The best-rated weed dispensaries in Seattle for 2023

In a city fueled by espresso and cannabis, it’s no wonder Seattle is home to some of the finest dispensaries in The Evergreen State. Since the early days of medical cannabis, Seattle dispensaries have spent time and energy refining their craft and offerings and listening to customer feedback. With recreational cannabis legalized in 2012, Seattle’s dispensary experience […]

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The best-rated weed dispensaries in Tulsa for 2023

Tulsa is one of two major cannabis hubs in Oklahoma that have fully embraced medical cannabis and its community of patients. Since medical legalization passed in 2020, medical cannabis entrepreneurs have been planting their roots in the 918. Today, over 200 medical dispensaries have set up shop throughout the metro area, making medical cannabis accessible […]

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Intoxicating Hemp Product Laws are More Complicated Than They Seem

When Congress passed the 2018 Farm Bill, did it intend to legalize intoxicating hemp products? If it did, why didn’t it just legalize marijuana? And why didn’t it address the manufacture or sale of intoxicating hemp products?

I think the answer to all of these questions is clearly “no.” Congress did not intend to open Pandora’s Box to any form of legal intoxicating hemp product. But does what I think – or what Congress intended – even matter? Not to some courts, who think that the 2018 Farm Bill is so patently clear that it really doesn’t even matter what Congress intended.

These issues are admittedly very complicated. There are plenty of folks out there who claim that intoxicating hemp products are completely legal with no caveats. That in my view, is wrong. The law is not settled, the text of the 2018 Farm Bill is anything but clear, and whole lot can (and probably will) change with the upcoming Farm Bill. Let’s take a look at some of the issues below.

The Ninth Circuit didn’t legalize delta-8 nationally

A few years back, a three-judge panel of the Ninth Circuit held as much in AK Futures v. Boyd Street Distro (we wrote about that case here). That case is widely misquoted as having declared delta-8 THC legal nationwide. It did not. The Ninth Circuit is the appellate court for a group of western states and its rulings have no binding precedential value elsewhere.

What AK Futures actually did was affirm a preliminary ruling in a trademark dispute where legality of delta-8 products was one of a number of issues at play. In order to have a protectible trademark, the good or service must be lawful in commerce. The infringer argued that delta-8 products were not lawful. As part of the preliminary injunction, the Ninth Circuit agreed that the plaintiff was “likely” to succeed in establishing that the products were lawful, if they came from hemp and if they contained under 0.3% delta-9 THC. This was a preliminary ruling, but it’s likely that the court would rule similarly on some sort of final ruling. However, to claim that this case is the be-all-end-all for delta-8 is just, well, wrong. The case is not precedential anywhere outside of the Ninth Circuit.

An Arkansas District Court didn’t legalize intoxicating cannabinoids nationally, either

More recently, hemp attorney Rod Kight posted a blog post entitled “DID A FEDERAL COURT ORDER JUST LEGALIZE THCA AND DELTA-8 THC IN ALL 50 STATES?” Rod referred to Bio Gen LLC v. Sarah Huckabee Sanders, a district (lower) court decision out of the Eastern District of Arkansas that only ruled on a specific Arkansas law. So to answer the titular question, no, the court did not legalize anything in all 50 states. The court did, however, strike down a rather poorly drafted Arkansas law that restricted intoxicating cannabinoids on a number of grounds. (As an aside, I think Rod’s analysis is often right, but in this case we diverge.)

Most relevant to this post was the Bio Gen court’s “conflict preemption” analysis. Conflict preemption is a doctrine that finds a state law invalid if it contradicts federal law – i.e., when it is impossible to comply with both state and federal law. Imagine a state law that said you did not have to comply with a federal law. You get the idea.

Now in Bio Gen, the court took the position that the state and federal definitions of “hemp” were in conflict. The court recognized that “Clearly, under the 2018 Farm Bill, Arkansas can regulate hemp production and even ban it outright if it is so inclined.” But while the state could ban hemp production, the court thought that bans on intoxicating hemp products were legal. I don’t get it either. And for some reason, the court forgot to cite the following 2018 Farm Bill provision in its conflict preemption analysis, even though it cited it elsewhere in the opinion: “No preemption. Nothing in this subsection preempts or limits any law of a State or Indian Tribe that . . . regulates the production of hemp . . . and is more stringent than this subtitle.”

While I think the Bio Gen court still had ample reasons to strike down the Arkansas law on different grounds, I just don’t get the conflict preemption argument, and I don’t think an appellate court would agree that states could not enact more stringent laws or prohibit intoxicating cannabinoids. Taking this case to its logical end point would likely result in massive re-writes of hemp laws in all states.

So are intoxicating hemp products legal?

This is not an easy thing to answer and depends on many factors. What intoxicating hemp cannabinoid are we talking about? How is it produced? Is it “synthetic” (and what does “synthetic” even mean)? And what state are we talking about?

Let’s take delta-8 as an example. Delta-8 is generally not expressed in high quantities naturally and is created by converting CBD via a chemical or similar process. The Controlled Substance Act prohibits synthetic THCs, and DEA’s 2020 interim final rule stated that any quantity of synthetic THC is controlled. So according to DEA, delta-8 is illegal. On the other hand, I’ve long argued that under the text of the 2018 Farm Bill, there’s a good argument that delta-8 is legal – even in spite of what seems like clear Congressional intent to the contrary. That’s because the 2018 Farm Bill defines “hemp” as follows:

The term “hemp” means the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

In other words, if you take hemp and make something with it, that thing is legal. This is not the position of DEA, but is evidently the opinion of the aforementioned three-judge Ninth Circuit panel. I tend to think that court was right, but at the end of the day, this is by no means a conclusive ruling. Other courts of appeal or the Supreme Court may disagree.

Let’s take another common intoxicating hemp product: THCA flower. I wrote a longer post about that recently here. In a nutshell, people argue that because THCA flower has less than 0.3% delta-9 THC, it is “hemp” even if it has 5% or 20% THCA – even though THCA converts into delta-9 THC. DEA has pretty vocally disagreed with this. In this case, I think the THCA advocates are wrong. I outlined my position in the prior post and we’re well over 1,000 words by now so I won’t recite it again.

Moreover, for any intoxicating cannabinoid or intoxicating hemp product, we also need to look at state law. A number of states outright ban smokable hemp or delta-8 products. Other states (like California) have total THC limits that de facto ban many intoxicating hemp products. No matter what you may think about federal law, those states have their own laws. And unless and until courts in those states start issuing conflict preemption rulings, those laws will be upheld.

Is it wise to sell intoxicating hemp products?

This is a hard question to answer but there is no way to be 100% safe or 100% legal. If someone is in a state that allows such products, and has a good federal law argument, the risks are lower. If someone sells THCA flower online in all 50 states, for example, the risks are very high. Moreover, there are a million different practical risks that people almost never consider when looking at the laws. As I mentioned in my THCA post:

[P]ractically speaking, claiming that THCA products are legal is a tough sell to law enforcement or a court that is not familiar with the nuances of federal hemp laws. Imagine a truck driver gets pulled over with a car full of THCA products with 25% THCA. Those products, when tested, will have levels of THC in the double digits. That driver is going to jail, and will have to do their best to persuade a court that a gap in testing requirements under the 2018 Farm Bill makes their product lawful. Even assuming that argument is solid, there are just too many possibilities that law enforcement won’t agree. This is an issue that would likely need to be resolved in the appellate courts, which would be expensive, time consuming, and risky.

Even if someone has what they believe are airtight legal arguments why their intoxicating hemp product is legal, they often fail to consider how costly it would be to get a court to agree. And how long it would take. And how hard it would be to explain to a court or jury. Thinking about the law is not sufficient. You have to consider reality. And reality isn’t cheap or easy.

Indeed, this kind of thing seems to keep happening. Take this example, where a South Carolina man was reportedly arrested for allegedly selling THCA flower that tested over 0.3%. Or this similar example out of Texas. These are just a few reported examples. The point is that being on the right side of the law doesn’t mean you won’t have to pay a boatload of money to be proven right.

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When it comes to intoxicating cannabinoids, nothing is easy. Be very skeptical of folks who say that X is legal in all 50 states or that there is no risk with Y. Stay tuned to the Canna Law Blog for more updates on intoxicating hemp products.

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Leafly awarded ‘best consumer weed platform’ of 2023

Benzinga loves how much we work to serve you, dear reader.

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Wisconsin Legalization Bill Introduced

Wisconsin may soon become the latest U.S. state to legalize adult-use cannabis. On September 22 of this year, a bill drafted by Sen. Melissa Agard (D-Madison) and Rep. Darin Madison (D-Milwaukee) was introduced in the state legislature. This is the latest in a series of legalization initiatives in the Badger State.

The bill would make it legal for adults in Wisconsin to legally possess up to five ounces of cannabis. Under the new law, possession over the 5-ounce limit would be considered a misdemeanor.

At present, possession of any amount of cannabis is considered a misdemeanor under state law, with subsequent possession offenses being considered felonies. It is worth mentioning that some Wisconsin localities have established more permissive norms. For example, Dane County (where the state capital Madison is located) will generally not prosecute adults for cannabis possession, where the amount does not exceed 28 grams.

Sen. Agard and Rep. Madison’s proposal would also make it legal for localities to permit the establishment of consumption lounges. It also calls for the automatic expungement of non-violent cannabis offenses from criminal records.

Sen. Agard has referred to Wisconsin as an “island of prohibition,” noting that “right now, we are seeing our hard earned money go across the border to Illinois, Michigan, and Minnesota to the tune of tens of millions of dollars each year” (readers unfamiliar with Wisconsin’s geography can check out the state highway map; the state’s two largest cities are both about an hour away from the Illinois border).  This highlights an uncomfortable reality for those states that buck the legalization trend of their neighbors: Their residents will still be able to get cannabis legally, yet the economic windfall will stay on the other side of the state line. Geography is destiny, as the consequences of legalization next door demonstrate.

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Simply Crafted evolves again with Minnesota cannabis legalization: Find high-quality seeds & low-potency products

Simply Crafted carries high-quality seeds and low-potency products online and at their brick-and-mortar store in Minneapolis.

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How Did You Mess Up Your Cannabis Subchapter S Election?

The internet is littered with writings on the relative merits of corporate forms and tax elections for cannabis businesses. Even the best of these articles are as dull as ditchwater, because the topic is tax. Most of the authors mention subchapter S taxation at some point, and the showier ones may even dredge up cannabis tax court opinions on the topic. This post doesn’t get into any of that. Instead, it asks the simple question: how did you mess up your cannabis subchapter S election?

What’s a subchapter S election?

Feel free to skip this section, which is boring, if you already know what an S election is, how it works, etc. If you don’t, I’ll cover this at a very broad, borderline irresponsible level– just to get us through. Please note that the same rules apply here for cannabis businesses as non-cannabis businesses.

An S election is just a business’s determination to be taxed according to a certain part of the Internal Revenue Code. We’re talking about subchapter S here (open to corporations and LLCs), as opposed to subchapter C (also for corporations and LLCs), or subchapter K (partnerships and LLCs only).

An S corporation passes its income, losses, deductions and credits to shareholders for federal tax purposes. Unlike a C corp, the S corp doesn’t pay federal income tax. It is a “pass through.” Note that every S corp begins its life as a C corp, and every S corp once filed something with the IRS called a Form 2553 to gain its new chapter status.

An LLC can also elect to be taxed under subchapter S. Unlike the converting C corp, the converting LLC files two forms: a Form 8832, then the 2553. People are sometimes surprised that an LLC can do this, because LLCs already pass their income, losses, etc., through to owners for federal tax purposes. But, under subchapter S, owners can often take earnings out of the business without paying employment taxes.

There are plenty of other reasons both corporations and LLCs elect to be taxed under subchapter S, either at formation or at some point during their lifecycles. I can tell you that cannabis retailers should stay away from subchapter S as a general rule. Cannabis growers and processors taxed under subchapter S are rare birds as well, but sometimes it makes sense. More on that below.

How did you mess up your cannabis subchapter S election?

I’ve had the displeasure of asking this question to clients a half dozen times over the years. That’s a very small percentage of clients at this point, but it tends to be memorable. Below are three ways this can happen.

1. Miscommunication

There’s a reason that CPAs usually ask to see a company’s governance documents before filing a tax election or preparing a return. The CPA needs to know if what they’re advising or being asked to do makes sense. Often, the ownership or structure of a company may be incompatible with subchapter S taxation. For example, a stock ledger may show non-U.S. shareholders or nonviable shareholder trusts; or an LLC operating agreement may delineate multiple classes of units.

On two occasions, I’ve designed waterfalls for cannabis LLCs only to learn those LLCs ended up making subchapter S elections. The owner agreements and tax filings were fundamentally at odds in each case. One of those busted elections came to light in litigation; the other came up when somebody left the company. Neither was satisfactorily “fixed” to my knowledge.

2. Missed deadlines

Various deadlines must be observed when electing subchapter S status. It can get pretty complicated for corporations; less so for LLCs. In my experience, founders often miss these deadlines because there is so much going on when starting a company. Late filing relief is often available, but this involves triage, extra paperwork and ultimately, expense. It’s best to calendar any tax filing deadlines upon incorporating or organizing, run down requisite tax advice, and timely file.

3. You actually made the election

Sometimes, you can mess up an S election by… timely filing an S election. Again, most cannabis businesses are not taxed under subchapter S for a reason.

In the case of a cannabis retailer, subchapter C is almost always preferred, because this prevents non-deductible expenses resulting from IRC § 280E from passing through to owners. Staying in subchapter C avoids the devastating situation of taxable income to owners on paper, but no real earnings.

Other plant-touching cannabis businesses may decline to make an S election for any number of reasons. Most commonly, a business will be capitalized disproportionately or just “differently” by co-owners (e.g., cash versus services; lots of cash versus a little cash; equity versus debt). These businesses may wish to allocate income in ways that simply can’t work under Subchapter S. Yet, they’ve made a subchapter S election with no appreciation of constraints.

You don’t have to mess up your cannabis subchapter S election

Tax is complex, but it isn’t always complicated. Roadmaps abound in the cannabis business space. If you’re a cannabis business owner looking at subchapter S, the best advice is to: 1) screen your ownership structure; 2) sketch out capital outlays and cash flows, and the way you want money to move through the business; and 3) talk to your legal and tax advisers so that everyone is on the same page. It’s no fun to mess up a Subchapter S election! But it’s also not hard to avoid.

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Leafly Buzz: 13 top cannabis strains of September 2023

Including Planet Red, RS-54, and Euroz.

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Cannabis Leasing in Competitive License Jurisdictions

Cannabis leasing is incredibly complicated for both lessors and lessees. But things can get a lot more complicated in competitive license jurisdictions. I’ve worked with both lessors and lessee-applicants in competitive licensing jurisdictions, and today want to highlight some of the key things I’ve seen over the years.

#1 Why competitive licensing is different from everything else

If you’re reading this and are not familiar with competitive licensing, I’m referring to localities (or in some cases, states) that only allow a small, fixed number of licenses. In competitive licensing jurisdictions, you’ll often see dozens of applicants for a small handful of available licenses – for example, thirty or so applicants for four licenses.

You may point out that most cities in fact have some kind of cap on licenses, either expressly, because there is a finite application window, or because there is restrictive zoning. However, what I refer to as competitive licensing is a situation where, maybe 1-6 licenses will be available in one short application period.

This is why I refer to “competitive” licensing. And it gets truly competitive. Applicants may end up spending hundreds of thousands on legal, design, consulting, and other fees to just to submit an application. Without any guaranty of success.

So as you can imagine, this creates some pretty interesting dynamics for cannabis leasing. And that brings me to point #2.

#2 Is a cannabis lease even mandatory?

Put yourselves in the shoes of a competitive license applicant. You may be spending hundreds of thousands of dollars submitting an application with no guaranty of success. You may be up against a dozen or more highly capitalized, highly qualified companies looking for the same license. Do you want to get locked into a multi-year lease without any guaranty of being able to operate? Obviously not.

Many localities address this by requiring applicants to provide something less than a full-fledged lease. This may include a lease with an early termination right if the license doesn’t come through. Or it could be as simple as an option to lease or even an LOI. Recently, the trend seems to be in favor of binding options to lease, which is generally more “binding” than a simple LOI.

In all of these cases, the lessor usually wants something to allow the lessee to apply for the license. If there’s a lease with an early termination option, this may be reduced rent for some initial period – sometimes even reduced through a buildout. If it’s an option, there may be a monthly option fee that would be commensurate with some kind of reduced rent. But overall, lessors are generally charging the lessee something. After all, they are keeping the property off the market while the lessee applies for a license.

#3 Location, location, location

Both competitive licensing and more “open” jurisdictions limit potential locations to specific zones and areas within their borders. There are also generally buffer requirements (e.g., you can’t be next to a school). In my experience though, competitive licensing jurisdictions tend to be even more restrictive in terms of where applicants may apply. A trend I’ve seen is that applicants must often get a “zoning verification letter” prior to applying. A ZVL will allow the city to provide some initial sign-off on the proposed location.

In a jurisdiction with a restrictive location map, potential lessors are in for a lot of calls. I’ve worked with competitive licensing lessors who get numerous calls from brokers or potential lessees for leasing in restrictive map situations like this. Obviously, this means that rental value can go up – way up.

At the same time, lessors generally have zero experience with cannabis and are unfamiliar with cannabis laws. Lessors must be careful not to make promises about zoning, location compliance, buffer zone restrictions, or anything else. This should be squarely on the shoulders of the prospective lessee. Smart lessors disclaim and representations about basically anything in their agreements with the lessees.

#4 Lessors should expect some participation in the process

In any competitive cannabis licensing process I can remember, lessors are required to submit documents to the city that authorize the applied-for use. For some reason, simply signing a lease that authorizes the use just isn’t enough. So many localities require lessors to sign documents acknowledging that their lessee will be authorized to engage in cannabis use once licensed. The trend now seems to be to require lessors to sign not just statements, but notarized attestations.

Some localities go above and beyond. I’ve seen some that require lessors to certify that they only leased the property to the lessee at issue, in an effort to prohibit lessors from entering into multiple options to have fallback options if one proposed lessee doesn’t get a license (more on that below). Lessors should be aware of what they are signing so they don’t end up liable for some kind of false statement or even perjury.

#5 What can lessors do to hedge their risk?

Most localities require that lessors only authorize one specific entity to apply for a license at the lessor’s property. This is good for the proposed tenant, who has no competition for the specific property (after all, what would happen if two companies won at the same property?). But it’s not great for lessors, who have to trust that their proposed lessee will beat out all the competition or walk away. What landlord would want to get property leased for only a few months and start that process all over again?

Some cities address this by allowing lessors to authorize multiple applicants at the same address. This is obviously better for lessors. But it’s not great for lessees for the inverse reason of what I noted above. In those places, lessors should expect to see proposed lessees demanding exclusivity – and in those cases the lessors may be justified in asking for higher option payments.

Conclusion

Competitive licensing is tough, but can be made a lot more difficult if the property owner and proposed lessee aren’t on the same page. Dealing with the issues raised above is critical at the outset, or an applicant can waste a lot of time and money on a situation that won’t work. Stay tuned to the Canna Law Blog for more cannabis real estate issues.

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Expert interview: The science of saving those terps at harvest

Listen along for some top tips to conserve those terps.

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Cannabis Rescheduling and Trademarks

Cannabis rescheduling appears to be a matter of time and my colleagues have written about the possible implications (see here, here, and here). Rescheduling to a less restrictive category will also have implications for trademarking by cannabis brands. By broadening the legality of cannabis goods and services, rescheduling will also make more canna trademarks eligible for federal protection.

The U.S. Patent and Trademark Office (USPTO) will refuse the registration of any trademark used in connection with goods or services that are unlawful according to federal law. That includes all cannabis that is considered marijuana under the Controlled Substances Act (CSA), that is, all cannabis with a THC content that exceeds 0.3%. Marijuana’s inclusion in the most restrictive controlled substances schedule pretty much closes the door on any activities involving it being considered legal under federal law.

Cannabis rescheduling would change that. Per Health and Human Services’ recommendation, many commentators believe that cannabis’ new home is likely to be Schedule III. Schedule III substances are those that “have a potential for abuse less than substances in Schedules I or II and abuse may lead to moderate or low physical dependence or high psychological dependence.” According to the Drug Enforcement Administration (DEA) Diversion Control Division, Schedule III substances include “products containing not more than 90 milligrams of codeine per dosage unit (Tylenol with Codeine®), and buprenorphine (Suboxone®).”

That ® indicates a registered trademark, reflecting the fact that trademarks can be registered in connection to Schedule III substances. In turn, this underscores that, although still controlled, Schedule III substances can, under certain circumstances, be used legally. ® symbols can be found within the examples of substances provided for all schedules, except Schedule I, where “marihuana” is currently found. Cannabis rescheduling will make it possible to register trademarks in connection to cannabis even if cannabis is only down-scheduled to Schedule II. OxyContin® is an example of a Schedule II substances whose trademark is registered.

Despite eventual cannabis rescheduling, some cannabis brands will likely continue to face issues when it comes to federal trademark protection. For example, hemp is not a controlled substance, but hemp-CBD foods are considered unlawful by the Food and Drug Administration (FDA). Under the lawful use requirement, USPTO will deny registration of trademarks in connection to any good or service that is unlawful according to federal law, not just those that are in violation of the CSA.

For some brands, though, rescheduling will make it possible for them to obtain federal trademark protection. This is the right time for those brands to start revising their trademark strategies, with a view to ensuring they take full advantage of the opportunities presented by cannabis rescheduling. This includes not only analyzing whether their goods and/or services are likely to be eligible for trademark protection, but also looking at trademarking fundamentals, such as making sure that their trademarks are not generic, geographically descriptive, or confusingly similar to registered or previously applied-for trademarks.

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More New York Cannabis Program Litigation: First Amendment Challenge to Third-Party Website Rules

On September 18, 2023, a new lawsuit was filed by, inter alia, Leafly Holdings, Inc. (“Leafly”) against the New York State Office of Cannabis Management (“OCM”) and New York State Cannabis Control Board (the “Cannabis Control Board”).

The lawsuit

This legal proceeding involves a First Amendment and other challenges to certain regulations adopted by the Cannabis Control Board. The regulations, known as Resolution 2023-32, introduce new rules under Parts 123 and 124 of the Revised Adult-Use Cannabis Regulations, which significantly restrict the ability of New York dispensaries and consumers to use third-party websites that aggregate information about cannabis products. The petitioners, including Leafly, Stage One Cannabis, LLC (“Stage One Dispensary”), and Rosanna St. John, are seeking to have these regulations invalidated on the grounds that they are arbitrary, capricious, and in violation of both the United States Constitution and the New York Constitution. They are also requesting a temporary halt to the enforcement of these regulations until the legal proceedings are resolved.

The specific provisions being challenged are:

1. The Third-Party Marketing Ban (9 N.Y.C.R.R. §§ 123.10(g)(21) and 124.5(a)), which restricts certain types of marketing by third-party websites.
2. The Pricing Ban (9 N.Y.C.R.R. § 124.1(b)(5)(ii)), which imposes limitations on pricing information.
3. The Third-Party Order Ban (9 N.Y.C.R.R. § 123.10(g)(23)), which restricts the ability to place orders through third-party websites.
4. The Third-Party All-Licensee Listing Mandate (9 N.Y.C.R.R. § 124.1(b)(2)), which requires third-party websites to list all cannabis licensees.
5. The Third-Party Distributor Listing Mandate (9 N.Y.C.R.R. § 124.1(c)(1)-(2)), which mandates the listing of third-party distributors.

The arguments

The petitioners argue that the Third-Party Marketing Ban and the Pricing Ban infringe upon free speech rights protected by the First Amendment of the U.S. Constitution and Article I, § 8 of the New York Constitution by limiting lawful commercial speech. They also claim that all the challenged regulations are arbitrary and capricious because they either conflict with New York’s Cannabis Law, lack a rational basis, or exceed the authority of the Cannabis Control Board.

What the plaintiffs want

Furthermore, the petitioners are requesting a temporary stay on the enforcement of these regulations, asserting that they are likely to succeed in their legal challenge and that they are facing irreparable harm due to the violation of their constitutional rights and potential business losses. They argue that maintaining the status quo is in the best interest of justice, and they urge the court to invalidate these regulations on the grounds of being arbitrary, capricious, irrational, and unconstitutional.

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This First Amendment challenge is just the latest litigation, unfortunately, in a program that has seen a number of misfires and delays. We will continue to monitor this lawsuit, while awaiting answers on fundamental issues that the Cannabis Control Board has inexplicably failed to address. Stay tuned to our New York coverage for more.

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The best-rated weed dispensaries in Tucson for 2023

The only thing hotter than cannabis in Tucson is the heat. Since Arizona legalized recreational cannabis in 2020, Tucson has enjoyed the addition of nearly 20 new cannabis dispensaries. Today, you can find dispensaries in Tucson scattered all across the metro area in convenient locations, including some in downtown and near the University of Arizona. […]

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The best-rated weed dispensaries in Connecticut for 2023

Cannabis hasn’t been legal for long in Connecticut, but out of the 9 dispensaries available across the state, a few have already established impressive reputations since opening their doors in 2023. In a state where cannabis still feels brand new, these dispensaries are bucking the trend of growing pains and instead are creating a loyal […]

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New York Cannabis: A Plea to the Office of Cannabis Management

It has now been over one week since New York’s Cannabis Control Board (CCB) and Office of Cannabis Management (OCM) announced that the general adult-use cannabis license application portal will open on October 4, 2023. For those counting at home, that is less than two weeks away. We, like the many parties with a vested interest in the opening of the application portal, wait with bated breadth for the OCM to provide any news on the myriad open items that are fundamental to the adult-use application process.

People have invested life-changing amounts of time and money in planning to apply for these licenses. It feels like we are still in the dark on so many vital issues with a little over two months before the application portal is scheduled to close (that’s one month for retail dispensary applicants with secured real estate). This writing serves as a public plea that the OCM at least begin providing information on the crucial topics below.

When is the general adult-use cannabis application portal actually opening?

Just about every attorney in New York’s cannabis space immediately noted that the CCB and OCM’s September 12, 2023 announcement, that the application portal is opening on October 4, 2023, appears to violate the Marijuana Regulation and Taxation Act (MRTA). Put simply, the MRTA required at least 30 days notice prior to opening the application portal. For those counting at home, there are less than 30 days between September 12, 2023 and October 4, 2023.

The always excellent Brad Racino reported the OCM’s response, which took the position that the OCM provided notice of the application opening date “as far back as the July 19 Cannabis Control Board Meeting” and that the timing is “fully compliant with the letter and spirit” of the MRTA. We are not familiar with any official OCM announcement that the application portal was to open on October 4, 2023 before September 12, 2023.

It would be really helpful to know when the application portal is actually opening.

Can we have those forms, please?

We’ve already discussed the missing Notification to Municipality form that is required for any retail dispensary applicants with secured real estate. It would also be pretty helpful to have the official True Party in Interest form. As is the case with the Notification to Municipality, the only available iteration of the form is specific to CAURD applicants.

What about the Guidance and FAQs for adult-use cannabis applications?

During the September 12, 2023 board meeting, there was repeated mention of the OCM releasing guidance and FAQs for prospective applicants. The OCM’s guidance and FAQs were immensely helpful during the CAURD application process, especially given the complexity and variety of license types and application processes.

To date, no guidance or FAQs have been published and, given the rapidly approaching application deadlines, we’d love to receive some guidance from the OCM.

How and who is the OCM prioritizing as social and economic equity applicants?

Kind of buried in the September 12, 2023 presentation is that “prioritization for adult use cannabis licenses will be afforded to applicants qualifying as extra priority, individuals from a CDI, distressed farmers, and service disabled veterans.” The OCM noted that it is “unable to extend the same prioritization as groups qualifying on the basis of gender or race.” Those quotes are from the published transcript from the CCB meeting (h/t to Aleece Burgio).

Of course, the MRTA is very clear that only one category of social and economic equity applicants is entitled to “extra priority”: individuals from communities disproportionately impacted by the enforcement of cannabis prohibition, who have a below median income (there’s some specific language regarding the percentage) and who have or are related to someone who has a marijuana-related offence prior to the enactment of the MRTA (again, there are some specifics).

There is no statutory mention of distressed farmers and service disabled veterans receiving “extra priority.” The roll-out of New York’s adult-use cannabis market is already a pretty litigious situation; the OCM’s deviation from the MRTA with respect to extra priority seems to invite yet another legal challenge should the OCM not “clarify” in advance of opening the application portal.

We are sure that we are missing some other critical issues, not because they aren’t important but because with this many moving parts and so much missing information, it’s hard to capture it all in one post. But we invite you to list any other issues you see in the comments to this post (or in LinkedIn or any other social media).

The post New York Cannabis: A Plea to the Office of Cannabis Management appeared first on Harris Bricken Sliwoski LLP.

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Oregon Cannabis PSA: A Little Grace on Retailer Tax Compliance Requirements

It’s been a minute since we wrote about the new OLCC tax compliance rules for retailers. These temporary rules require all retailers to certify tax compliance via the Oregon Department of Revenue (DOR) in order to renew or transfer ownership of a marijuana retailer license. OLCC has a pretty good FAQ sheet here, as part of its general overview page on the subject here.

The temporary rule has been in effect for transfers in ownership since June 16, 2023. (Transfers in ownership are defined as ownership changes of 51% or more.) We’ve dealt with a few tax compliance issues in these situations already, including people scrambling to clean up their dashboards ahead of sale. For retail license renewals, the temporary rule has been in effect only since September 15, 2023. We had one retailer client trip on this new requirement already, which is kind of amazing since the rule literally took effect on Friday.

From this week’s experience, I have some good news to share. OLCC appears willing, as a matter of course, to allow any retailer who has applied for but not yet received a certificate of tax compliance (“DOR Certificate”) to continue to operate under temporary authority, at least through the 30-day late renewal window. I’d like to emphasize the “has applied for” bit in that last sentence. Also, it’s worth mentioning that retailers (and their applicant owners) should not wait until the eleventh hour to submit DOR Certificate applications. We are learning that the process isn’t always quick or easy– particularly if an individual or entity is in arrears and angling for a payment plan with DOR.

Another item of note is that these conditional letters are automatically generated. They are sent within 24 hours of renewal payment and submission to the email address associated with a licensee’s account. For this reason, I believe the conditional letters do not mention tax compliance or lack thereof, as of this writing. (I haven’t actually seen one lately.)

So what should last-minute shoppers keep in mind? Well, anyone approaching a license renewal deadline should: 1) ensure all DOR Certificate applications are submitted well before the license expiration deadline (including requisite applications of any “applicant” owners); and 2) reach out to their OLCC investigator (i) with evidence of any and all required DOR submissions, and (ii) to confirm everything that I am saying is true. I’m not your lawyer. (Probably. And if I am, you should still reach out.)

So that’s my PSA on a few finer points in this latest program provision. In the bigger picture, my colleague Jesse Mondry asked back in May: “How Many Retailers Will Close Due to Governor Kotek’s New Tax Compliance Missive?” At that point, DOR reported that 9% of licensed cannabis retailers, or around 75 licensees, hadn’t fully paid their taxes. I’m guessing those numbers will drop a bit with OLCC now beginning to enforce this new rule— even with a bit of wiggle room being afforded to certain licensees.

Finally, please note that this remains a dynamic area. As I recently explained, the tax compliance rules are temporary in nature: OLCC will adopt permanent rules this fall. The permanent rules could evolve in any number of ways, including by requiring non-retail licensees to show tax compliance. Watch this space.

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Large new study supports screening cannabis for heavy metals

Evidence mounts of untested cannabis as a vector for disease.

The post Large new study supports screening cannabis for heavy metals appeared first on Leafly.

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What’s good? Leafly Budtenders’ Choice 2023 survey is live

Budtenders, help us know what’s good in your state.

The post What’s good? Leafly Budtenders’ Choice 2023 survey is live appeared first on Leafly.

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FREE Webinar This Thursday, September 21st: Cannabis Trademarks and Litigation

As the U.S. cannabis industry expands, high-profile lawsuits involving cannabis brands and the use of cannabis trademarks “inspired” by well-known companies have emerged. One recent example is popular candy brand Skittles’ lawsuit against a cannabis company for using the name “Zkittlez” on various products.

Please join us on Thursday September 21st at 12:00pm PT, for a lively and informative conversation about the legal issues surrounding cannabis trademarking. The presenters will focus on recent litigation, but will also cover best practices for protecting your cannabis brand’s trademarks.

REGISTER HERE 

Webinar Topics:

• The legal status of cannabis trademarks in the United States.
• Factors courts consider when determining trademark infringement.
• Recent lawsuits involving cannabis trademarks.
• Best practices for protecting your cannabis brand’s trademarks.

Questions prior to this webinar are strongly encouraged and can be submitted through the registration link.

We welcome anyone involved in the cannabis industry, including cannabis business owners, lawyers, and entrepreneurs. 

Panel

The event will feature cannabis-focused intellectual property attorneys Paul Coble and Fred Rocafort as speakers, and Chair of HB Litigation Practice Jihee Ahn as moderator.

The post FREE Webinar This Thursday, September 21st: Cannabis Trademarks and Litigation appeared first on Harris Bricken Sliwoski LLP.

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How Important is the SAFE Banking Act, Anyway?

I’m pretty sure that more ink has been spilled on the Secure and Fair Enforcement Act (“SAFE Banking”), than any other proposed cannabis law. It just won’t pass and it just won’t die. Specifically, SAFE Banking was introduced in 2017 and it passed the House seven times (seven times!) with bipartisan support since 2019. The public likes it too: here’s a November 2022 Data for Progress poll revealing that “By a +65-point margin, voters support ensuring that banks do not discriminate against legitimate marijuana-related businesses.” This bill should pass, right?

It’s getting closer. SAFE Banking will finally go to mark-up this week in the Senate Banking Committee. That Committee is preparing to vote before October 1, although what they’ll be voting on at this point isn’t entirely clear. (For some chatter on that, check out this Marijuana Moment piece from last Friday.) But let’s assume that SAFE Banking, after mark-up, holds onto its key tenets. It would prevent federal banking regulators from:

• prohibiting, penalizing or discouraging a bank from providing financial services to a legitimate state-sanctioned and regulated cannabis business, or an associated business (such as a lawyer or landlord providing services to a legal cannabis business);
• terminating or limiting a bank’s federal deposit insurance primarily because the bank is providing services to a state-sanctioned cannabis business or associated business;
• recommending or incentivizing a bank to halt or downgrade providing any kind of banking services to these businesses; and
• taking any action on a loan to an owner or operator of a cannabis-related business.

Would any of that be truly helpful? In a vacuum, yes. But we don’t live in a vacuum, and if something like this passes you can expect a host of collateral issues. Most worrisome to me is that SAFE Banking could ultimately increase AML/BSA compliance burdens for financial institutions with cannabis clients. Hundreds of them already offer services to state-licensed marijuana businesses: these banks are well versed in the old-as-dirt 2014 FINCEN guidance on working with industry. If SAFE Banking passes, we’ll surely get additional rules and guidance from the Treasury Department and elsewhere. Be careful what you wish for.

This issue was highlighted in a well-written American Banker piece published yesterday (it’s paywalled, but they’ll trade you a freebie for an email). In that article, I and others also opined that SAFE Banking isn’t as critical as when the law was first introduced in 2017. This is because SAFE Banking wouldn’t actually solve a lot of cannabis banking issues, beyond access to banking services (which is already sort of solved). Specifically, it wouldn’t:

• grant access to SBA programs (there’s another bill floating around for that)
• increase lending options in any direct or discernible sense;
• grant U.S. cannabis companies access to public capital markets (sorely needed);
• require Visa, Mastercard, etc. to work with the cannabis industry (super sorely needed); or
• eliminate IRC § 280E (although this may occur through rescheduling).

Do I still hope SAFE Banking passes? I think so. The devil is in the details with something like this. And, as I told American Banker:

Right now, most states only have small credit unions working with the industry, and most of these credit unions only offer basic merchant accounts with relatively high fees. A few have more expansive offerings, like equipment loans, but generally cannabis companies don’t have access to the full suite of services that other, similarly sized commodities businesses have and they pay more for those limited services.

In that article, I also mentioned that I’ve learned not to get my hopes up with SAFE Banking. Even if this bill gets out of Committee, it would need a floor vote, and then reconciliation with whatever the House is thinking on the topic. That feels like miles and miles away, especially today when Congress is struggling to keep the lights on.

I don’t mean to be discouraging. In fact, it’s easier to feel OK when you think of SAFE Banking as not the biggest deal. These days, it’s really not.

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What the Hunter Biden Indictment Means for Cannabis Users

On September 14, 2023, Special Counsel David Weiss of the Department of Justice filed an indictment against Robert Hunter Biden in the District of Delaware. The indictment pleads three counts, which I analyze below. The Hunter Biden indictment centers on issues I’ve analyzed in many posts this year (see links at the bottom). Today I want to talk about what Hunter Biden’s indictment could mean for cannabis users.

Controlled substances users can’t buy or own guns

If you’re not up on the law here, here’s a summary from my most recent post on the matter, “Federal law prohibits cannabis users from buying or owning guns.” And in this post I noted:

The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) requires firearm purchasers to complete a form named ATF 4773, which requires the applicant to respond “yes” or “no” to the following question:

Are you an unlawful user of, or addicted to, marijuana or any depressant, stimulant, narcotic drug, or any other controlled substance?

Warning: The use or possession of marijuana remains unlawful under Federal law regardless of whether it has been legalized or decriminalized for medicinal or recreational purposes in the state where you reside.

If an applicant answers “yes” to this question, their application will be denied. If they are in fact a marijuana user – even someone who uses medical or recreational marijuana in a state where it is fully legal – but answer no, they can be charged with a crime. So in sum, the federal government believes that even state-legal cannabis users should be stripped of their Second Amendment rights.

Finally, here I wrote:

A 2022 U.S. Supreme Court case, New York State Rifle & Pistol Association, Inc. v. Bruen, held that the test for determining whether a gun control law is constitutional is (1) whether the affected person has Second Amendment rights, and (2) whether the restriction is “consistent with the Nation’s historical tradition of firearm regulation.”

All or virtually all courts that have dealt with the federal cannabis gun control law agree that cannabis users have Second Amendment rights. And nearly all courts agree that the federal cannabis restriction is not “consistent with the Nation’s historical tradition of firearm regulation.”

What the Hunter Biden indictment for cannabis users

Now let’s turn to Hunter Biden’s indictment and how it could affect cannabis users. The indictment relates to his completion of the ATF 4773. The counts are:

1. Allegedly making a false statement on ATF 4773 that he was not an unlawful user or addicted to a controlled substance;
2. Allegedly making a false statement to the federal firearms license (FFL) holder who apparently sold him a pistol that he was not an unlawful user or addicted to a controlled substance; and
3. Allegedly possessing a firearm while he was not an unlawful user or addicted to a controlled substance.

It bears noting that Hunter Biden’s alleged addiction was not to cannabis, but to crack cocaine. That said, the ATF 4773 makes no distinction between crack cocaine, cannabis, or any other controlled substances. So the analysis is similar. And that means, both for him and for cannabis users, that there seems to be a decent chance of prevailing on at least some of the charges.

As I’ve noted in many of my posts linked below, federal courts keep ruling that the federal laws restricting gun rights for cannabis users are unconstitutional. If struck down, either by Hunter Biden or in a challenge brought by cannabis users, would likely mean that the government would not prevail on the final charge against Hunter Biden (possession while an unlawful user).

But what about the false statement charges? That is much different. As I noted months ago, “Even if federal courts completely do away with restrictions on marijuana users’ gun rights, that won’t affect the potential for federal charges for making misrepresentations on the ATF 4473.” In other words, if a person makes a false statement NOW or in the past on the ATF 4773, it may be fair game for prosecutors to prosecute those charges even after changes in law. That’s because false representations are different from possession. And there doesn’t seem to be any push to change those requirements.

Federal laws on controlled substance users and guns are likely unconstitutional

In my view, cannabis users are likely to prevail, and these laws are likely to be held unconstitutional, in the coming years. The indictment of Hunter Biden may speed that process up and he will undoubtedly attack the constitutionality of those same laws in Delaware. Only time will tell, so please stay tuned to the Canna Law Blog for more updates.

To see my related posts:

• Yet Another Court Strikes Cannabis Gun Control Law
• Arkansas Passed a Cannabis Gun Rights Law. It Won’t Work.
• Feds May Restrict Cannabis Users’ Gun Rights Even After Changes in Law
• ATF Clings to Cannabis Gun Rights Restrictions
• Yet Another Federal Court Decision on Cannabis Gun Rights
• State Cannabis Gun Right Laws Won’t Work
• A Cannabis Gun Control Circuit Split is Coming
• Will Gun Control Laws Soften for Cannabis Users?

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How to have a Hollyweed weekend on Sunset Blvd.

Surprise—you totally can.

The post How to have a Hollyweed weekend on Sunset Blvd. appeared first on Leafly.

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Storage wares: 15 stash solutions for back-to-campus stoners

Fall 2023’s best weed bags and storage solutions.

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New York Cannabis: The Retail Dispensary Municipal Notice

New York’s Marijuana Regulation and Taxation Act (MRTA) requires anyone applying for a retail dispensary or on-site consumption license to submit a notice of their intention to apply to the municipality (or community board in New York City) at least 30 days prior to submitting the application. The Office of Cannabis Management (OCM) and Cannabis Control Board (CCB) included that requirement in the final adult-use rules and regulations (Section 119.3).

Here are the specifics:

• the notification must be made between thirty (30) and two hundred seventy (270) days prior to filing an application; and
• the notification “shall be in a form provided by the [OCM].”

Here’s why the New York municipal notice requirement is suddenly pressing: during the September 12, 2023 CCB meeting it was announced that the license application portal for retail dispensaries will open on October 4, 2023, with review of retail dispensary applications that include secured real estate to start on November 3, 2023.  That means that, basically, any prospective applicant for a retail dispensary license needs to submit the notification to it’s municipality (assuming it has already secured real estate), like now.

Here is why the notification requirement is an issue: that little reference to a “form provided by the [OCM].” As of this writing, the New York OCM has not provided a form municipal notice for the general adult-use application. The OCM’s website has an entire section devoted to notifying a municipality or community board; the attached form is for CAURD provisional licensees and expressly states that the applicant has “obtained a provision license from the Cannabis Control Board[.]” Clearly, the provided form is not applicable for general adult-use applicants.

To recap, the MRTA and adult-use rules and regulations require the OCM’s “form” to be submitted at least 30 days prior to submitting the application (that 30 day period is likely fast approaching), but no such form currently exists. We took the liberty of asking the OCM about the form and were advised that “the form could change in the future when non-conditional licenses are rolled out” and that “[c]urrently, we have no other form in this regard.”

Of course, you can always modify the OCM’s form to make sure a timely submission is made (not so easy in PDF, but doable), but some community boards have already stated that they will not accept a modified form and it is jarring (albeit unsurprising) that the general application portal is scheduled to open and a required form that must be submitted imminently (accordingly to the timeline) does not yet exist. If you are considering applying for a New York retail dispensary license, we strongly urge you to consult an attorney.

The post New York Cannabis: The Retail Dispensary Municipal Notice appeared first on Harris Bricken Sliwoski LLP.

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New York Cannabis: Portal for Adult-Use License Applications Opens October 4th!

The wait is (almost) over! During the September 12, 2023 Cannabis Control Board (CCB) meeting, the CCB announced that New York’s full, adult-use cannabis license application portal will open on October 4, 2023. The CCB meeting covered a number of other important topics, but we’ll save those for another post. For anyone planning on applying for an adult-use license, here are the important things to know about the application process:

• The application portal is “planned” to open on October 4, 2023 at 8am and will be open until December 4, 2023 at 5 pm. New York’s Office of Cannabis Management (OCM) plans to accept adult-use cannabis license applications for the following license types:
  • Cultivators;
  • Processors;
  • Distributors;
  • Microbusinesses; and
  • Retail Dispensaries.
• The OCM will review and approve retail dispensary and microbusiness applicants with a proposed location secured by November 3, 2023 at 5 pm. It is unclear how exactly the staged review will work (particularly in the context of the required notification to municipality) but we expect the timing to be addressed as part of the OCM’s subsequent FAQs. As a reminder, applicants no longer need to have a location secured prior to applying.
• The implication is that the OCM will be reviewing applications all at once (i.e., not on a rolling basis), but we assume application review will be addressed as part of the OCM’s FAQs.
• The OCM released this application mock-up, which lays out what the actual application looks like. It is very similar to the CAURD application, but includes a separate social and economic equity application.
• Within the application, there is a separate Social and Economic Equity certification that will be available (and come with a 50% reduction in application and licensing fees) if the applicant qualifies under the below categories:
  • individuals from a community disproportionality impacted by the enforcement of cannabis prohibition;
  • woman-owned businesses;
  • minority-owned business;
  • service-disabled veteran-owned businesses; and
  • distressed farmers.

This is the huge step New York has been waiting for since the Marijuana Regulation and Taxation Act was passed back in April of 2021. The next few weeks will likely include deluge of additional information, including OCM FAQs that clarify ambiguity in the application forms and process, including any required forms for applicants (such as the Notification to Municipality and True Parties in Interest forms).

Stay tuned! And if you are interested in pursuing a New York adult-use cannabis license application of any kind, please reach out to the our local cannabis business lawyers.

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Is New York’s new ladies’ weed retreat right for me?

Fuck, yes, absolutely.

The post Is New York’s new ladies’ weed retreat right for me? appeared first on Leafly.

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Banks Get Exposed by New York’s Unlicensed Cannabis Dispensaries

Major banks like JPMorgan Chase and Wells Fargo, as well as landlords such as BentallGreenOak and Ashkenazy Acquisition Corp., have found themselves indirectly involved with New York City’s unlicensed cannabis dispensaries, potentially exposing them to legal issues. This situation arises due to the proliferation of unlicensed retail shops in the city, with as many as 2,000 of them now operating since New York legalized recreational marijuana in 2021.

A new law known as Local Law 107 of 2023 (“LL 107”) that came into effect in July allows the city to fine landlords up to $10,000 if they knowingly lease space to tenants who illegally sell cannabis. (See our commentary here.) While cannabis consumption is legal at the state level in New York, it remains illegal at the federal level. Banks receiving payments from cannabis sales, and especially unlicensed cannabis dispensaries, could face regulatory penalties.

An analysis by PincusCo and Bloomberg revealed that more than two dozen landlords had multiple unlicensed cannabis stores as tenants. It can be challenging for some landlords to determine whether their tenants plan to sell cannabis, as some of these stores initially appeared as convenience stores or bodegas that later added cannabis products alongside snacks and cigarettes.

Landlords attempting to evict tenants engaged in illegal cannabis sales have encountered a slow eviction process. Some cases won’t reach a courtroom until September, even after receiving notices from the Manhattan District Attorney’s Office.

Banks that have financed properties with unlicensed cannabis tenants could also face repercussions. A Bloomberg analysis found that JPMorgan Chase & Co., Signature Bank, Bank of America Corp., Wells Fargo & Co., and New York Community Bank had numerous mortgages for properties leased to illegal smoke shops. Banks have been cautious in states where recreational cannabis sales are legal, including language in loan agreements that could put borrowers in default if the property is used in violation of federal law.

The takeaways here are that failing to conduct proper due diligence could: 1) lead to serious tenant headaches, including exposure under LL 107 with respect to unlicensed dispensaries, and 2) expose concerns about the strength of the bank’s anti-money laundering programs. Banks and all other landlords should take care to diligence their incoming retail clients carefully, and include strong lease language with respect to “allowed use” on site.

The post Banks Get Exposed by New York’s Unlicensed Cannabis Dispensaries appeared first on Harris Bricken Sliwoski LLP.

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Hands-on the newest Puffco Peak Pro with 3DXL chamber

Remastered and ready for Puffcon.

The post Hands-on the newest Puffco Peak Pro with 3DXL chamber appeared first on Leafly.

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Hop latent viroid (HLV): What is it & How is it affecting marijuana growers?

Across North America, something called Hop Latent Viroid (HLV) is wreaking havoc. This virus-like infection can make plants sickly and destroy harvests. It’s highly contagious. Studies have estimated that perhaps 40% of cannabis flower sold legally in Canada carries HLV. As much as 90% of cannabis in California might be infected, costing billions of dollars […]

The post Hop latent viroid (HLV): What is it & How is it affecting marijuana growers? appeared first on Leafly.

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Got storm damage? Here’s 7 cannabis garden first aid tips

Master cannabis horticulture author Ed Rosenthal has the details.

The post Got storm damage? Here’s 7 cannabis garden first aid tips appeared first on Leafly.

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New York Cannabis: The Fall “Schedule”

Over the last several months there has been a lot going on in New York’s cannabis world, with the “highlights” being litigation, corporate letters, municipal legislation, and generally just a lot of back and forth about where New York’s adult-use cannabis market is going and how it is getting “there” (wherever “there” is”). Over the next few weeks, we will be breaking down the big ticket events, but in the interim, we thought it might be helpful to consolidate the “schedule” into one post, with the what, when and why it’s important laid out.

What: The next Cannabis Control Board Meeting

When: September 12, 2023 at 10:15 AM (Live Stream Link in the Link)

Why It’s Important: This is going to be the biggest CCB meeting since the November 2022 meeting during which the first version of the adult-use rules and regulations were released. On tap for this meeting is likely:

• “Final” approval of the adult-use rules and regulations;
• Announcing when the adult-use application portal is going to be open (likely in October);
• Addressing the ongoing litigation and corresponding injunction; and
• hopefully, addressing the mounting frustration amongst the New York cannabis community about the OCM and CCB’s missteps.

What: Status Conference for the Fiore v. CCB/OCM litigation

When: September 15, 2023 at 10:00 AM

Why It’s Important: As of right now, there is a preliminary injunction in place that prohibits the OCM from issuing any further Conditional Adult-Use Retail Dispensary (CAURD) licenses. We need not get into the details of the OCM’s missteps (which have been well-reported). But Judge Bryant has been vocal from the very first hearing about the parties trying to find a resolution, and in the shadow of the September 12, 2023 CCB meeting, the hearing will likely provide real clarity on the future of the CAURD program.

What: New York State Senate Subcommittee Hearing on Cannabis

When: October 30, 2023

Why It’s Important: Everyone agrees that the OCM and CCB’s rollout of New York’s adult-use cannabis regime has been simultaneously rushed and way too slow. New York State Senator Jeremy Cooney announced the legislative session as a “fact finding hearing” during which industry stakeholders will testify about their experiences during the roll out and regulators will have to answer questions regarding the obvious issues with the rollout of licenses. The hope is that the hearing will act as a catalyst for legislative change to the MRTA.

__________

There is a lot happening in New York’s cannabis market. As we work our way through September, we expect real clarity on the future of New York’s adult-use cannabis market. Stay tuned!

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Neverland—Funk Farm, Montana, summer 2023

An independent, expert review of premium Montana flower.

The post Neverland—Funk Farm, Montana, summer 2023 appeared first on Leafly.

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Did cannabis legalization improve a state’s mental health?

A new study finds mental health admissions went down after legalization.

The post Did cannabis legalization improve a state’s mental health? appeared first on Leafly.

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What Rescheduling Means for Cannabis Investments

Last week, the Department of Health and Human Services (HHS) recommended rescheduling cannabis from schedule I to III under the Controlled Substances Act (CSA). My colleagues already covered various implications of the proposed cannabis rescheduling (see here and here). Today, I want to talk about one of the most important consequences of the announcement other than 280E reform: the effect on cannabis investments.

What’s been happening with cannabis investments?

Some stage-setting is in order. In the earlier days of cannabis legalization, cannabis startups typically did fundraising via equity investments. Everyone and their grandma wanted to own a piece of a cannabis company, and many of these people were willing to pay top dollar for a piece of the pie. I don’t have an exact statistic, but early on it seemed like debt finance was pretty uncommon, whereas equity finance was the norm.

At the time, cannabis investors and businesses alike thought that if they could pay a lot up front, get their feet in the door, and expand market share, they’d succeed. A lot of this rested on the false assumption that federal legality was around the corner – and that federal legalization would end 280E, allow interstate commerce, and so on. Obviously, that never happened. Lots of businesses bet big and lost bigger. Over the years, equity finance slowed down and debt finance, with hyper leveraged deals and massive interest rates, spiked. Up until a few days ago, most cannabis businesses would be hard pressed to find meaningful sources for cannabis investments.

Flash forward to last week. Within a few hours of the cannabis rescheduling news, publicly traded stocks began to shoot up. It looks like they are still going up as the Biden Administration has announced (still pretty tenuously) support for reform. This is obviously good news for publicly traded cannabis companies. But most cannabis companies are not publicly traded.

Over the years, our corporate cannabis team has represented countless companies doing equity and debt financing, as well as potential investors in negotiating and diligencing these transactions. Today, I want to talk about many of the things we have seen over the years and how cannabis rescheduling is likely to change things.

What’s actually happening?

If you want to really understand the ins and outs of the cannabis rescheduling announcement, read my colleague, Vince Sliwoski’s, recent post here. In a nutshell, the government has not yet rescheduled cannabis. If/when that happens, it will be on schedule III, meaning state-legal programs will still violate federal law. However, section 280E of the Internal Revenue Code would no longer burden cannabis companies. Section 280E has, bar none, been the biggest roadblock to financial success in the industry. If it goes away, expect to see a massive influx of capital in the form of investments, as one of the biggest expense sources will be lessened. 280E reform won’t change regressive state taxation, but that’s often much less impactful than federal reform.

At the same time, nobody really knows what will happen if cannabis is placed on schedule III. Technically, schedule III means a host of DEA and FDA regulations could apply. But it seems less than likely that the federal government would virtually ignore state-level cannabis programs during the schedule I era, reschedule cannabis, and then enforce state-level programs out of existence via enforcement of healthcare regulatory requirements. I tend to think that the status quo will prevail, but at the end of the day, nobody knows yet. And we won’t know until rescheduling happens and the DEA and FDA provide guidance on the matter.

Investors and companies beware!

Given that cannabis is still on schedule I, companies doing fundraising need to be very careful. Since nobody knows if cannabis rescheduling will even occur, let alone whether it will lead to drastically different federal interventions, companies making promises about the future could be in for a wild ride in terms of securities fraud litigation. We’ve seen cannabis companies make sketchy or untenable claims in investment offering materials many times in the past, and this announcement is almost certain to kick that into high gear in the future. All those companies are doing is rubber stamping future litigation and a bad time.

By the same token, cannabis investors need to be doubly vigilant when it comes to diligencing prospective investments. Over the years, we’ve worked with tons of investors to do basic diligence projects prior to investments. We’ve seen just about every conceivable skeleton in the closet over the years. The difference between then and now is that we used to have a fundamental understanding of the interplay between federal and state laws.

In the wake of this announcement, there are tons more unknowns regarding what cannabis rescheduling will do in the long term. This makes cannabis investments much more difficult from a diligence perspective. Investors who are unfamiliar with the market or regulatory structure and try to do diligence on their own may be in for a rude awakening.

Are the wonky structures going away?

One of the most annoying things about the cannabis industry is the org charts. In any other line of business, org charts are clear and make sense. In cannabis (and now psychedelics), you see some of the most wonky and bizarre org charts imaginable. See here for a good summary by my colleague, Vince Sliwoski. In a lot of cases, cannabis companies try to take what should be one company, and split it into two, or three, or five, or ten, often in an attempt to mitigate 280E impacts. Even though the tax courts can and for years have disregarded lots of this stuff, it’s still pervasive.

With 280E potentially going away, I predict a lot more sanity in cannabis org charts and corporate structuring. Without a need to find “creative” ways to deduct costs otherwise prohibited by 280E, businesses are going to see the light of day and realize that simplicity is key. This is good not only for good corporate governance, but also for cannabis investments. It is much easier for companies to bring in capital if investors understand the org chart – i.e., what they are specifically investing in.

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There are still a lot of unknowns about what cannabis rescheduling will do. But we already can see a tangible uptick in public company stock prices, which naturally will lead to investments in non-public companies. Stay tuned to the Canna Law Blog to learn more about cannabis investments in the coming months.

The post What Rescheduling Means for Cannabis Investments appeared first on Harris Bricken Sliwoski LLP.

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