cannabis marijuana trademark
Having to re-brand can be pretty painful.

One of my favorite pastimes is perusing the United States Patent and Trademark Office’s (USPTO) Trademark Trial and Appeals Board’s (TTAB) records for disputes involving cannabis, hemp and CBD because there are often valuable lessons to be learned. One such record is the pending Notice of Opposition filed by Heineken Asia Pacific against Hemp Beer Inc., a Colorado company making hemp beer.

As a little bit of background on the trademark opposition process, the owner of a registered trademark can file a Notice of Opposition against a trademark applicant when the opposer believes that the applicant’s pending mark infringes on the opposer’s registered trademark rights. In this case, Heineken owns eight U.S. federal trademark registrations for TIGER, TIGER WHITE, TIGER BLACK, and multiple other variations on the “tiger” marks for “beer, ale, lager, stout, pilsner, porter, and non-alcoholic [malt beverages] beer.”

The applicant in this case, Hemp Beer Inc., makes a hemp beer called “Tiger Hemp Beer,” and has filed for trademark protection with the USPTO for GET THE EYE OF THE TIGER for “beer; beer, ale and lager; craft beers; flavored beer.”

Heineken alleges in its Opposition that “[t]he mark shown in the Opposed Application so resembles the “TIGER” word or design marks previously used in the United States by the Plaintiff, when used or in connection with the goods identified in the Opposed Application, to cause confusion, to cause mistake, or to deceive, and Applicant’s mark is thus unregistrable under § 2(d) of the United States Trademark Act, 15 U.S.C. §1052(d), as amended.”

Now, perhaps the applicant did a search of the TESS database prior to filing its application, and came up with no hits for “get the eye of the tiger” in Class 32 (the class that covers beer). However, a hard lesson that many applicants have learned is that one mark does not need to be identical to another in order to infringe that other mark. And a quick look at Hemp Beer’s branding quickly reveals that they are using a mark (“Tiger Hemp Beer”) that is even more similar to Heineken’s TIGER registrations than the mark for which they’ve filed for federal trademark protection (and it is possible that Heineken has taken separate action on this account).

This serves as a good reminder to conduct a trademark clearance search prior to filing your federal trademark application to make sure that there are no existing “confusingly similar” trademarks to the mark you propose to use. It is also helpful to keep in mind the factors a court will consider in determining whether two marks are confusingly similar (AMF Inc. v. Sleekcraft Boats):

  • Strength of the mark;
  • Proximity of the goods;
  • Similarity of the marks;
  • Evidence of actual confusion;
  • Marketing channels used;
  • Type of goods and degree of care likely to be exercised by the purchaser;
  • Defendant’s intent in selecting the mark; and
  • Likelihood of expansion of the product lines.

“Similarity of the marks” is only one factor, and where the goods are very similar, or where the marketing channels and consumer base is the same, a registered mark may be given a broader scope of protection. The analysis for likelihood of confusion can be quite complex.

Before adopting a new cannabis brand name, we recommend consulting with an experienced cannabis trademark attorney and we also recommend having them perform a trademark clearance search to ensure your brand won’t be infringing any existing registrations. Even if you manage to avoid litigation over trademark infringement, you could still open yourself up to an opposition proceeding with the TTAB months or years down the line, which can be expensive and time-intensive, and should be avoided at all costs.

industrial hemp CBD legal

As CBD and hemp continue to grow in popularity we are receiving an increasing number of calls and emails from companies that want to distribute hemp across the country. We have written about the legality of hemp and CBD under federal law:

This post focuses on another topic: state law on CBD and Industrial Hemp.

The 2014 Farm Bill grants states the authority to regulate Industrial Hemp, which contains less than .3%  THC on a dry weight basis, through an Agricultural Pilot Program. The Farm Bill also requires that Industrial Hemp is overseen by a state’s department of agriculture. The Farm Bill is light on additional details and states have taken different approaches to regulating Industrial Hemp and CBD derived from Industrial Hemp.

Colorado cemented its place in history as a cannabis pioneer by legalizing marijuana in 2012 along with Washington. Colorado’s hemp credentials are also solid as it has dedicated more acreage to the cultivation of hemp than any other state. Cultivators are permitted to sell hemp to the public. Colorado does not oversee the processing of hemp though which makes the extraction process largely unregulated.

Unlike Colorado, Oregon regulates both the production and processing of Industrial Hemp. Oregon’s Department of Agriculture (ODA) oversees the state’s industrial hemp program. “Growers” must register with the ODA in order to produce Industrial Hemp and “Handlers” must register to process Industrial Hemp. Oregon differs from Colorado in that it does not permit its Growers to sell Industrial Hemp directly to the public. Conversely, Handlers are permitted to sell Industrial Hemp to any person. Growers and Handlers may also sell their products to licensed recreational marijuana businesses giving them access the state’s recreational marijuana market. Growers and Handlers can apply to the Oregon Liquor Control Commission (OLCC) for an Industrial Hemp certificate to transfer hemp to recreational processors. OLCC retailers can then turn around and sell these hemp-based products to Oregon consumers.

Washington recently passed a law that sets up a similar structure. You can read about this law here, as we covered it a few months ago when it was still a proposed  bill. Washington’s licensed processors will soon be allowed to use additives derived from hemp-based products that were grown outside of its licensed marijuana system. These additives may come from Washington’s own Industrial Hemp program, which has been stalled for the last few years due to budget issues, or from Industrial Hemp sourced from other sources.

California has followed a similar path to Washington in that its hemp program has failed to launch in a meaningful way. Part of the hold up has been that California requires that Industrial Hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee. We wrote about proposed changes to California’s program here.

Michigan‘s office of Licensing and Regulatory Affairs (LARA) recently issued an Advisory Bulletin that only permits the sale of CBD in licensed medical marijuana dispensaries. The Bulletin first states that CBD cannot be found in portions of the cannabis plant that fall outside the state’s definition of “marihuana” (i.e., the mature stalks, seeds incapable of germination, fiber from stalks, oil or cake made from seeds or other derivatives of the mature stalks) other than in trace amounts. The Bulletin goes onto state that Michigan’s Industrial Hemp program does not authorize the “sale or transfer” of Industrial Hemp.

This is significant as it means that CBD derived from Industrial Hemp cannot be sold and that CBD derived from marijuana can only be sold in dispensaries. The Bulletin also seems to include Industrial Hemp from other states as it concludes with the following:

Any possession or transfer of industrial hemp – or any product claimed to be “hemp”-related – must be done in compliance with Michigan’s Industrial Hemp Research Act.

The bottom line in Michigan is that to sell CBD in that state, whether from marijuana or hemp, you need to go through a dispensary.

Also keep in mind that some states do not regulate Industrial Hemp at all. This should not be interpreted to mean that they will turn a blind eye to hemp products distributed within their borders. Other states, regulate CBD specifically, which can be found in Industrial Hemp, and those states limit the use of CBD to patients who have received an authorization from a physician for its medical use.

If you want to distribute Industrial Hemp across the country it is not as simple as making sure that you have a licensed cultivator. Sure, you need to know the laws of the state in which you are sourcing hemp, but that’s not enough. You need to also consider the legal landscape of the places you intend to ship and sell Industrial Hemp products.

colorado2016 was a huge year for cannabis. As a result, we are ranking the fifty states from worst to best on how they treat cannabis and those who consume it. Each of our State of Cannabis posts analyzes one state and our final post will crown the best state for cannabis. As is always the case, but particularly so with this series, we welcome your comments.

We have reviewed all 50 states and are now almost ready to reveal our top pick when it comes to cannabis. This post focuses on the runner-up, Colorado, which along with Washington, was the first state to vote to legalize recreational marijuana.

Our previous rankings are as follows: 3. Washington; 4. California;  5. Alaska; 6. Massachusetts;  7. Maine; 8. New Mexico; 9. Nevada; 10. Hawaii; 11. Maryland; 12. Connecticut; 13. Vermont; 14. Rhode Island; 15. Kentucky; 16.Pennsylvania; 17.Delaware; 18. Michigan; 19. New Hampshire; 20. Ohio; 21. New Jersey; 22. Illinois; 23. Minnesota; 24. New York; 25. Wisconsin; 26. Arizona; 27. West Virginia; 28. Indiana; 29. North Carolina; 30. Utah;  31. South Carolina; 32. Tennessee; 33. North Dakota; 34.Georgia; 35. Louisiana; 36. Mississippi; 37. Nebraska; 38. Missouri; 39. Florida; 40. Arkansas; 41. Montana; 42. Iowa; 43. Virginia; 44. Wyoming; 45. Texas;  46. Kansas;  47. Alabama;  48. Idaho; 49. Oklahoma;  50. South Dakota.

Colorado

Recreational Marijuana. Colorado voters approved Amendment 64 in November 2012, legalizing recreational marijuana. In Colorado, adults 21 and over can possess up to one ounce of marijuana of useable marijuana. Colorado allows for home grows, meaning adults are allowed to grow cannabis plants in their homes. The state allows up to six marijuana plants in a private and locked space in a residence and a person may possess all marijuana grown from those plants, so long as that marijuana stays on the premises.

Colorado’s recreational marijuana market is the nation’s oldest. Though Washington and Colorado both voted to legalize marijuana on the same date, Colorado was the first to implement its recreational market. That market is made up of licensed cultivation facilities, product manufacturing facilities, testing facilities, and retail stores. The Colorado Department of Revenue oversees Colorado’s licensed cannabis entities. According to the Department’s website, Colorado’s market is currently made up of 441 retail stores, 623 cultivation facilities, 241 product manufacturers, and 13 testing facilities. Colorado cannabis eclipsed $1 billion in sales in only the first ten months of 2016 according to Fortune.

Colorado (Denver, actually) is in the forefront (sort of) on public consumption of cannabis. Denver voters approved Initiative 300 to allow private businesses to offer space for their patrons to consume cannabis. However, the Liquor Enforcement Division of the Colorado Department of Revenue recently approved a rule prohibiting businesses with a liquor license from applying for cannabis consumption permits under Initiative 300. This new rule will mean that Denver bars and restaurants that serve alcohol cannot also allow their patrons to use cannabis on-site.

Medical Marijuana. Colorado first approved the medical use of marijuana in 2000 when Colorado voters approved Amendment 20. Patients may possess up to 2 ounces of marijuana and may cultivate no more than six marijuana plants. Doctors may recommend more to treat a patient’s specific medical needs. The following are qualifying conditions for which a patient may use medical cannabis:

  • Cancer
  • Glaucoma
  • HIV/AIDS
  • Cachexia (wasting syndrome)
  • Persistent muscle spasms
  • Seizures
  • Severe nausea
  • Severe pain

Colorado patients may purchase cannabis at licensed medical dispensaries at a lower tax rate than recreational users. Colorado’s medical cannabis industry continues to operate alongside its recreational cannabis market.

Bottomline. Colorado ranks so high on our list largely because it has a proven history of being on the cutting edge of cannabis reform. It was the first to implement recreational marijuana and it has had an operational medical market for nearly twenty years. Colorado is now moving forward with allowing public consumption of cannabis as well. The cannabis industry is booming in Colorado, with profits from cannabis exceeding initial projections. One could argue that Colorado’s successful legalization has done more for legalization nationwide than that of any other state. One could also make a good argument for Colorado having done more to end the stigma surrounding cannabis than another state.

Next week we will conclude this series by revealing our number one cannabis state and. Our number one state owes a lot to Colorado and to Washington (our number three state) for its number one ranking. That state achieved its lead ranking by having been able to learn from the two great states (Colorado and Washington) that preceded it on legalizing cannabis.

Stay tuned.

Cannabis attorneysCannabis businesses must navigate many hurdles to survive and thrive in today’s evolving marijuana legal landscape, but not all challenges unique to this industry are caused by its precarious status under the law per se. Odor generated by marijuana cultivation is a prime example. As we have written previously, noticeable cannabis odor does not always make for a successful nuisance claim. But because not everyone wants to live next door to a pungent grow house, many localities have instituted specific rules to keep marijuana smell contained. This Cannabis Case Summary looks at the serious cost to cannabis businesses of disregarding cannabis smell rules, the potential difficulty of proving legal causation of marijuana odor, and the value of being a good neighbor.

According to the Boulder Daily Camera, Colorado cannabis producer Dandelion Grow was hit with a $14,000 fine in November for failing to comply with local cannabis odor rules. The citation came after a series of complaints that the grow’s smell could be detected from more than a block away. The city of Boulder requires cannabis businesses to limit odor to their own premises; Boulder County more permissively draws the line at licensees’ property boundaries. In response to the cannabis odor complaints, City of Boulder officials ordered Dandelion Grow eliminate the offensive odor and pay a $4,000 fine.

Just a weeks later, Dandelion Grow incurred a second fine for an identical cannabis odor violation – this time for $10,000. According to a Boulder city spokeswoman, Dandelion Grow had “elected not to make the necessary changes to come into compliance” with Boulder’s marijuana odor regulations. Dandelion Grow disputes this characterization and is moving to appeal the citation.

According to reports, Dandelion Grow is resting on two main theories to support its appeal. First, that such large fines – the largest in the history of Boulder’s legal cannabis industry – are unduly punitive because the company is working in good faith with the city to remedy the smell issue. Second, Dandelion Grow argues that it is only one of several cannabis-related facilities in the immediate area and the City of Boulder is arbitrarily pinning the odor on Dandelion Grow without adequately proving it is the only – or even the major – contributor to the cannabis odor.

This argument raises interesting questions concerning tort liability for a conventional nuisance claim with the same facts where a defendant presses on the element of causality. Unless and until the fabled marijuana breathalyzer begets court-admissible marijuana smell-o-vision, isolating a smell in a cluster of marijuana grow sites in close proximity will probably remain an inexact science.

However the Dandelion Grow case plays out, it should serve as a cautionary tale to cannabis businesses that local cannabis smell ordinances can carry real costs and consequences. Beyond the fines and the publicity, Dandelion Grow has also incurred and will likely continue to incur attorneys fees in fighting against the fines. We do not have enough facts to know what Dandelion Grow might have done differently, if anything at all, but this case should serve as a warning to cannabis growers to be wary of local laws, including cannabis smell laws.

NOTE: The above is part of our plan to summarize all cannabis civil cases with a published court decision. By civil case, we mean any case that involves cannabis or the cannabis industry that is not a strictly criminal law matter. These cannabis case summaries are intended both to keep you up to date on cannabis laws as interpreted by the courts and also to serve as a resource for anyone conducting cannabis law research. We also will seek to provide key unpublished cannabis law decisions as well, when available.

Cannabis real estate lawyersThe Denver Post ran a story Sunday on the high rents marijuana businesses have to deal with nationwide. In Portland, for example, rental property that typically goes for five dollars per square foot goes for three times that amount for cannabis businesses. Though rents for cannabis businesses in Washington and Colorado are stable, they are still well above the market rate. Real estate investors looking to lease to cannabis businesses are gambling that this trend will continue.

There are several things pushing up cannabis rents, many of which are discussed in the Denver Post article, all of which decrease the available supply of cannabis real estate. Any property with an existing deed of trust or mortgage held by a financial institution runs some extra risks. The vast majority of mortgages contain a clause mandating that the property only be used lawfully. If a property has a cannabis business use on it, the bank can call the loan in default and accelerate the principal so it’s all due immediately and giving the bank right to foreclose if the borrower cannot find alternative financing. Many cannabis businesses are at locations with mortgages now, and banks are tacitly accepting the businesses so long as the legal climate doesn’t change. If the legal climate does change and federal law enforcement becomes a real threat, the banks holding notes on cannabis properties could well use the legal changes as their opportunity to call their note in default, either getting their money back or allowing them to foreclose. Because of this threat from banks, most cannabis businesses prefer to lease property owned outright (without any bank note), and most landlords with financed property prefer to lend to businesses that are federally legal.

The hodge-podge of state and local cannabis regulations also tends to drive up the price of cannabis business real estate. State laws that limit how close cannabis businesses can be to a school, a park, a church, or another cannabis business also limits the number of properties available to cannabis businesses. When you add in local zoning codes that often push cannabis businesses to heavy industrial areas and building codes that often require cannabis production facilities to have full fire suppression and air quality systems in place, the list of available properties for the marijuana industry plummets even further. With so many marijuana businesses fighting for so few spaces, it is no wonder real estate prices skyrocket.

Finally, there is still a ton of money being invested into cannabis real estate from out of state and foreign investors. Many marijuana licensees lack sufficient capital to build out growing facilities, and they look to turn-key real estate opportunities, often with deferred rent, where they are expected to pay out the nose when they start making revenue. These higher-priced turn key facilities tend to increase the price ceiling even for landlords that only offer bare warehouse space. Hardly a day goes by where one of my firm’s cannabis business attorneys does not get a call from someone on the East Coast asking us about cannabis real estate opportunities in Washington, Oregon, or California. Even public companies are involved in the turnkey cannabis real estate market, including Innovative Industrial Properties, Inc., a cannabis related REIT that did an IPO on the NYSE just a few days ago.

So, is the upward trend in cannabis real estate likely to continue? Real estate investors are showing signs of skepticism. Innovative Industrial Properties didn’t have the strongest IPO, raising $67 million when it hoped for $175 million. The media has tended to blame President-elect Trump’s choice of Jeff Sessions to run the Justice Department, which is a real concern for everyone, but there may be other factors at work.

In Washington State, cannabis businesses that are renting warehouse space in heavily populated King and Pierce counties are facing fierce competition from outdoor growers from eastern Washington. Outdoor grown marijuana has long been perceived to be inferior to indoor-cultivated product, but outdoor growers are rapidly developing techniques to increase the quality and consistency of their products. The continued trend toward oils and other concentrates also puts downward pressure on the relative value of crafted indoor product.

Outdoor spaces, especially in rural counties, tend to be significantly cheaper than urban or suburban warehouse space. If more growers see those areas as real alternatives, warehouse prices may fall. And even if the Trump-Sessions administration makes policy choices that decreases the availability and increases the price of cannabis real estate, the long-term trend is still toward legality, with cannabis looking more like other businesses. As the cannabis industry “normalizes,” we should expect  lease rates for cannabis businesses to fall more in line with lease rates for other businesses. Real estate investors should be careful not to overpay based on their assuming the current cannabis leasing market will last forever.

What are you seeing out there? What are your thoughts on where cannabis real estate is heading?

Colorado Cannnabis

Even in states and cities where recreational cannabis is legal, consuming cannabis with others anywhere but in one’s own home is usually problematic. If you want to consume a beer with a friend, you can easily do so at a bar or a restaurant. There are no comparable places for cannabis. The citizens of Denver are trying to change this, but their efforts are being constricted.

On November 8, 2016, the people of Denver by a slim margin voted for Initiative 300 to allow private businesses to offer space for their patrons to consume cannabis. In an apparent effort to counter this vote, the Liquor Enforcement Division of the Colorado Department of Revenue recently approved a rule prohibiting businesses with a liquor license from applying for permits under Initiative 300. This rule means bars and restaurants that serve alcohol cannot also allow their patrons to use cannabis on-site.

In spite of this Liquor Enforcement Division rule, social cannabis consumption in Denver will still be allowed in certain designated areas. Establishments that wish to operate a business that permits its customers to consume cannabis on-site must first approval from a relevant local neighborhood association and then a permit from the City of Denver.

Yes on 300 Initiative explains the reasoning behind this initiative as follows:

In Denver we’ve legalized the purchase and possession of cannabis for adults but have not provided them with a safe and private place to consume it away from city sidewalks, parks and places where children congregate. The City of Denver Cannabis Consumption Pilot Program is a responsible approach to solving this problem that won’t remedy itself. It will provide designated spaces in certain City-permitted business establishments where adults 21 and over can consume cannabis in accordance with the Colorado Clean Indoor Air Act and out of view of the public. The problem stems from the fact that many residents of Denver live in HOA or landlord-controlled properties that disallow cannabis use on the premises, while more than 70 million tourists come to Colorado each year, also with no place to go. This has led to a 500% increase in public consumption tickets issued in Denver since the passing of Amendment 64 in Colorado, with African-Ameri­­cans being arrested at a rate 2.6 times higher than whites.

Yes on Initiative 300 then explains how the initiative will work in practice:

To remedy this, the City of Denver Cannabis Consumption Pilot Program is designed to mutually serve the interests of both cannabis consumers and Denver neighborhoods by requiring a prospective permit holder to garner formal support from an eligible neighborhood organization prior to applying with the Denver Department of Excise and Licenses. To allow neighborhoods the ability to slowly step into this new territory, the proposed permits could be issued for a short duration of time, such as for a single event, allowing for a phased integration of this program that adjusts to current unknowns as they are realized and best practices are developed. Neighborhood organizations will have the ability to mandate certain restrictions on the businesses to ensure they operate in a manner that is most appropriate for the neighborhoods in which they operate, empowering neighborhoods to be part of the process and set high standards of responsibility for cannabis consumers and cannabis consumption permit holders.

In addition to having to contend with the Colorado Liquor Board banning restaurants and bars from participating in the benefits from Initiative 300, it also is likely to face additional legal hurdles. Colorado Amendment 64, which legalized recreational marijuana in Colorado, states that “nothing in this section shall permit consumption that is conducted openly and publicly or in a manner that endangers others.” Supporters of Initiative 300 contend that it does not conflict with Amendment 64’s prohibition against open or public consumption of cannabis because consumption at a private business is neither open nor public. It is expected that opponents of the initiative will mount legal challenges to it by arguing that consumption in private businesses is “open” and “endangers others” in violation of Amendment 64. If these opponents succeed with their legal arguments regarding conflicts between Colorado Amendment 64 and Initiative 300, Initiative 300 will cease to apply because a state level Constitutional Amendment (Amendment 64) supersedes local law (Denver’s Initiative 300).

Denver’s Initiative 300 is nationally important because it is unique in making Denver the only major US city to allow for cannabis consumption spaces. And by way of one example, Washington state expressly forbids these types of cannabis consumption spaces by making it a felony for businesses to allow for cannabis consumption. Alaska’s marijuana laws allow for cannabis consumption spaces, but a recent legal opinion from the state Attorney General has halted cannabis clubs in Alaska. We will be monitoring what happens with Denver’s cannabis consumption spaces and reporting back on developments there.

Oregon cannabis lawDespite all that has been going on with the Clinton-Trump-Johnson-Stein race, voters interested in how cannabis will be treated in their states need to look at down ballot races as well. November’s state-level elections carry particular importance to the medical and recreational cannabis communities, who rely on friendly state law in the face of federal prohibition. Even in a state like Colorado, where cannabis is enshrined in Amendment 64 of its state constitution, state governments can act to substantially facilitate or frustrate reforms. To help voters assess the candidates and elected officials in their states, the National Organization for Reform of Marijuana Laws (NORML) released its 2016 Governor’s Scorecard grading all 50 governors from A to F based on their stance towards marijuana. Today we will assess how NORML graded the governors in major cannabis states and take a look at what earned one state’s governor the scorecard’s sole A+.

Washington. Democratic Governor Jay Inslee, who is up for re-election this November, received a B- grade from NORML. According to its scorecard, NORML docked points for Governor Inslee’s veto of a bill that would have allowed limited licensed hemp production (the veto was eventually overridden). Governor Inslee gets credit for allowing adults to purchase high-THC concentrates and extracts. There is surprisingly no mention of Governor Inslee’s testimony to Congress in favor of relaxed access to banking for cannabis businesses, worth at least half a letter grade boost given the huge challenge banking presents to the industry. NORML notes that Governor Inslee strongly advocates a comprehensive federal solution for cannabis reform. For more on Washington’s cannabis laws overall, check out our Washington cannabis blog posts here.

Oregon. Democratic Governor Kate Brown, also up for re-election this year, received an A from NORML. Here, NORML’s reasoning is fairly straightforward. Governor Brown adopted progressive cannabis policies in the early days following passage of Measure 91. Governor Brown signed legislation allowing medical dispensaries to sell edibles, extracts, and concentrates to adults in the lead up to recreational licensing. She also signed the bill to remove the 2 year residency requirement to acquire a cannabis license, which has proven to be a boon to cannabis investment in the state. For more on Oregon’s lack of a residency requirement, check out Oregon Opens Its Cannabis Industry to Non-Residents and for more on Oregon’s cannabis laws overall, check out our Oregon cannabis blog posts here

California. Democratic Governor Jerry Brown received a C grade from NORML. Governor Brown was criticized for his hesitance towards recreational cannabis. Governor Brown said he supports states like Washington and Colorado experimenting with recreational cannabis, but mused “how many people can get stoned and we still have a great state…?” Governor Brown is likely to become a part of that cannabis experiment soon whether he likes it or not, as California looks poised to approve recreational cannabis this November. Governor Brown was also knocked for having opposed recreational marijuana as Attorney General. NORML did give Governor Brown credit for signing a bill to reform California’s often disorganized medical marijuana program and for supporting the ability of medical cannabis patients to obtain organ transplants. For more on California’s cannabis laws overall, check out our California cannabis blog posts here.

Colorado. Democratic Governor John Hickenlooper received a B from NORML. Most notably, Governor Hickenlooper was quoted shortly after the passage of recreational cannabis that if he had a “magic wand” he would use it to undo legalization. When asked the same question after having had more time to experience the many benefits legal cannabis has brought to Colorado, he backtracked and said he may not wave his magic wand after all. For more on Colorado’s cannabis laws overall, check out our Colorado blog posts here.

The Best of the Best: Vermont. Democratic Governor Peter Shumlin of Vermont received NORML’s only A+. Governor Shumlin approved an expansion of Vermont’s medical marijuana program to make access easier and increase the number of qualifying conditions. But what sets Governor Shumlin apart is his approach to recreational cannabis reform. Governor Shumlin supports legislative legalization of cannabis. He argues this is crucial to fix the implementation issues of voter-driven initiatives and to create a sophisticated, well-regulated market. To this end he (sadly unsuccessfully) pushed legislation to legalize recreational cannabis in 2016.

Home grown cannabis
Colorado and Montana both have beautiful scenery and mediocre home grown cannabis laws

As cannabis reform has spread across the United States, it has given birth to a marketplace increasingly driven by business interests. This is the fourth installment in our series looking at how the changing landscape of cannabis policy affects a key group of often-overlooked stakeholders: medical marijuana patients who choose to cultivate their own supply of medicine. Go here for the home grown laws in Washington and Oregon, here for the home grown laws in California and Alaska, here for the home grown laws in Michigan and Illinois, and here for the laws in New York, Rhode Island, and Vermont, and here for the laws in Hawaii, Nevada, and New Mexico. Though there are undeniably many benefits to the expansion and professionalization of the commercial cannabis industry, it is also important to account for these small-scale medical marijuana producers that started it all.

This week we look at the laws governing home cultivation of cannabis in Colorado and Montana. These states’ laws largely track the home grown rules of other states and underscore how home-grown laws can lag behind general cannabis reform.

Colorado. In 2000, Colorado voters approved Amendment 20, which established a medical marijuana program in the state for qualified patients. In 2012, Colorado then became the first state to legalize recreational possession and consumption of cannabis. Colorado’s medical marijuana program permits home cultivation in a way similar to many states that have not authorized recreational legalization, however. Under current state law, a medical marijuana patient or primary caregiver who possesses a Medical Marijuana Registry identification card can possess two ounces of usable marijuana and six cannabis plants (three of which may be flowering at the time). Patients who possess more than the allotted amount available to them have an affirmative defense of medical necessity if arrested for possessing a larger amount prescribed by their physician. Cannabis plants must be enclosed within locked premises that are not visible to the public. The rules vary somewhat for households that do and do not have minor residents, the underlying policy being to protecting minor residents from exposure to outdoor or otherwise accessible cannabis grow operations. Home cultivated marijuana cannot be sold to any other person, patient or not – only licensed producers are permitted to sell cannabis into the recreational market.

Montana. Montana initially approved of medical marijuana by ballot initiative in 2004 and the program survived a 2011 attempt at repeal. Montana currently permits home cultivation of cannabis by patients. In its fairly standard medical marijuana legislation, Montana permits registered cardholders to possess up to four mature, flowering cannabis plants and as many as twelve seedlings. From this, a patient may possess up to one ounce of usable marijuana. In addition, a registered cardholder who assigns a primary caregiver to provide them with their medicine is not allowed to grow their own cannabis as well. Since Montana does not have state-licensed dispensaries the importance of home cultivation is elevated. A Montana cannabis caregiver can provide for only two patients at one time.

Cannabis clubsBefore the wave of cannabis reform that has swept the United States over recent years, Amsterdam’s cannabis “coffee shops” were the quintessential international icon of legal cannabis consumption. Yet, even as more and more states legalize cannabis, laws allowing consumption in social establishments are all but nonexistent. Will cannabis clubs in the United States ever reach a degree of acceptance similar to Amsterdam’s coffee shops, or, better yet, be treated like bars and clubs that serve alcohol? Recent developments in Alaska and Colorado highlight both the obstacles facing social cannabis establishments and a possibly encouraging step forward for proponents of these clubs.

Alaska’s Attorney General Jahna Lindemuth recently issued an opinion declaring cannabis clubs illegal unless they are licensed as a retail cannabis dispensary. The opinion comes as several cannabis clubs have popped up in Alaska since it approved cannabis legalization. Cannabis clubs, in Alaska and elsewhere, are establishments that provide space for patrons to consume cannabis, socialize, and play games. The clubs — which do not themselves sell cannabis — operate under the theory that they fall outside the scope of the cannabis laws because they do not sell cannabis. Attorney General Lindemuth counters this view by arguing that the law prohibits consumption of cannabis at any “place of amusement or business” other than a licensed retail cannabis store. Lindemuth asserts that the clubs are commercial places of business because they typically charge an entry fee and sell snacks and other refreshments. She also contends that even if a cannabis club is not a place of business it constitutes prohibited “public” consumption if a “substantial” number of people are present. Lindemuth’s opinion effectively puts an end to cannabis clubs in Alaska unless and until its laws are changed.

Denver voters this November will decide whether to approve a measure that would allow regular businesses like bars, coffee shops, and other establishments to have indoor or outdoor spaces for cannabis consumption. These businesses would be allowed to have cannabis spaces if they first obtain a permit and, also have a sponsoring neighborhood organization or business improvement district. The sponsor would participate in the permitting process by submitting proposed conditions that regulate how the business will implement its consumption areas.

The law is pitched as a pilot program and would sunset in 2020 unless extended. Even if voters approve the measure, Denver City Attorneys have expressed concerns regarding whether it conflicts with Colorado’s Amendment 64, which does not authorize cannabis clubs. That has not stopped a handful of other Colorado towns from allowing cannabis clubs, but if Denver’s embracing social cannabis would be a game changer.

Beyond state and local cannabis laws, other challenges to social cannabis consumption loom. Most obviously, near-ubiquitous indoor smoking bans could make the most common form of cannabis consumption impossible in most jurisdictions — an obstacle well known to hookah lounges. Nonetheless, social cannabis reform could usher in an age of widespread vaporizer lounges and cannabis-infused edible restaurants. It may seem far-fetched now, but it was not too long ago legal cannabis retail stores were just as novel.

Cannabis Taxes
Cannabis Taxes: Few things are more certain.

Though it is commonly said that nothing is certain but death and taxes, this doesn’t stop people from trying to cheat both. In the cannabis industry, the uncertainty of the current status of federal and state laws only magnifies the issue and many marijuana business owners fail to file returns and pay taxes due for years at a time. But as the industry is slowly finding out, failing to pay  your tax liabilities usually doesn’t payoff in the long run.

On the federal side, the Internal Revenue Service assesses huge tax liabilities through Section 280E even though cannabis remains illegal under federal law. The proper way to determine those taxes is still being battled out in well-publicized Tax Court cases. However, there is movement on the state side as well, with lawsuits being filed in several states with regulated (and taxed) marijuana systems in attempts to avoid paying state and local taxes altogether.

Recently, a medical marijuana dispensary owner in California tried to argue that since the dispensary is organized as a collective under state law, it is not technically selling marijuana, but instead accepting “equitable contributions” from patients who cultivate the marijuana collectively. Consequently, since no sales have occurred, no sales tax can be collected. The California district court didn’t buy this argument and instead ruled that the dispensary owed the city of San Jose $767,058 in taxes and fees due to its failure to pay the city’s Marijuana Business Tax since 2012.

In Washington State, another dispensary owner took a different approach and sued the state in federal court claiming that because he was under federal prosecution, he could not be forced to pay state and local marijuana taxes without waiving his Fifth Amendment right against self-incrimination. The lawsuit challenged the state’s authority to tax marijuana businesses in conflict of federal law where sales of marijuana are illegal. That case is currently on appeal and set for court this September.

In Colorado, an attorney filed a similar lawsuit against the state’s governor and the mayor of Denver, also claiming that paying special marijuana taxes levied by the state violate an individual’s right against self-incrimination for dealing in an illegal controlled substance under federal law. The plaintiffs in this lawsuit went one step further and argued that the state of Colorado is knowingly participating in illegal money laundering by collecting taxes from the marijuana businesses.

The potential tax revenue from marijuana businesses is a big incentive for states to legalize medical and recreational marijuana. Reports estimate that total marijuana tax revenue in 2016 will grow to over $180 million for Colorado and over $130 million for Washington, and project that California could gross over $640 million per year at a 15% excise tax rate. There is a lot at stake for both states and marijuana businesses and thus the fight over taxes is unlikely to die down anytime soon.

For current marijuana business owners, the fight is oftentimes more personal. If you don’t file tax returns, an audit will be painful and may even result in your business going under if you can’t afford to pay back taxes.  Bankruptcy courts do not allow marijuana businesses to file for bankruptcy to avoid tax liabilities by reorganizing their businesses or liquidating their assets. This means those taxes will stay with the business and may even follow you personally if you ultimately decide to shut it down. Some taxes, like state sales and payroll taxes, are always the responsibility of the business owners, which means that if liabilities are assessed, the state can come after your personal accounts and assets to collect. Tax audits in the cannabis industry often result in hundreds of thousands of dollars in tax liabilities even when tax returns are filed with the best intentions. Shoddy record keeping and reliance on poor tax advice are not excuses for failure to pay taxes due.

Finally, don’t think that just because you haven’t been audited for last year’s return you are in the clear.  Government agencies tend to be years behind on reviewing returns and they generally will look several years back once an audit has begun. With interest and penalties accruing all the while, the longer you wait, the bigger your tax problem grows. If you are striving to operate a legally compliant marijuana businesses, it is crucial you properly record, compute, and timely pay your taxes on the local, state, and federal level. This is not an area to cut corners as the costs you save now will be pennies compared to what you’ll end up paying later. If you need tax help, get it now, as tax problems definitely do not improve with age.