohibition concerning commercial cannabis activity does not apply to a person with an identification card cultivating cannabis for his or her personal medical use or to a primary caregiver cultivating cannabis for the personal medical use of no more than five specified persons with identification cards, subject to the following requirements:

(a)     The cannabis is not sold, distributed, donated, or provided to any other person or entity.

(b)     A primary caregiver may only receive compensation in full compliance with Health and Safety Code § 11362.765, subdivision

(c)       Cultivation may only be conducted indoors at the private residence of the person with an identification card or the primary caregiver of the person with an identification card.

(d)       Cultivation shall be limited to no more than:

(1)         Twelve cannabis plants per person with an identification card or primary caregiver per private residence; and,

(2)       An aggregate total of 24 cannabis plants per private residence when more than one person with an identification card or primary caregiver lives at the private residence.

Proposed Cannabis Laws. Though San Bernardino County still stubbornly maintains a restrictive stance towards marijuana, the residents of the City of San Bernardino voted for Measure O on November 8, 2016. Measure O, known as the San Bernardino Regulate Marijuana Act of 2016, authorizes the City of San Bernardino to regulate both medical and recreational cannabis businesses consistent with California State law. Measure O’s implementation has however been delayed by two lawsuits asserting that its zoning restrictions too narrowly constrict the areas within the city in which a cannabis business can operate. Though it is unfortunate these lawsuits are delaying the issuance of City of San Bernardino cannabis licenses, it is at least good to see progress being made on cannabis in the Inland Empire. San Bernardino County and many of its cities still prohibit marijuana businesses but we see many other cities within the county and the rest of Inland Empire following the City of San Bernardino’s lead within the next year.

 

 

Marin County MarijuanaThough I just wrote about Marin County as part of our Cannabis Countdown series a few weeks ago, there have been major changes since then that warrant this update. Let’s start with a quick recap. In December of 2015 Marin County passed an ordinance (effective in February of 2016) giving its Board of Supervisors authority to license medical cannabis dispensaries in unincorporated Marin. This ordinance allowed up to four dispensaries in two zoned areas. Ten applications were submitted to the Marin County Board of Supervisors and open to public hearings.

I attended those meetings and left with the impression that most of the applicants were not properly prepared to deal with the public opposition they faced. The applicants were outmatched on issues like dispensary location and partner selection and they clearly had not invested sufficient time in garnering support from the local community. The County Administrator, Matthew Hymel, obviously felt the same way as he rejected all ten of the applications for a Marin County medical cannabis dispensary per the following statement:

After reviewing 10 vendor and site locations, the County Administrator has not approved any of the applications and has recommended a revised approach to licensing medical cannabis dispensaries in unincorporated areas.

After reviewing license applications and considering comments from the public, a volunteer advisory committee, and County staff, the County Administrator notified all the applicants that he was not approving their applications. Hymel said he plans to recommend that the Marin County Board of Supervisors consider a revised ordinance that would disconnect the selection of the operator from that of the location. In addition, he is recommending that the Board explore a delivery-only dispensary model to address concerns raised by residents at public meetings and via submission of written comments.

“This decision illustrates the challenge in finding the right combination of operator and location to provide patients with safe access to medical cannabis locally,” Hymel said.

The Community Development Agency (CDA) received 10 applications in designated locations where a medical cannabis dispensary could be permitted, and residents voiced opinions at three public meetings hosted this winter by CDA staff and members of the advisory committee. Of the 10 applications, eight were in the Highway 101 corridor zone and two were in the Central/West Marin zone. The 101 corridor applications included three in the Black Point area east of the Novato city limits, one in Santa Venetia near the San Rafael city limits, and four in the Tam Shoreline area between Mill Valley and Sausalito. The Central/West Marin applications included one in San Geronimo Valley and one in Marshall.

Although cannabis is considered an illegal drug by the federal government, Proposition 215 ensures that seriously ill Californians have the right to obtain and use cannabis for medical purposes upon receiving a recommendation from a physician. The County’s ordinance is consistent with the state’s Compassionate Use Act and Medical Cannabis Program. A licensed dispensary would have to be least 800 feet from schools, public parks, smoke shops, and other cannabis dispensaries to qualify for a license.

Medical cannabis dispensaries remain prohibited in unincorporated Marin, and none are open or permitted in any of the county’s towns or cities. The ordinance establishes a regulatory framework to license nonprofit patient collectives to meet the medical needs of local patients, many of whom have voiced the need for local dispensaries before the Board of Supervisors.

Though a big (perhaps fatal) setback for these ten applicants, these rejections open the door for businesses and individuals that want to operate a medical cannabis dispensary in Marin and are willing to invest the time and resources to obtain County approval. It’s important to note that 73% of Marin residents voted in favor of the Compassionate Use Act and nearly 70% approved the Adult Use of Marijuana Act so it’s clear Marin County amply supports medicinal and recreational cannabis, at least for those applicants who do not take that support for granted.

As we have often write on here, if you are looking to snare any sort of cannabis license, it is incumbent upon you (or at least your counsel) to know the sensitive local government and local populace issues in play. We’ve seen cities and counties time and time again change their minds on interim and permanent cannabis ordinances, each of which can tremendously impact our client’s bottom-lines. To position yourself to know when these changes are coming and to be able to influence them, you need to get to know your city or county council/commission’s voting agenda and make yourself a part of the local lawmaking process. Doing this can give you a place at the table in drafting or effect change on pending ordinances while at the same time enabling you to stay on top of potential and actual changes. Staying on top of local laws requires action and vigilance. If you are not going to stay alert so as to benefit your cannabis business, hire someone to do that for you.

Whenever a city or county is about to start issuing cannabis licenses for the first time, there will be a vocal part of the community that will come out forcefully against marijuana or against marijuana in their neighborhood. Fortunately, just being loud is not always going to be a winning position against a cannabis business that has spent the time engaging with the community in which it hopes to operate. There will eventually be cannabis businesses in Marin County, but first some fences need to be mended.

Oregon cannabis lawyersLast month, the Oregon State Police Drug Enforcement Section published a report titled “A Baseline Evaluation of Cannabis Enforcement Priorities in Oregon.” It’s a great read. The big takeaway, as reported by The Oregonian, is that Oregon remains a top source for black market pot— despite our legal cannabis programs. Those familiar with the industry have long known this fact, of course, and the problem has been exacerbated as of late for various reasons. These include: state and local regulatory hurdles, high start-up costs, and increased federal uncertainty.

We have been been writing about the unsanctioned Oregon market for quite some time. To be clear: there has always been a black market in Oregon, and will be for a while. There is also a dark gray market, an off-white market, and many shades between. As a general concept, the further that weed gets from the grower, the darker the market. This is especially true in poorly regulated systems like the Oregon Medical Marijuana Program.

Right now, Oregon probably grows four or five times the amount of cannabis that is consumed in-state. (It’s not that consumers aren’t trying; there’s just too much pot.) The Oregon State Police study estimates that just 30 percent of all pot transactions are state-approved. Much of the surplus weed goes from sea to shining sea, but especially to hubs like Illinois, Minnesota, New York, and Florida. Because Oregon weed is an excellent brand, demand is high nationwide.
The lion’s share of Oregon’s exported weed is grown in two southern counties: Jackson and Josephine. And much of that weed is straight-to-black market—e.g., a pound of local weed may sell for $1,000 here, and re-sell somewhere like Texas for $7,000. Other transactions may be grayer and comparatively benign—e.g., a pound of weed grown under the medical program may be sold to the cardholder’s friend, at friendly prices.
As with any commodity, the blacker the market gets, the higher the price for cannabis. This is because buyers compensate dealers for increased risk of arrest, the cost of turf, and so on. One day, when pot becomes legal nationwide, the black market will probably look similar to those for other controlled substances, like tobacco and booze. Today, a few people still buy loosies and moonshine, but most of us go to the store.

It will be a while before Idaho, Texas, and other miserable states change their laws, so Oregon attempts to moderate the black market in three primary ways: law enforcement, supply, and taxation. Oregon needs to improve its enforcement, and turkeys like Jeff Sessions point to this as evidence that the program must end altogether. This argument ignores the demand side, though, where federal prohibition has created an irrepressible national market for Oregon weed.

On supply, the state is doing better. The goal here is to have enough legal weed so that no Oregonian needs to go off-system. Oregon is close on that one, but issues with state-mandated testing and license approval have caused temporary shortages. Recently, we have seen a spike in client requests for requirements contracts that cover the sale of cannabis even before it is grown—at least in the OLCC system. This should even out by 2018.

As for taxation, the goal is to generate revenue but keep prices low. When prices drop and stay below the black market, the black market disappears. The last people to leave will be the heaviest cannabis users, who are generally most price-sensitive and accustomed to informality. When all of those folks are finally going to the store, the black market will be gone—at least for Oregon sales. When the national laws change, the black market will dissipate altogether.

Over the past few months, our clients who have weathered the storm and resisted the urge to retreat to black and grey markets–and thereby remained our clients–have reaped dividends. Demand for state-sanctioned weed is robust among Oregon consumers, and we expect prices to remain high throughout the supply chain for a while. The Oregon Sate Police report is a helpful snapshot of where the state of the market today. Where it goes next is the fun part.

Editor’s Note: A version of this story originally appeared in the Portland Mercury’s “Ask a Pot Lawyer” column, also by Vince Sliwoski.

California cannabis lawyersIt started in Oregon with the breaking of “A Tainted High.” It then moved to Colorado with 19 marijuana and marijuana product recalls in 19 weeks in 2015. Washington then overhauled its pesticide program to prevent illegal pesticides on its regulated cannabis products (which eventually led to the state adopting recall rules). Now, California is finally learning how dangerous its cannabis can be, and its only a matter of time before California state regulators use the Medical Cannabis Regulation and Safety Act (“MCRSA“) and Adult Use of Marijuana Act (“AUMA“) to institute regulations to reduce the use of toxic and harmful marijuana pesticides.

Since none of California’s existing medical marijuana laws mandate any kind of quality assurance or pesticide testing, California cannabis patients have been taking their chances that their medicine is safe for consumption. You will be hard-pressed to find medical marijuana dispensaries in California that follow Proposition 65, which added marijuana smoke to its list of potentially cancer-causing products in 2009.

But that’s all about to change.

AB 266 of the MCSRA requires medical cannabis be tested:

Medical cannabis and medical cannabis products shall be tested by a registered testing laboratory, prior to retail sale or dispensing, as follows: Medical cannabis from dried flower shall, at a minimum, be tested for concentration, pesticides, mold, and other contaminants.
And AB 243 of the MCRSA states as follows:
The United States Environmental Protection Agency has not established appropriate pesticide tolerances for, or permitted the registration and lawful use of, pesticides on cannabis crops intended for human consumption pursuant to the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 136 et seq.). The use of pesticides is not adequately regulated due to the omissions in federal law, and cannabis cultivated in California for California patients can and often does contain pesticide residues. Lawful California medical cannabis growers and caregivers urge the Department of Pesticide Regulation to provide guidance, in absence of federal guidance, on whether the pesticides currently used at most cannabis cultivation sites are actually safe for use on cannabis intended for human consumption.

Under the MCRSA, California’s Department of Pesticide Regulation (DPR), in consultation with the Department of Food and Agriculture (DFA), is charged with developing standards for using pesticides in cannabis cultivation and “the maximum tolerances for pesticides and other foreign object residue in harvested cannabis.” And the DPR, in consultation with the State Water Resources Control Board, must promulgate pesticide regulations for indoor and outdoor cultivating of medical cannabis equivalent to existing standards of the Food and Agricultural Code.

All of this will eventually make California the most conscientious state on both marijuana pesticides and cannabis’s impact on the environment. Each regional water board and the State Water Resources Control Board may address water waste and discharge of  pesticides and herbicides, which is far more than any other state has done, despite cannabis’s obvious environmental impacts. As far as adult use cannabis pesticide testing goes, the AUMA mandates compliance with the pesticide regulations set forth under the MCRSA by the Bureau of Medical Cannabis Regulation.

We do not yet know what California’s pesticide and testing regulations will look like in final form, but we’re sure to find out in late April when the Bureau will release its first set of draft MCRSA regulations. But our cannabis lawyer’s vast experience in regulated marijuana states tells us that you should, at minimum, expect mandatory analyses of the following:

  1. Microbiological screenings;
  2. Foreign matter inspection;
  3. Residual solvent tests; and
  4. Pesticide and other chemical residue and metals screening.

Though pricey for both the state and for marijuana businesses, mandatory cannabis testing is necessary to give California’s cannabis customers confidence in the state’s marijuana marketplace. The State of California will set the floor for consumer safety through quality assurance testing (and packaging and labeling rules) and all California marijuana businesses should prepare now for the consequences of potentially faulty testing, products liability claims (including against retailers), and start developing their own recall plans.

California Cannabis laws: Yuba CountyCalifornia has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we plan to cover who is banning, who is waiting, and who is embracing California’s change to legalize marijuana — permits, regulations, taxes and all. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on Marin County, and before that, Nevada County, the City of Lynwood, the City of Coachella, Los Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey County and the City of Emeryville.

Welcome to the California Cannabis Countdown.

Yuba County has a very strict cannabis ordinance and a very active Sheriff’s department. Though at one point the County allowed up to 99 cannabis plants, after an influx of large-scale grows and complaints from locals about the “negative” impacts of cultivation on the community, their current regulations allow a maximum plant count of 12, regardless of acreage, and cultivation is limited to indoor, accessory structures. Attempts to change the ordinance through lawsuits and ballot measures have all failed so far.

LocationYuba County is located in California’s Central Valley along the Feather River. It was one of the original counties of California formed when California became a state. It borders Nevada, Placer, and Butte Counties, which are all popular cannabis cultivation areas. The County lies along the western slope of the Sierra Nevada and a lot of agriculture businesses are located west of the mountains and include fruit orchards, rice fields, and cattle grazing.

History with CannabisOn May 1, 2012, Yuba County adopted its first marijuana regulations under Ordinance No. 1518, which was later amended on December 18, 2012 by Ordinance No. 1522. The County’s first Marijuana Cultivation Ordinance allowed for both indoor and outdoor cultivation with maximum a plant count based on parcel size. No more than 18 plants were allowed on parcels less than one acre with up to 99 plants allowed on parcels 20 acres or more.

In 2014, following concerns from local citizens regarding the effects of marijuana cultivation and other factors, the Yuba County Board of Supervisors initiated a full review of its Marijuana Cultivation Ordinance.

On April 28, 2015, the Board passed Urgency Ordinance No. 1542, which repealed and reenacted the County’s Marijuana Cultivation Ordinance, establishing a complete ban on outdoor cultivation and allowing only limited indoor cultivation.

On June 7, 2016, voters in Yuba County voted to defeat two marijuana ballot measures. Measure A would have increased the number of medical marijuana plants that could be cultivated on parcels of land greater than one acre and allowed for cultivation of medical marijuana outdoors and within residences. Measure B would have established regulations for medical marijuana dispensaries and authorized the licensing of at least one dispensary per 20,000 residents to operate within the County, allowing four or five dispensaries based on the County’s 2015 population.

On November 8, 2016, voters in Yuba County voted to defeat Measure E, which would have allowed for commercial medical cannabis activity and established regulations for cultivation, manufacturing, distribution, and transportation of medical cannabis within the County.

Current Cannabis Laws.

 Under Section 7.40.300 of the Yuba County Ordinance Code:

  1. Outdoor cultivation on any parcel is prohibited.
  2. Cultivation within a dwelling or any other structure used or intended for human habitation is prohibited.
  3. Cultivation of more than twelve (12) marijuana plants on any parcel is prohibited. This plant limitation applies regardless of the number of qualified patients or primary caregivers residing on the parcel or participating directly or indirectly in the cultivation. Further, this limitation applies notwithstanding any assertion that the person(s) cultivating marijuana are the primary caregiver(s) for qualified patients or that such person(s) are collectively or cooperatively cultivating marijuana.

Section 7.40.310 of the Code states that cannabis cultivation in unincorporated areas of the County may only occur on parcels with an occupied, legally established dwelling and shall be contained within the defined area of cultivation in one, single residential accessory structure affixed to the real property that: (1) meets the definition of “indoor;” (2) is located on the same parcel as the dwelling of a qualified patient or primary caregiver; and (3) complies with all provisions of the County code relating to accessory structures.

An “accessory structure” is defined under the County code as a separate and permitted building located on the same parcel as the residence and must meet several criteria listed under Section 7.40.320. Certain accessory structures may also be required to be surrounded by a solid fence that complies with Section 7.40.330 of the County code.

Marijuana cultivators in Yuba County must also register with the County. The cultivation of marijuana in any quantity upon any premises in unincorporated areas of Yuba County without first registering the cultivation and paying the required fee is declared unlawful and a public nuisance under Section 7.40.340.

In addition, under Section 7.40.140, it is the duty of every real property owner, whether or not he or she is in actual possession of the property, to prevent a public nuisance from arising on, or existing upon, his or her real property.

Proposed Cannabis Laws.

There are currently no proposed laws to change the cannabis ordinance in Yuba County. Attempts last year to repeal the County’s Marijuana Cultivation Ordinance through ballot measures were all defeated by the voters.

Current Cannabis Enforcement.

Efforts to fight against the Marijuana Cultivation Ordinance in Yuba County have so far been unsuccessful. In 2016, the Yuba Patient Coalition filed a lawsuit against the County arguing the County’s ordinance is unconstitutional and discriminatory, however the judge ruled in favor the County.

Though there is a ban on all outdoor cultivation and a 12 plant cap for indoor cultivation in accessory structures, cannabis cultivation still occurs in unincorporated areas of the County in violation of current laws. In response, the County has taken enforcement actions against marijuana cultivators and their landlords. On March 16, 2017, the Yuba County Sheriff’s Department raided several indoor marijuana grows seizing over 3,600 marijuana plants. Property owners who lease property to marijuana growers in Yuba County also face penalties of $100 per plant per day until the plant is removed, which in some cases has resulted in fines of over $200,000, as well as the risk of felony convictions.

Unless and until Yuba County changes its cannabis regulations, it is not a good place for a cannabis business.

Georgia CannabisGeorgia lawmakers agreed to a compromise bill Thursday to expand the state’s medical marijuana program. The deal comes after competing bills in the Georgia State House and Senate clashed over the direction of the program. If passed, the legislation would open the door for patients with Alzheimer’s disease, AIDS, autism, epidermolysis bullosa, peripheral neuropathy, and Tourette’s syndrome to receive medical marijuana with a doctor’s recommendation.

We ranked Georgia at number 34 among the states for cannabis. If this bill passes, Georgia would likely leap up around ten spots in our next state ranking go-round.

Background. The Georgia legislature approved medical marijuana with the passage of HB1 in late 2015. In its original form, Georgia’s medical marijuana law allowed patients with eight specific conditions to possess up to twenty ounces of cannabis oil with a doctor’s recommendation. The law also permitted only low-THC cannabis oils capped at 5% THC concentration. The combination of these factors has contributed to significant access issues for patients in the state. A 2016 bill failed to solve the problem.

Divergent legislative responses. This session, the Georgia House and Senate each took up efforts to reform the state’s medical marijuana program. The House proposed and passed a bill to expand the program to include the diseases found in the compromise bill. In contrast, the Senate put forth a bill that only added one of these conditions (autism) to the list. The Senate bill would also have lowered the maximum allowable THC concentration to 3%.

The compromise bill looks to include nearly all the House provisions with respect to adding additional qualifying conditions. The 5% THC concentration limit also looks to be safe.

What else is in the bill? In addition to augmenting the list of qualifying conditions and maintaining status quo concentration limits, the final bill could also mold the legal framework for Georgia’s medical marijuana program in other ways. The extent to which many of these provisions – all from the House bill – will survive in the final legislation is uncertain but they are illustrative of Georgia lawmakers’ sentiments and the ways in which medical marijuana programs can be iteratively refined.

  • Delineating qualifying conditions
    • The House legislation would strike the requirement that cancer be in its “end stage” to qualify absent particular symptoms like vomiting. The bill would also strike language that would require patients with Parkinson’s or sickle cell to be in the “severe or end stage” of the disease before being eligible to receive medical marijuana treatment.
  • Removing barriers to access
    • The House legislation would also remove the residency requirement that limits access to medical marijuana for patients who are new to the state. The bill would additionally provide reciprocity for medical marijuana patients with proper documentation from other medical marijuana states qualifying them as such.

Next steps? The Atlanta Journal-Constitution reported that the bill would reach committee late Thursday. The bill is, of course, tentative until a final version is passed by both houses and signed into law, but indications are that the bill has significant support from both chambers and is likely to be signed by the governor.

 

 

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.

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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.

Government cannabis lawyersYesterday, the Washington Post ran an illuminating and sad little story on government marijuana, which is pot grown under the oversight of the National Institute on Drug Abuse (NIDA). The government marijuana photographed and featured in the story is a sample distributed to a researcher for use in ongoing clinical studies for treatment of military veterans suffering from PTSD. The marijuana in question looks a lot like green tea: it is blanched and dry, stems and leaves. It does not resemble cannabis.

We have written before about the embarrassment that is our federal system for cannabis research. When the Drug Enforcement Agency (DEA), which oversees NIDA, says things like “[r]esearch is the bedrock of science, and we… support and promote legitimate research regarding marijuana and its constituent parts,” you must forgive the industry for rolling its eyes. The DEA clearly has no interest in studying anything that resembles the plant anyone actually ingests.

In addition to the dismal aesthetics of the government weed (reported to also lack smell), the WaPo story reports that the strain at issue tested out at 8% THC, which is less than half the average concentration found in commercial grade marijuana. The government weed also tests high in common contaminants, like yeast and mold, which would mandate its destruction in states with cannabis consumer safety laws (like Oregon, Washington or Colorado). In all respects, it would be difficult to mistake government cannabis for actual cannabis.

According to researchers, the quality of the NIDA cannabis makes highly controlled medical experiments next to impossible. One example of such an experiment includes the very experiment for which the cannabis was provided. After wending through a labyrinthian 7.5 year approval process and amassing a budget of $2,156,000 (based on a grant from the State of Colorado), it seems like a shameful waste of time and resources to test this “cannabis” on military veterans suffering from PTSD. If the government cannot grow real marijuana, it should at least know where to acquire it.

We have written before that given the lay of the land, it is up to states and private actors to take the lead on cannabis research – just as they have in all other aspects of ending prohibition. Constituent parts of the cannabis plant have real medical value, but they must be investigated properly to explore these promising features. Journalism like the WaPo piece, showing the NIDA shake, is helpful in pushing back on DEA claims that the law enforcement agency is a champion of science that “promotes legitimate research.” It does not. Really, the pictures say it all.