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This quote from AG Sessions is the smartest thing he’s said on cannabis so far. Despite his well-established loathing for marijuana, Sessions here indicates respect for the Cole Memo, though it remains to be seen whether he will uphold the Memo in its entirety. The Cole Memo is an internal Department of Justice memo outlining how the Department should proceed in enforcing federal law in state-legal cannabis states. It reveals the DOJ’s tue priorities when it comes to marijuana, such as preventing distribution to minors, preventing revenue from marijuana sales from going to cartels and other criminal enterprises, and preventing marijuana possession and use on federal property.

Sessions still has an irrational hatred of cannabis as in the same interview where he talked of upholding the Cole Memo, he launched into the following diatribe:

I realize this may be an unfashionable belief in a time of growing tolerance of drug use.  But too many lives are at stake to worry about being fashionable.  I reject the idea that America will be a better place if marijuana is sold in every corner store.  And I am astonished to hear people suggest that we can solve our heroin crisis by legalizing marijuana – so people can trade one life-wrecking dependency for another that’s only slightly less awful.  Our nation needs to say clearly once again that using drugs will destroy your life.

Here’s the thing. How Jeff Sessions personally feels about cannabis should be irrelevant. The truth is that the majority of states have chosen to legalize cannabis and the voice of those people should be respected. There are plenty of people who do not think it wise to consume cannabis, yet still believe (for all sorts of reasons) that it should be legal. We can respect that as a personal choice. Is it possible that as much as Sessions hates cannabis that he realizes that the voice of the people and legal consistency and fairness and justice and, yes, states rights, should trump (pun only sort of intended) that?

Time will tell.

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.

 

 

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.

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.

 

Cannabis fraud cannabis lawyersDon’t lie to your investors, and don’t be taken in by investments that don’t make sense. That’s the moral of this story, which made the rounds based on an SEC press release on Friday. A few years ago, the founder of a marijuana ancillary services company allegedly pumped up the value of that company with misleading press releases and created illusory revenues by transacting “sales” between the “operating” company and the publicly traded company. The SEC found out, investigated, charged the founder, and settled for a hefty fine. The cannabis industry is full of these stories. Every time a local newspaper touts how high marijuana tax revenues are or any new milestone in local marijuana sales, it invites investors to throw their money at any company they can. Investing in small, local, state-licensed cannabis companies is challenging and time-consuming due to state regulations, and the back-end return is fine, but usually not amazing. Public companies, on the other hand, promise enormous growth by having their hands in and around all aspects of the industry, and investors flock.

For those of us that try to do things the right way in this industry, it’s easy to highlight stories like this as indicative of bad actors and move on, but it’s important to remember a few things. The company described in the story was prominent in the cannabis industry for a while, and a lot of people thought it was making a lot of money and doing really well. It’s not just investors that get taken for a ride in cases like this. Attorneys, accountants, industry lobbying organizations, and others often get taken in the same way investors do, and they can face similar consequences. Public company fraud often relies on complicit actions by people who don’t realize they are a party to the fraud.

Here’s how things can spiral: Fraudco, Inc. puts out a press release touting big money and amazing technology. Small media outlets jump on it because they desperately need content. Attorneys, accountants, and potential business partners across the country that are looking for opportunities see the initial media coverage and rush in to see if they can do business with Fraudco. Fraudco is light on the details but says yes. Larger industry organizations get word that Fraudco is aligning itself with well-known professionals within the industry and give Fraudco a more prominent public and political role (after Fraudco pays to be a gold-level member). Larger media stories follow, and the public sees a company with positive reporting from large and small outlets and business relationships with recognizable and respected businesses and other professionals. Fraudco doles out just enough money to the industry groups and professionals to make it seem like they are doing real business and to avoid too many questions.

It can take months or even years to figure out that much or all of a company’s business can be fictitious. This happens because we fall into the trap of relying too much on trust. A modicum of due diligence can generally unravel most fraudulent schemes. Just last week, in Buying a Cannabis Business: The Top Five Due Diligence Items or Buyer Beware, we stressed the importance of due diligence when buying a cannabis business. The same holds true when investing in one. Despite what most people think, the fraud aspect isn’t usually that complicated. The problem is that even a modicum of due diligence is hard. It’s time-consuming, and short cuts are attractive. One of the most prominent shortcuts you see in small industries is to assume that a company is legitimate because the media and other businesses in your industry act as though they are legitimate. You say to yourself, “Well they can’t all be wrong about Fraudco,” and you let your guard down. Now you’re part of the problem — a self-reinforcing feedback loop that gives power to a company whose only output is a constant churn of press releases. See also Oregon Cannabis Fraud: How to Stay Out of the Newspapers

If you’re a potential investor in the cannabis space, it’s not that hard to protect yourself. Even if you don’t know the first thing about due diligence, you can still follow the tips that FINRA laid out in its stock scam investor alert of a few years ago. You can also make the decision to have your lawyer review all transactions and perform due diligence before you enter anything binding. There’s no reason to go it alone. See The Six Top Marijuana Scams to Avoid and Top Ten Marijuana Industry Red Flags.

But if you’re an attorney or an accountant or an industry organization or other professional to whom people look for guidance, you have a greater responsibility. It isn’t just to make sure that you don’t do anything illegal. Your associations and your reputation matter. They matter for your business and they matter to the outside world. If you haven’t done your homework on a company to be sure it’s legitimate, don’t vouch for it. If you’re an industry organization, make sure that the businesses you promote and put at the forefront are real, compliant, successful businesses. The overwhelming majority of cannabis businesses we see are legitimate, but I also can tell you right now that there are plenty of cannabis businesses in California, Oregon, and Washington that those in the know whisper about and will not touch, and yet plenty of others seem to have no problem just diving in.

As long as marijuana is illegal federally, the cannabis industry is in a somewhat precarious position and every prominent cannabis company that engages in illegal conduct — whether illegal drug trafficking or investor fraud — is a stain on the industry that makes progress that much harder. Industry participants can’t prevent bad acts, but they can do their part to make sure they don’t contribute, mistakenly or not, to those bad acts.

Cannabis lawyersJust about whenever Attorney General Jeff Sessions speaks, the cannabis industry panics. Stop it people.

This week Jeff Sessions gave an interview where he was asked about possibly using the federal Racketeer Influenced and Corrupt Organizations (RICO) Act to tackle legal marijuana. The media (the cannabis media in particular) have covered that interview as though it sets forth a roadmap for federal cannabis policy. And since that interview, probably every single cannabis lawyer at my law firm (in California, Washington and Oregon) has received at least one client call seeking an opinion on it.

Stop it everyone. Just stop it. Really. Sessions didn’t do anything in this interview but muse about a seldom used federal statute.

In this interview, Sessions hinted that he might be open to using RICO to pursue cannabis businesses in cannabis legal states:

INTERVIEWER: One RICO prosecution against one marijuana retailer in one state that has so-called legalization ends this façade and this flaunting of the Supremacy Clause. Will you be bringing such a case?

SESSIONS: We will, marijuana is against federal law, and that applies in states where they may have repealed their own anti-marijuana laws. So yes, we will enforce law in an appropriate way nationwide. It’s not possible for the federal government, of course, to take over everything the local police used to do in a state that’s legalized it. And I’m not in favor of legalization of marijuana. I think it’s a more dangerous drug than a lot of people realize. I don’t think we’re going to be a better community if marijuana is sold in every corner grocery store.

Of course he might be open to using RICO to pursue federal criminal law violations by cannabis businesses. I actually do not believe Attorney Generals Holder and Lynch, who were the Attorney Generals during the Obama Administration) would have answered this question substantively much differently. You are not going to get an Attorney General to say, “yes, we have this really important law on the books, but nobody worry because we will never enforce it. Just go ahead and violate it.” Really?

And if you listen to the entire interview here, you will hear Sessions poo-poo the benefits of bringing a RICO action against state-legal cannabis businesses:

INTERVIEWER: [I]t would literally take one racketeering influence corrupt organization prosecution to take all the money from one retailer, and the message would be sent. I mean, if you want to send that message, you can send it. Do you think you’re going to send it?

SESSIONS: Well, we’ll be evaluating how we want to handle that. I think it’s a little more complicated than one RICO case, I’ve got to tell you. This — places like Colorado — it’s just sprung up a lot of different independent entities that are moving marijuana. And it’s also being moved interstate, not just in the home state.

RICO was designed to pursue the mafia and other organized crime groups. RICO provides powerful criminal and civil penalties against people who engage in a “pattern of racketeering activity” and have a relationship to an “enterprise.” “Racketeering activity” includes roughly a hundred different offenses, including violations of the Controlled Substances Act. A “pattern” is established when an offense occurs more than one time in a given statutorily defined time period. An “enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any group of individuals associated together even if they are not in a formal business relationship.

The broad interpretation of “enterprise” means that on a technical legal basis, RICO could pose a significant risk to cannabis businesses. The production and sale of cannabis is prohibited by the CSA and, therefore, regular sales of cannabis could serve as the predicate offense for a RICO charge and all those involved with legal cannabis sales, including vendors, contractors, landlords, lawyers, accountants, and even state officials could arguably be in an enterprise engaging in illegal activity.

But nobody should panic about this, not even close. RICO is a powerful but seldom used tool and that is because both prosecutors and judges view it as a very powerful weapon that should only be used in limited circumstances. The RICO statute has been around since 1970 and I cannot recall a single cannabis case having been brought under it. I am not saying there has never been such a case, but I am saying that it has been used sparingly in dealing with cannabis, if at all, including during Nixon’s “War on Drugs” and Reagan’s “Just Say No” administrations. In this same interview Sessions noted that the federal government has limited resources and it cannot simply commandeer local police forces to pursue RICO charges against cannabis users. RICO cases take a massive amount of effort to prosecute criminally and apparently not even Jeff (“good people don’t smoke cannabis“) Sessions deems this would be money and time well spent.

It also bears mentioning that a few years ago, some private citizens brought RICO claims against marijuana businesses and non-cannabis businesses alleged to have been operating in concert to sell cannabis. As we wrote here, the federal court dismissed those claims.

There is though one important thing cannabis businesses should take from this interview. Sessions is concerned about cannabis businesses that move marijuana from state to state. Note how he brings this up when he says: “it’s also being moved interstate, not just in the home state.” This IS important. The states are mostly in charge of prosecuting criminal activities that happen entirely within their own state borders. A robber in Portland or Seattle or San Francisco will almost certainly be prosecuted by state-city prosecutors; but a robber who brings stolen goods from Seattle to San Francisco could very well be prosecuted federally. The same has always been true of illegal drugs, including cannabis. If you are caught with weed in Newton, Iowa, you risk city or state prosecution. But if you are caught transporting cannabis from Iowa to Illinois, you risk federal prosecution.

So if you want to panic based on this Jeff Sessions interview, you should if you are planning to transport cannabis across state lines. The federal government has never liked interstate cannabis transport and it has always made this clear, as have we, in the following posts:

In Marijuana Law Myths. Not Everything Changes With Legalization, in Myth #2, we explain why it is so dangerous to fall for the myth that you can legally transport cannabis from one legal state to another and why this myth is so dangerous:

2. Now that marijuana is legal in Washington, Oregon, and Alaska, it is legal to sell Washington-grown marijuana in all three states. We hear this one ALL the time, mostly from marijuana businesses that intend to do this, believing it to be legal. It isn’t and please, please do not do this, unless you want to go to federal prison. The same holds true for Washington D.C., where marijuana was just legalized. You cannot just take your “legal” marijuana there and start selling it.

Taking legal pot across ANY state borders by boat or by car or by air is a big deal as it amounts to unlawful interstate drug trafficking.

More importantly, taking marijuana from one marijuana legal state to another is a federal crime. Marijuana is still a Schedule I Controlled Substance. The U.S. Constitution gives the federal government the authority to regulate interstate commerce. This means that it can (and does) prosecute people for transporting marijuana across state lines, even if the transport is from one marijuana legal state jurisdiction to another.

We are not saying that you should expect FBI agents to be sitting at the borders waiting to arrest people for going from one state to another with marijuana, but this is to say that traveling from state to state with marijuana is not advised, particularly by boat or by airplane. More importantly, a business plan that assumes this is legal is a business plan that will set you up to fail, especially if you publicly reveal that your business does this.

This is also a good time to remind you that if you are going to drive from state to state, clear out your cars, your boats, your airplanes, your clothes and your luggage before going from a cannabis legal state to one that is not. State troopers in states like Nebraska, Kansas, and Idaho (and even Nevada where cannabis is legal for medical us but not recreational) love making easy money by arresting and fining people entering with marijuana from Colorado and Washington.

Transporting a Schedule I Controlled Substance, including marijuana, across any state line is a federal felony. This is the case even if your medical marijuana patient card is honored in the next state over, and even if you are moving between jurisdictions that have legalized recreational marijuana. Keep and consume your cannabis in the state where you purchased it, or you run the risk of federal criminal charges for transporting a controlled substance.

So yeah, moving cannabis across state lines (yes, even from one cannabis legal state to another) is a really bad idea.

Oh, and one more thing, many (even some in the cannabis industry) are acting as though one RICO case would do what this interviewer says and “send the message” to all those in the cannabis industry to terminate all their employees and shut down their state-legal cannabis businesses. In other words, many are acting as though one RICO claim would be “lights out” for legalized cannabis all across the country.

This is absurd. The federal government has been trying to shut down cannabis for more than one hundred years, and for much of that time, it had overwhelming popular support for doing so. Today though, the majority of Americans favor legalization and those numbers keep getting better. Were the federal government to pursue “just one” RICO claim, it would likely be against a really large cannabis business that transported cannabis across state lines and I do not believe such a lawsuit would lead to a single state-legal cannabis business shutting down. If anything, it would be more likely to galvanize our country to legalize cannabis once and for all.

So please, nobody panic.

Cannabis lawyers

How refreshing: a politician who thinks sensibly about cannabis. Prime Minister Trudeau is correct: you don’t need to enjoy marijuana or want access to it to support its legalization. Legalization speaks for itself. It’s good for the economy as it creates jobs and generates tax revenue. It’s good for those that use cannabis medicinally and/or recreationally and it’s good for disempowering the black market. The regulation of which Trudeau speaks is both practical and based on actual evidence from places that have already legalized. What a welcome difference from Jeff Sessions’ comments, about which we wrote last week and other cannabis comments the Trump administration.

We aren’t asking for much. Just common sense, not scare tactics.

 

American lawyer in BarcelonaAs we have written previously (See Marijuana in Spain: Our on the Ground Report), the Catalonia region of Spain — particularly its flagship city of Barcelona, home of our Spanish outpost — is a major European cannabis hub. Despite this, the laws in Spain and in Catalonia and in Barcelona are complicated and their enforcement is uneven, and all of this makes for difficulties and risks for cannabis businesses and even ancillary companies there.

The following should give you a quick “lay of the land” regarding cannabis in Spain:

  • Spain has emerged as a prominent center for cannabis culture in Europe
  • Barcelona is home to 200-plus private cannabis clubs
  • The Spanish government is not terribly interested in enforcing its national cannabis laws, especially in Catalonia
  • Cities in Catalonia have already taken steps towards sanctioning cannabis legalization, despite foot-dragging on the regional and national levels

In 2016, the regional Parliament of Catalonia proposed reforms in line with a 2014 initiative advocated by the Rosa La Verda platform in advance of the 2014 elections. The initiative’s aim was to create a framework for 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, our Barcelona attorneys report that this issue has recently reemerged and anticipation is building for a revised version of the bill.

So, what are the key points of the earlier legislation as proposed in 2016? The aim of the 2014 effort was to advocate for reforms to allow adults in Spain age 21 and over to safely and legally obtain and consume marijuana. How has the legislative rules proposal manifested in the most recent legislation?

  • The proposal would define what a cannabis association is under the law.
  • The proposal would set standards requiring the business to disclose the chemicals used on cannabis products.
  • The proposal would obligate the supply chain to document the cultivation of cannabis distribution to consumers.

It remains to be seen how – and to what extent – these policy goals will take form in new legislation. It is also uncertain whether such legislation would actually pass, and how its success or failure might interact with other regional and local action on the issue.

Nonetheless, Catalonia, Spain – and Barcelona in particular – are certain to remain at the forefront of cannabis reform and reform-minded culture both in Spain and in the Europe. The success of progressive cannabis policy in the Spanish government would undoubtedly accelerate cannabis reform in Europe and beyond.

Stay tuned as we keep you updated with the latest developments in Spain’s cannabis reform efforts.

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.