Washington State Eliminates Medical Cannabis Taxation

In November 2012, Washington voters approved the production, processing, and retail sales of recreational cannabis within Washington state under what is known as Initiative 502 (“I-502”). Washington state then provided a regulatory framework for how the legalization of recreational cannabis production, processing, and retail sales would be regulated under what would become the Washington State Liquor and Cannabis Board (“LCB”).

Washington State’s unfair taxation of medical cannabis

The LCB is tasked with reviewing, approving, regulating, and monitoring cannabis licenses within Washington state. The LCB is also tasked with administering and collecting excise taxes concerning the retail sale of cannabis concentrates, useable cannabis, and cannabis-infused products within the state. Cannabis sales in Washington state are currently taxed at a rate of 37%, in addition to the general state and local sales and use taxes. Qualifying patients and providers are exempt from the general and local sales and use taxes on the sale of cannabis products compliant with the Department of Health (“DOH”) but have continued to be subject to the 37% excise tax, until now.

HB 1453 seeks to alleviate the unfair tax burden on medical cannabis patients and providers

On March 6, 2024, the Washington Senate passed HB 1453 which will provide an exemption from the 37% excise tax for medical cannabis patients and designated providers. The bill now waits for signatures and executive action to become law. First introduced in 2023, HB 1453 sought to harmonize the existing medical exemptions from general sales and use taxes with the 37% excise tax on cannabis sales.

Medical cannabis patients and providers face a significant financial burden when patients and providers are unfairly taxed the same as recreational consumers.

Primarily, medical cannabis is not recreational or a luxury, but a necessity for many people who suffer from chronic pain, epilepsy, PTSD, and other conditions. Medical cannabis is often the only effective treatment that allows them to function and improve their quality of life. Medical cannabis patients and providers must already jump through additional regulatory hoops to stay compliant with the LCB and the DOH and the imposition of additional taxes only exacerbates this hardship. Medical cannabis patients and providers follow strict rules and guidelines to access the medicine not required by recreational cannabis users and providers, and it is unjust to further penalize those medical patients and providers.

Medical cannabis is already expensive and not covered by insurance or public health programs. Adding a tax aimed at recreational sales on top of that makes it even more unaffordable for many patients who are already struggling financially. This can force them to reduce their dosage, switch to cheaper but less effective products, or even turn to the recreational market which does not have the same DOH requirements and compliance standards. Taxing medical cannabis patients the same as recreational consumers is a form of discrimination that harms their health and well-being. It also goes against the principle of harm reduction, which is one basis of medical cannabis legalization policy.

Recognizing medical cannabis as an essential medicine

Washington lawmakers have finally acknowledged that medical cannabis should be treated as a medicine, not a commodity, and exempted from the 37% excise tax along with the current exemption from general and local sales and use taxes. The passage of HB 1453 marks a significant step towards alleviating the unjust financial burden on patients and providers. If signed into law by Governor Jay Inslee, HB 1453 will take effect ninety (90) days after the adjournment of the current legislative session and will provide medical cannabis patients and providers a much-needed tax exemption for their medicine.

The post Washington State Eliminates Medical Cannabis Taxation appeared first on Harris Sliwoski LLP.

from Canna Law Blog™ https://ift.tt/GioEkSZ
via IFTTT

Pop Seeds 2024 Grand Finale: Best seeds and clones for hash

Hash rules everything around me.

The post Pop Seeds 2024 Grand Finale: Best seeds and clones for hash appeared first on Leafly.

from Leafly https://ift.tt/DM5sEdW
via IFTTT

Investing in Cannabis: Five Due Diligence Red Flags

Our cannabis team has performed due diligence on countless business purchases, investments, loans, and just about every other kind of transaction you can imagine. As you can imagine, we’ve seen some pretty bad and even sketchy things over the years. With rescheduling on the horizon (see here and here), we expect to see an increase in loans, investments, and other transactions. And so we thought it might be time to look at five of the biggest due diligence red flags.

#1 No cooperation in due diligence

Hands down, the biggest red flag in due diligence is when the seller, borrower, etc. refuses to participate in the process. I don’t mean getting fatigue when the buyer or investor’s lawyers ask too many questions – I mean refusing to participate in the basic process. We’ve seen people refuse to provide basic information. Or walk away from a deal when basic questions were asked. Or say that other people did similar deals without information, so you should too.

This is all incredibly suspect behavior. Someone who is selling a business or seeking a loan or investment needs to be completely open. Obviously, diligence periods can get off the rails and become too long, but failure to provide basic information is a red flag that something bad lurks beneath the surface.

#2 When the pitch doesn’t match reality

One of the next big red flags is when due diligence reveals facts that grossly contradict pitches or early disclosures. The due diligence process usually begins once a client decides a deal is worth pursuing enough to pay lawyers or financial advisors. That means that the client will expect that what was disclosed to them initially is true. But often, once attorneys start to look under the hood, things can change quickly. Imagine a company saying it has X amount of licenses, when really it has half of that and has simply applied for more – stuff like that.

I can’t tell you how upset clients can get when they figure this out. A deal can just die on the spot. If a buyer or investor fails to do proper diligence, it may not learn the truth until after the deal closes. While the buyer or investor could sue for fraud, that money could just disappear. It’s much better to know this up front, before wasting time and money.

#3 Bad or crazy business structures

Another big thing to look for in due diligence is the target’s business structure, plans, and organizational chart. In our experience, the more complicated an org chart or business structure is, the bigger the chance that things won’t work out (my colleague, Vince Sliwoski, wrote a pretty good post explaining some of the wackier business structures we’ve seen over the years). In some cases, over-complexity is used in a misguided attempt to reduce tax burdens or avoid other problems. But it can also be used to straight up confuse and defraud potential investors. Again, due diligence is critical.

It’s not just bad or crazy business structures that a buyer or investor should look out for. They also need to understand fundamentally what the target’s business plan is. We’ve seen more than a few cases where a target claimed to have found some hidden loophole in the law that meant its business would be able to corner the market. Sometimes, a target will even get a law or accounting firm to give an opinion letter in support. But these kinds of pie-in-the-sky promises rarely come to fruition.

#4 Byzantine governing documents

Investing in a cannabis company means getting stock (of a corporation) or membership interests (of an LLC) and becoming an owner of the company. An even moderately well-governed company will ask its investors to sign on to existing governing agreements. In cases with smaller companies, an investor may have the chance to negotiate new governing agreements, but that’s by no means a guarantee. So one of the most important thing an investor can do with respect to due diligence is to look at the target’s governing agreements.

This is something that can trip up lots of lawyers and almost any lay person. I’ve seen investment transactions with 80 or 90 or even more than 100 pages of corporate documents slipped into the deal. If you are not intimately familiar with corporate law, you may miss key provisions that dramatically affect you.

For example, I’ve seen transactions where an investor thought they were going to have the same rights as other owners, but the governing agreements gave them non-voting stock with no management rights and a lower place in the distribution waterfall. This kind of thing can be buried deep within an operating agreement and couched in language that is incredibly dense and tough to understand. This is just one area where working with good corporate counsel can pay dividends (no pun intended).

#5 Ownership disputes

One of the most important things to look for is ongoing or threatened litigation. It’s relatively easy to find out if a business is involved in active litigation (court records are public after all, even though they may not be easily searchable). But finding records of things like private arbitration, mediation, or demand letters may be impossible unless the sellers or target company discloses that information to the buyer’s representatives. A step beyond that, sometimes there may even be a potential for a dispute, for which no demand letter has been served. Again here, a buyer will need to rely on a seller to disclose those facts.

This is a bit of a digression, but the point is that it’s critical to perform due diligence on a target’s litigation profile. One area where litigation can lead to disasters involves ownership disputes in an M&A (business purchase) transaction. Imagine a person is trying to sell you their business while they are currently embroiled in a lawsuit with an ex-partner who says they were illegally forced out and own half the business (we’ve seen this!).

If a buyer fails to figure out that an ownership dispute has or is likely to arise, or does learn and proceeds with the deal anyway, it is virtually begging to be named in that lawsuit. If money was handed over to the seller, that money may be as good as gone.

---

Above are five of some of the biggest red flags we have seen in cannabis transactions when performing due diligence. This list is by no means exhaustive, and there are countless other things that could tank a deal or lead to litigation. We’ll continue to blog about all kinds of corporate law mishaps for the cannabis industry, so stay tuned.

The post Investing in Cannabis: Five Due Diligence Red Flags appeared first on Harris Sliwoski LLP.

from Canna Law Blog™ https://ift.tt/YaLoSIZ
via IFTTT

California Cannabis: Make Your Non-Disclosure Agreement Count

In the ever-evolving landscape of the cannabis industry, the use of non-disclosure agreements (NDAs) is becoming more prevalent as the demand for difficult to grow exotic strains increases and more brands and businesses flood the market. Previously we have blogged about the importance of NDAs to safeguard confidential business information. Cannabis businesses should continue to use NDAs, but must take care to not structure them as disguised covenants not to compete or they will lose all value.

Legal scrutiny and enforceability

To maintain a competitive advantage in the cannabis industry that is now facing serious challenges to remain profitable, many employers have greatly expanded the scope their NDAs and made their execution a condition to employment. However, in California, the need to protect trade secrets and confidential information is balanced against a strong public policy favoring employee mobility and competition. As a result, over inclusive NDAs will not withstand the scrutiny of California Courts and will not be enforced.

Navigating legal frameworks

Per California Business & Professions Code section 16600, absent statutory exception, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The result is that California courts scrutinize NDAs closely to ensure that they are not disguised as a covenant not to compete or unduly restrict an employee’s ability to pursue employment opportunities or to engage in fair competition. To ensure that an NDA is effective and enforceable, it must be narrowly tailored both in time and scope so that the courts can readily ascertain what information employers are seeking to protect.

Challenges and exceptions

There is an exception to Business & Professions Code section 16600 for trade secrets, but the former employee’s actual use of the trade secret must be shown. California Courts have soundly rejected a doctrine utilized in other states known as inevitable disclosure, which assumes that if an employee has knowledge of a trade secret and accepts a similar job with a competitor, then he will “inevitably disclose” the trade secret in the performance of his job duties with his new employer. In an industry known for its high turnover of employees, by the time a cannabis business can demonstrate actual use and receive relief from the courts, the damage will have been done and the employee responsible will have moved on.

Strategic use of NDAs in the cannabis industry

In the dynamic arena of cannabis, the strategic use of NDAs remains vital to safeguard trade secrets and proprietary information. However, businesses must tread carefully to ensure that NDAs do not inadvertently morph into disguised covenants not to compete, risking their enforceability in California courts. By striking a delicate balance between protecting confidential information and upholding principles of employee mobility and fair competition, businesses can harness the power of NDAs effectively while navigating the legal landscape with confidence and compliance.

The post California Cannabis: Make Your Non-Disclosure Agreement Count appeared first on Harris Sliwoski LLP.

from Canna Law Blog™ https://ift.tt/pMhj4Au
via IFTTT

13 strains for spicing up your Dune 2 experience

Blue Dream, Rocket Fuel, Spice, Gas Face, Fatso and more.

The post 13 strains for spicing up your Dune 2 experience appeared first on Leafly.

from Leafly https://ift.tt/JwLTCBI
via IFTTT

Unwrapping the Legal Battles Against Cannabis Edibles

Cannabis companies are often unclear about what edible products are legal to manufacture and distribute. While some cannabis edibles may be legal on a state level, federal regulations prohibit placing some cannabinoids in food altogether. This legal landscape is often confusing for cannabis edibles manufactures, who see their products as a natural expansion of cannabis legalization. However, violations of federal law are currently the least of their concerns. While federal agencies seldom take strong action against cannabis companies these days, confectionary manufacturers are not afraid to sue in federal court when their brands are threatened. In fact, the intersection of cannabis legalization and the confectionery industry has sparked a wave of legal disputes in recent years. Let’s take a look at a few of them below.

Ferrara Candy Company

Ferrara Candy Company is known for its iconic candy brands, including NERDS candy. Ferrara is committed to its brand integrity. Faced with a booming market for cannabis infused edibles that have the look and feel of its successful children’s treats, Ferrara is stepping up its legal efforts to stop these cannabis brands from imitating its products. Ferrara has been sending cease and desist letters to cannabis companies, and taking legal action against those that ignore their demands.

In 2022, Ferrara successfully obtained a permanent injunction against Higharchy, LLC for trademark infringement. Higharcy, a cannabis retailer and manufacturer, was selling cannabis infused edibles that mimicked the logo and trade dress of Ferrara’s popular NERDS candy. Similarly, back in 2021, Ferrara successfully enjoined another cannabis manufacturer in California, Tops Cannabis, who had developed a “Medicated Nerds Rope.”  In still another case, Ferrara brought an action against HC, LLC, that was selling cannabis infused gummies in packaging that mimicked Runts, Trolli, and Nerds. Ferrara succeeded in that case as well. Finally, Ferrara brought an action against Akimov, LLC, another maker of cannabis infused candies. In that case Ferrara’s claims included, among other things, trade dress infringement.

It’s important to note that Ferrara has a right under the Lanham Act to protect its trade dress. Trade dress is the overall look and feel of a product that creates for consumers an association with a particular brand source. In the realm of cannabis edibles, this means that cannabis candies with a similar shape and appearance to other popular treats could be infringing that other product’s trade dress. Claims for trade dress infringement are pivotal to the enforcement actions that Ferrara and others have recently taken.

Also central to Ferrara’s concerns are cannabis products that appeal to children. Many states’ regulatory and statutory frameworks place prohibitions on advertisements and labeling that appeal to children. However, it is not always clear what is considered appealing to children versus those inherently fun products that appeal to everyone. Cannabis companies currently lack clear guidance on how to develop attractive products while avoiding the ire of children’s safety advocates and renowned national brands.

Hershey and Mars

Ferrara is not the only company taking action against cannabis companies, with Hershey Co. and Mars Inc’s Wrigley also filing successful lawsuits. In one of them, three online cannabis retailers were ordered to “deliver up and destroy all infringing products and packaging,” and also pay various sums for infringing upon Mars’s trademark. The judge observed:

I also find that advertising and offering for sale of a potentially dangerous product using appropriated trademarks that are evidently and obviously attractive to children represents a marked departure from ordinary standards of decent behaviour that deserves to be denounced and deterred…. I have placed significant weight on the issue of harm not only to the Plaintiff but also to members of the public who might accidentally consume the Defendants’ Infringing Product believing it to be a genuine SKITTLES product. The fact that SKITTLES are a confectionary product that are attractive to children reinforces the need to denounce the Defendants’ conduct.”

As with Ferrara, these lawsuits underscore the complexities and legal challenges surrounding the intersection of cannabis legalization and the enforcement of intellectual property rights.

Lessons from the confectionary industry litigation

The presence of these lawsuits should be as much a guide for cannabis manufacturers as the regulatory framework that has been adopted by the states that have legalized its sale. Cannabis companies must weigh the risks of developing fun products that appeal to our younger selves with the daunting prospect of litigation and regulatory action. Often, the costs of litigation far outweigh the financial benefits of creating and distributing such brands in the first place. And making an infringing product does not make business sense.

It is now safe to say that paying homage to other popular children’s candy with reminiscent styles carries significant risk. Anyone seeking to develop new edible products should first consult with a trademark attorney to make certain those products will not bring legal exposure down the road. And any company that receives a cease-and-desist letter from these confectionary companies should take them seriously. Successful negotiations inviting prompt settlements are often the best way to avoid being brought into court. Ignoring them is never recommended.

Finally, while these hurdles are real, they don’t have to take the fun out of cannabis. There is plenty of room in the market for creative and exciting new products. And no matter what shape edibles take, consumers are loving them.

____

For related posts, check out the following:

• Taste the Injunction: Unsweet Ending for Skittles Infringer
• Free Speech and Cannabis Brands
• New Trademark Litigation Against “Stoney Patch” Cannabis Products Calls Out an Industry Trend of Copycats

The post Unwrapping the Legal Battles Against Cannabis Edibles appeared first on Harris Sliwoski LLP.

from Canna Law Blog™ https://ift.tt/lJ97gfi
via IFTTT

Star signs and cannabis strains: March 2024 horoscopes

Spring is imminent, Leafly nation. As we plant our harvests and the cold temps retreat, we have a dozen new strains to help you navigate an eventful Pisces season.

The post Star signs and cannabis strains: March 2024 horoscopes appeared first on Leafly.

from Leafly https://ift.tt/QZ9mtRk
via IFTTT