Exploring the Potential Impact of the Psychedelic Medicine Association (PMA)

Psychedelic Medicine Association is trying to bridge the gap between researchers and the public.

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Michigan Man, Michael Thompson, Seeks Parole After Decades In Prison For Nonviolent Pot Offense

Michael Thompson, 87, has been in prison since 1994 for a cannabis offense—even though cannabis is now legal in his state.

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Montana Gets Ready to License the Recreational Cannabis Industry

Montana officials are making plans for the future of legal cannabis in their state.

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California Voters Expand Commercial Cannabis Opportunities Across the State: Part II

Election day this year proved to be a big step forward in terms of drug policy reform, with Arizona, Montana, New Jersey, and South Dakota legalizing adult-use cannabis, Mississippi legalizing medicinal cannabis, Washington DC decriminalizing a host of psychedelic plants, and Oregon leading the way by legalizing psilocybin for therapeutic use and decriminalizing non-commercial possession of ALL controlled substances.

But here in California, at least thirty-five cities and counties were also voting on cannabis-related issues, and those ballot initiatives were largely successful. As Marijuana Business Daily noted in their overview of the successful initiatives, “as of June, only 168 of California’s 540 cities and counties allowed for any type of legal MJ retail operations, and many of those don’t allow adult-use retail, only medical.” Across California, there are currently only about 700 storefront retailers, which is arguably woefully insufficient.

In this two-part series, we provide a rundown of what happened with cannabis at the local level in this year’s election, and how in some jurisdictions, that might pave the way for new commercial cannabis opportunities across California. In case you missed it, part one of this series is here.

Oceanside: Measure M

Voters authorized a tax on marijuana retail, manufacturing, and distribution business of up to 6% and on cultivation marijuana businesses of up to 3.5% of gross receipts generating an estimated $1.9 million per year for general city services.

Ojai: Measure G

Voters authorized a 3% tax on marijuana businesses generating an estimated $465,000 – $1.55 million per year for city services and permitting Ojai to increase the tax up to 10%.

Pomona: Measure PO

Voters supported the Commercial Cannabis Permit Program granting up to eight permits for marijuana businesses, maintaining marijuana businesses must be at least 1,000 feet from schools, daycares and youth facilities.

Porterville: Measure R

Voters authorized a tax on marijuana businesses of 10% of gross receipts or $25 per square foot to fund general services and public safety.

San Bruno: Measure S

Voters authorized a business license tax up to 10% on gross receipts generating no revenue until marijuana businesses are permitted within the city.

San Joaquin County: Measure X

Voters authorized the county to impose a marijuana tax of between 3.5% and 8% of gross receipts and $2.00 per sq. ft. of cultivation in order raise an estimated $250,000 per year to fund childhood and youth services.

Solana Beach: Measure S

Voters REJECTED a measure that would have allowed at least two storefront cannabis retail licenses as well as indoor cultivation and delivery. Solana Beach currently prohibits all commercial cannabis activity.

Sonoma: Measure X and Measure Y

Voters approved Measure X, which establishes a general cannabis business tax of up to 4% for retailers, manufacturers and indoor growers, 3% for distributors, 2.5% for outdoor cultivators, and 2% for testing labs.

Voters also REJECTED Measure Y,  which would have allowed additional personal cultivation rights and the establishment and operation of cannabis businesses within the City, including commercial cultivation, manufacturing, retail, delivery, distribution, testing, and special events.

Tracy: Measure W

Voters authorized marijuana business taxes at the following rates: 6% of gross receipts for retail businesses, 4% of gross receipts for other businesses, and $12 per sq. ft. for canopy cultivation, thereby generate an estimated $350,000-$700,000 per year in revenue for the city’s general fund.

Trinity County: Measure G

Voters approved a tax on marijuana cultivation at a rate of $15.44 per pound for flowers, $4.59 per pound for leaves, $2.16 per pound for fresh plants, and 2.5% of gross receipts for those with a marijuana retail license, maintaining a maximum tax rate of 25% for the first 100 pounds, 50% for 100-400 pounds, 75% for 400-1,000 pounds, and a tax at the full rate for more than 1,000 pounds.

Vacaville: Measure V

Voters authorized a marijuana business tax of 6% of gross receipts for retail businesses, 4% of gross receipts for other businesses, and $10 per square foot for cultivation generating an estimated $400,000 – $600,000 to fund general services including law enforcement, fire services and roads.

Ventura: Measure I

Voters approved a tax on marijuana businesses of 8% of gross receipts for retail marijuana businesses, 4% for other marijuana businesses and $10 per square foot for cultivation. The city currently prohibits all commercial cannabis activity.

Ventura County: Measure O

Voters authorized marijuana cultivation and distribution with limitations of 500 acres for cultivation of general marijuana and 100 acres for indoor nurseries, permits for sales between distributors, and a tax of 4% of gross receipts on general cultivation and 1% of gross receipts on nursery cultivation. The county currently prohibits all commercial cannabis activity.

Weed: Measure B

Voters decided to establish regulations on marijuana businesses including requiring licenses, limiting licenses, and other regulations on operations and conduct of such businesses.

Yountville: Measure T

Voters REJECTED a measure that would have allowed one marijuana business to exist in Yountville for retail, delivery and on-site consumption and establishing regulations, fees, permits, operation conditions and a 3% tax on gross receipts, generating an estimated $30,000 – $100,000 per year.

The post California Voters Expand Commercial Cannabis Opportunities Across the State: Part II appeared first on Harris Bricken.

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SEC’s Investment Rule Updates and Cannabis Fundraising

Recently the SEC updated its rules to simplify the patchwork of regulations to help companies in fundraising mode. This matters to cannabis companies of all types, especially those that want to utilize the available federal exemptions in their securities offerings. In the SEC’s own words, “These amendments will promote capital formation and expand investment opportunities while preserving or improving important investor protections.” To hemp and marijuana companies, these changes mean they will have access to a wider pool of prospective investors. These amendments become effective 60 days after publication in the federal register.

The SEC is really taking big strides this fall. I previously wrote about the SEC’s recent expansion of who and what can qualify as an accredited investor. We can expect future refinements to the SEC’s rules to provide more opportunities for investors looking for opportunities and more guidance for companies looking for safe harbors from legal snags when dealing with investors.

The recently updated rules are designed to help startups and more experienced SMEs that have proof of concept in their business models and are in their first or fifth fundraising round. Below are some highlights.

Increased Offering Limits for Regulation A (Reg A), Regulation Crowdfunding (Reg CF), and Rule 504 (Reg D) Offerings.

Under Tier 2 of Regulation A, the maximum offering amount has been increased from $50MM to $75MM, and the maximum offering for secondary sales has been increased from $15MM to $22.5MM.

Under Regulation Crowdfunding, the offering limit has been increased from $1.07MM to $5MM, which will make this option more attractive to some companies where the crowdfunding model makes sense for their business plan. Accredited investors are no longer limited in the amount they can invest under a crowdfunding offering, and non-accredited investors can now use the higher of their annual income or net worth when calculating their investment limits. The financial statement review requirement has been temporarily extended for 18 months in offerings raising $250k or less within a 12-month period.

Offerings utilizing Rule 504 of Reg D can now raise up to $10MM from $5MM, which will increase the use of these already frequently utilized offerings.

Clarified Rules Governing Investment Offering Communications.

Everybody loves demo day, except for companies that have to either have their securities lawyer with them at the table or CEOs who have to continually wink and nod when they say they are not there to sell an investment opportunity in the business. The rule updates mean that issuers can generally talk openly about investment opportunities to “test-the-waters” without those communications being considered “general solicitation” or “general advertising” that make securities lawyers (and a few CEOs) sweat in their sleep.

Clarified Issuer’s Ability to Move from One Exemption to Another: Avoiding Offering Integration.

Boards and executive officers rarely think in terms of “what issuing exemption will we qualify for” when they are determining the criteria for their capital raise. Generally, they are looking at the company’s needs based on the CFO’s analysis, the availability of capital from interested investors and the CEO’s conversations with existing and prospective investors.

These rule amendments fit more with these reality scenarios – that sometimes a company’s offering may qualify for one or two different exemptions – and that the company may need to switch lanes during the offering process. This is often determined long after they have started communicating with prospective investors, soliciting offers, and probably after the company has made its first sale in the offering. Sometimes companies don’t even think about their offering parameters until well after they have received their first investor funds.

Based on a “facts and circumstances” review, the SEC will generally consider offerings as distinct from each other if they have a 30 calendar day window between them. This often matters when one offering utilizes “general solicitation” of prospective investors while the follow-on offering does not.

Offerings relating to employee benefit plans (Rule 701) or offerings by international companies (Reg S) or companies with a registered offering (as opposed to an exempt offering) will not be integrated with other offerings, subject to certain criteria.

Utilization of Special Purpose Vehicles (SPVs).

One reason why crowdfunding has not taken off in hemp and marijuana businesses is because no sane company executive team wants to deal with hundreds or thousands of investors in exchange for a $100 or even a $1,500 investment from each of the investors. They are just not worth the hassle. But the new rule amendments permit the use of certain SPVs for Reg CF and Reg A offerings. This is a boon to cannabis companies, and we may see more crowdfunding offerings by cannabis companies that are willing to deal with a single SPV investment entity as long as someone else deals with the SPV’s investors.

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2020 has been a banner year for the SEC, even if the rest of the world is faltering or crumbling. We can expect continuing refinements from the SEC moving forward because the definitions of “sophisticated investors” and what it means to “protect” them will continue to shift.

For more reading, check out:

• Foreign Investment in U.S. Cannabis: A Continuing Love/Hate Relationship
• Cannabis Investment Basics: Debt vs. Equity
• Cannabis Securities Litigation: Alleged Failure to Disclose Material Information Leads to Federal Lawsuit
• Cannabis Fundraising: Seven Key Takeaways from the SEC’s New Accredited Investor Rules
• Cannabis Securities Litigation 101: Who Can Be Liable for Oregon Securities Fraud?
• Raising Cannabis Funds and Staying Out of Jail: Asking Yourself the Right Questions
• Did You Just Issue Cannabis Securities? Top 10 “Go to Jail” Scenarios
• Cannabis Startups 101: Securities Compliance
• Oregon Cannabis Securities: Raising Money Right
• Cannabis Crowdfunding is Here
• Utah Cannabis Investment Fraud: Know Your Securities Laws
• Cannabis Securities Litigation: Don’t Expect to Put One Past the SEC
• Ask a Pot Lawyer: Can I Invest in Weed?

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A Primer on California’s Unruh Civil Rights Act (UCRA)

This summer, I wrote about a Title III lawsuit that was filed against cannabis company NC3 Systems dba Caliva. As a quick refresher, Title III of the Americans with Disabilities Act (“ADA”) requires all businesses to remove any obstacle that interferes with a disabled person’s ability to access their products or services online.

The plaintiff had filed a complaint alleging Caliva’s website denied him full and equal access to Caliva’s facilities, goods, and services. The plaintiff ultimately brought causes of action under Title III and California’s Unruh Civil Rights Act (“UCRA”), which is slightly different and deserves it own primer because it unfortunately opens the door for plaintiff to recover statutory penalties as well. Here goes:

Like Title III, the UCRA guarantees every person in California “full and equal” access to “all business establishments of every kind whatsoever” and imposes a duty on business establishments to serve all persons without arbitrary discrimination. Like the ADA, a “business establishment” is defined to include nonphysical places internet websites.

The statute provides standing on “any person aggrieved” by conduct that violates the UCRA. This is a narrower definition than is provided by Title III – a private plaintiff can sue only if he or she is an actual victim of the discriminatory act. Most relevant for our clients today, a person who visits a company’s website with intent to use its services, but encounters terms and conditions which allegedly deny that full and equal access, has standing. There’s no requirement that the person also perform some kind of transaction or enter into an agreement.

In contrast, the scope of who is potentially liable under the UCRA is quite wide. Liability under the UCRA extends to whoever is responsible for the discrimination. Of course, the business itself is usually named as a defendant. But, liability can also extend to employees or even independent contractors if the facts are right.

And as I mentioned above, the biggest practical different between Title III and the UCRA is the prescribed statutory penalty in addition to the other relief provided:

• Statutory penalty: a plaintiff is also entitled to recover statutory damages of at least $4,000 and up to three times actual damages per violation – even if no actual damages are suffered or proved. Again, the plaintiff must show the violation denied him or her “full and equal access to the place of public accommodation on a particular occasion,” meaning, he or she was denied access by encountering the violation or being deterred by the violation.
• Injunctive relief: The UCRA authorizes injunctive relief, including permanent injunctions, preliminary injunctions and restraining orders.
• Compensatory damages: a plaintiff may recover their actual damages.
• Attorneys’ fees and costs.

As for the lawsuit, it looks like the plaintiff and Caliva reached a settlement quickly, no doubt in part because litigating these types of cases is costly and the inclusion of the UCRA claims creates a steeper damages calculus. The case ended up being dismissed just over two months after being filed, but we should expect to see a steady stream of these lawsuits going into the new year as businesses continue to expand their online presence.

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NJ Bill To Decriminalize Marijuana, Reduce Penalties On Magic Mushrooms Advances

Will New Jersey be the next state to loosen their stance on psilocybin?

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