Legislation

Colorado's 7 New Cannabis Laws Will Propel Industry Forward

The Governor of Colorado, Jared Polis, signed seven (7) new cannabis laws into effect. The laws will propel Colorado’s cannabis industry forward by opening doors to public capital, allowing on-site consumption and delivery licenses, and making strides in the development of a robust hemp industry.

Below are brief summaries of the 7 new cannabis laws.

Publicly Licensed Marijuana Companies - The new law repeals the ban on investors in marijuana businesses that are publicly traded companies, and repeals the 15 person limit on the number of out-of-state investors. Under the law, controlling beneficial owners must make certain disclosures, and these controlling beneficial owners may be prohibited from becoming a licensee if unsuitable. A controlling beneficial owner is a person that owns 10% of the stock in the marijuana business.

Marijuana Hospitality Establishments - The new law allows retail establishments and mobile hospitality establishments to permit on-site consumption of marijuana products. Retail storefronts may obtain a license from the local jurisdiction where it is located. Colorado’s regulators are charged with adopting new regulations to oversee this new license type.

Regulated Marijuana Delivery - The new law allows medical and adult use retail stores and transporters to apply for a delivery license. The law requires the state to begin permitting medical marijuana delivery licenses by January 2, 2020 and permitting retail marijuana licenses by January 2, 2021. Businesses holding multiple licenses must apply for a separate delivery license for each license held. A $1 dollar charge would be added to each delivery to cover the cost of increased law enforcement needs. The law prohibits the delivery of medical or adult use marijuana in any municipality or jurisdiction that prohibit certain marijuana establishments including retail stores.

Electronic Filing Of Certain Taxes - Requires the electronic filing of state taxes when an electronic filing system is created or for taxes due on or after January 1, 2020, whichever is later. The new electronic filing law will reduce the inefficiencies of manual processing.

Hemp Regulation Alignment With 2018 Federal Farm Bill - The new law aligns Colorado’s Industrial Hemp Regulatory Program with the requirements of the 2018 Farm Bill. Under the law, the Commissioner of Agriculture must establish a hemp management plan and adopt regulations to implement. The new hemp regulations can be structured to address concerns raised by the US FDA at its May 31 hearing on CBD products.

Industrial Hemp Products Regulation - Requires manufacturers of hemp products to register with the state and pay a $300 fee. The new law also authorizes the Commission of Agriculture to establish a working group that will study the regulation of hemp products. Finally, local jurisdictions are authorized to adopt regulations that establish licensing requirements and fees for businesses engaged in extraction, storage, processing or manufacturing of hemp products.

Institute Of Cannabis Research Role And Mission - The law creates the Institute of Cannabis Research that is to be located at the Colorado State University. The role of the institute is to perform research on the effects of marijuana and the efficacy of medical marijuana.

Nevada Legislature Sends Cannabis Electronic Payment Processing Bill To Governor for Signature

The Nevada Legislature has sent a bill authorizing the creation of a closed loop payment processing system for the cannabis industry to Governor Sisolak for his signature.

AB466 authorizes the creation of an electronic payment system for the cannabis industry by July 1, 2020. The closed loop payment processing system will be operated as a pilot program by the State Treasurer.

The voluntary system allows customers, medical marijuana patients, and marijuana establishments to establish accounts using a mobile app or a card. The accounts can be used to engage in financial transactions related to marijuana. The system would provide the state with real time recordkeeping, and will provide the cannabis industry with an electronic business-to-business payment platform.

Nevada will charge fees that are sufficient to cover the cost of administering the pilot program, which will also be used by the industry to electronically pay state taxes.


Colorado Passes Legislation Allowing Municipalities to Create Local Licensing Regime for Hemp Products

The Colorado Legislature passed a bill that allows local municipalities to adopt ordinances to license and regulate businesses that engage in the storage, extraction, processing, or manufacturing of industrial hemp or industrial hemp products. The bill will become law if it is signed by Governor Jared Polis.

The new law allows counties and local municipalities to adopt a local license fee for hemp businesses and establish licensing requirements. The local municipalities may not adopt additional food safety requirements if they conflict with state laws.

The new law also requires wholesale food manufacturers that create hemp products to register with the Department of Agriculture and pay an annual fee. The Department of Agriculture must establish a stakeholder working group to study the regulation of industrial hemp products that will meet on or after December 1, 2019. The working group must provide the Colorado Legislature with written recommendations.

Oklahoma Passes Legislation to Guarantee a Medical Cannabis Dispensary in Every Town

The Oklahoma Legislature passed a bill that will prevent local municipalities from prohibiting medical cannabis dispensaries. The bill has been sent to Governor Kevin Stitt for his signature. The state’s medical marijuana industry is booming as the Oklahoma Medical Marijuana Authority has received over 5,400 business applications. The state has over 1,400 dispensaries, which produced sales that topped $18 million in April.

The new law is in line with the business friendly environment in Oklahoma for medical marijuana businesses where there are fewer restrictions, low fees and tax rates as compared to the coastal markets. Under the new law, local municipalities may not prohibit retail medical marijuana businesses. A municipality may determine the appropriate zoning area for the businesses, but a retail businesses must be allowed. As we have seen in other states, local municipalities utilize buffer zones and zoning areas to cap the total number of marijuana businesses within the local jurisdiction.

Oklahoma’s approach limits the municipal risk that exists in other states that allow local jurisdictions to opt out. Cities that opt into commercial cannabis can opt out based on the change of the city’s administration, which results in litigation and lost investments.

Last week, Mountain View, California banned retail shops after the election of a new mayor. The prior administration approved an ordinance that allowed three dispensaries within the city. Applicants that worked with the city during the 18 month period to establish marijuana storefronts will be able to reapply for delivery licenses.

Wisconsin Bill Clarifies Gun Rights for Medical Marijuana Users

The Wisconsin Senate introduced a bill that clarifies the gun rights for persons who are medical marijuana patients. Firearm dealers must receive clearance from the US Department of Justice (DOJ) prior to selling a gun in order to prevent a sale to persons who are prohibited from owning a gun under federal or state law.

The bill prohibits the DOJ from considering a persons participation in the Wisconsin medical marijuana program when conducting a search to determine if a person is prohibited from possessing a firearm. The legislation would also prohibit the Department of Health Services from disclosing the persons who participate in the medical marijuana program to any federal agency.

Nevada Assembly Moves Bill Allowing Electronic Tax Payments

The Nevada Assembly has pushed forward a bill that would authorize the creation of an electronic payment system for the cannabis industry by July 1, 2020. The closed loop payment processing system will be operated as a pilot program by the State Treasurer.

The voluntary system allows customers, medical marijuana patients, and marijuana establishments to establish accounts using a mobile app or a card. The accounts can be used to engage in financial transactions related to marijuana. The system would provide the state with real time recordkeeping, and will provide the cannabis industry with an electronic business-to-business payment platform.

Nevada will charge fees that are sufficient to cover the cost of administering the pilot program, which will also be used by the industry to electronically pay state taxes.

Here is What Changed in New York's Amended Adult Use Marijuana Bill

The New York Senate released an amended version of the Marihuana Regulation and Taxation Act for consideration ahead of the Legislature’s 2019 session end on June 19th. The legislation was originally introduced in January and will regulate, tax and control marihuana like alcohol. Most notably, the amended version incorporates the provisions related to the cultivation of hemp required to implement the 2018 Farm Bill. 

According to the legislation, there are roughly 1.5 million regular marijuana users in New York with half living in New York City. The state estimates that the market for marijuana in New York is $3.1 billion. The state also projects an estimated $436 million in tax revenue with an additional $336 million in tax revenue in New York City.

What changed in the amended version?

  • The legislation changes the term marihuana (as used in Michigan) to cannabis.

  • The state must identify and expunge eligible convictions six (6) months of the law’s effective date, and vacate or dismiss any terminated proceedings. Persons who are currently serving a prison sentence may ask to be re-sentenced if the person would be subject to a lesser offense under the new law.

  • A twenty percent (20%) tax is charged on the transfer of adult-use cannabis from a wholesaler to a retail dispensary or from a retail dispensary to the consumer.

  • An additional 2 percent (2%) tax is charged on the transfer of adult-use cannabis from a wholesaler to a retail dispensary or from a retail dispensary to the consumer for the county in which the dispensary is located.

  • The Office of Cannabis Management is charged with establishing a licensing an oversight regime for the growth, extraction, processing, and manufacturing of hemp for derivatives, extracts, cannabinoids, isomers, acids, salts and salts or isomers and/or hemp products for human or animal consumption.

  • The legislation authorizes the development of regulations governing the cultivation, sale, distribution, and transportation of industrial hemp in the state. The legislation will treat hemp products that are intended for consumption by humans or animals like cannabis.

  • The New York state cannabis revenue fund will allocate money will fund the cost associated with running the office of cannabis management. The money will also be allocated for the collection of data related to the cannabis market and to fund research on the health and safety issues related to the consumption of cannabis.


6 Things to Know About Delaware's Recreational Marijuana Bill

The Delaware Legislature reintroduced a bill to legalize recreational marijuana. The bill is refreshingly simple- coming in at a mere 45 pages - as compared to similar legislation introduced in Illinois, New Jersey and New York. It may be a bit ambitious to introduce the bill this late in the legislative session, which closes on June 30, 2019. However, it may indicative of an earnest effort that may take place in 2020.

The top six (6) things that you should know about Delaware’s recreational marijuana bill include:

  • Licenses will be allocated using a scoring system that takes into consideration a social responsibility plan, an environmental and sustainability plan, and a plan for a safe, healthy and economically beneficial working environment.

  • The number of available retail licenses is capped at 15. The state will accept retail store applications 10 months after the effective date of the Act, and will start issuing licenses 11 months after the effective date. After 3 years, the state may issue more than 15 licenses if there is sufficient market demand.

  • Licenses are also capped as follows:

    • Testing facility licenses - 5

    • Cultivation licenses - 50

    • Manufacturing licenses - 10

  • Local municipalities may prohibit commercial cannabis businesses. A protest hearing is scheduled if 10 people within 1 mile of the establishment file a protest. Marijuana may not be delivered or sold on Sundays, Easter, Thanksgiving, Christmas or other days as prescribed by rule.

  • The Act requires the State to perform a suitability analysis on owners of 10% or more of the outstanding stock. Licenses may be transferred with the State’s approval.

  • A 15% tax is charged on the retail recreational sales only.

Illinois' Proposed Recreational Retail Marketplace: 6 Things You Really Should Know

Governor J.B. Pritzker announced the Illinois has reached a deal that will legalize marijuana sales by January 1, 2020. We expect the Illinois Legislature to move quickly and pass the legislation by June. Illinois will hold a public hearing on the bill next Wednesday.

Here are the things that you should know about the Illinois recreational marijuana dispensary marketplace.

  • Illinois provides licensing priority to medical marijuana license holders for 60 days after the effective date of the Act. Expect the market prices for these licenses to skyrocket as firms try to find license holders that will sell. License holders that are interested in selling should consider doing so as there will be no backlog, it will be easier to get approved, costs are lower, and market prices are higher.

  • Illinois will issue 75 Conditional Adult Use Dispensary Organization Licenses before May 1, 2020. The application will be available by October 1, 2019 with a deadline submission date of January 1, 2019. The Act provides for a minimum number of dispensaries in 17 regions within Illinois. Applicants must have $100,000 in guaranteed liquid assets or be a social equity applicant that applied for a grant from the state. If granted a license, an applicant has 6 months to find a storefront. The state regulator must inspect the storefront prior to the build out, which will subject the retailer to multiple inspections as city regulators will also inspect. The regulator may extend the storefront build out process if the applicant has difficulty obtaining real estate. The final registration fee is $60,000. The licenses expire on even-numbered years.

  • The Act permits publicly owned companies but requires all organizations to file an organizational chart and stock record with the Illinois regulator. Public companies must disclose individuals and entities that own more than 5% of the voting stock to the extent known and disclosed in SEC filings, and related owners if they own more than 10% of the voting stock. If an organization is controlled by another entity, the owners, managers and board members must be disclosed.

  • Businesses may only own 10 dispensing licenses directly or indirectly. The Act also appears to limit an organization to 10 contractual arrangements with dispensaries that provides payment in any form.

  • The State of Illinois may provide loans and grants to social equity applicants. We believe that the government should partner private capital with social equity applicants. The private sector can increase the chances of success with operational guidance, infrastructure, branded products and capital. Illinois must also ensure that local jurisdictions, especially in major cities, allocate licenses to the social equity applicants from the get-go rather than as an after thought.

  • The Department of Agriculture will share oversight of the industry with the Department of Financial and Professional Regulation, which will oversee the dispensaries. This split seems logical as the Department of Agriculture oversees the hemp program.

Overall, the legislation provides a democratized approach to allocating dispensary licenses and limits the industry’s access to capital. The legislation raises concerns about the viability of the industry given the lack of traditional financing and capital available to dispensary applicants, and the extended timeline for setting up operations. The State of Illinois should not be in the business of funding start-ups, and we are interested in seeing the end result.

DC's Recreational Cannabis Act is a High Risk, Small Business Act for Cannabis

The Mayor of DC, Muriel Bowser, revealed the city’s legislation to legalize and tax the sale of recreational cannabis. DC’s legislative act is designed in a way that only small businesses will be able to comply with its provisions.

The legislation is similar to those introduced by many states and cities entering into the cannabis industry. Legislatures want local residents to own the majority of future revenues. In DC’s instance - 60%. Given DC’s small size, applicants may have difficulty finding the capital they need to operate. DC should consider the fact that local applicants’ need capital, expertise, operational assistance, and product brands to become successful. A successful cannabis business generates more revenue and taxes for the states and cities.

DC’s strict local ownership legislation will impede growth and produce unintended consequences for capital-starved licensees that lack access to traditional financing, Applicants’ need money to hold out the long time period required to obtain regulatory approval, which could be even longer if the US Congress decides to become involved and stall DC’s efforts.

An alternative approach may be to partner capital providers with local residents to produce a win-win situation for applicants, capital providers, and the DC government. This would also prevent the forced sale or shut down of these businesses when they run out of money as we see now in other states. States such as Colorado are recognizing the public company money is needed for the industry to meet demand, pay for high operational overhead created by the regulations, and to pay for legal and compliance services. Otherwise, the black market will continue to offer competitive pricing that the regulated market is not able to match due to overhead.

The legislation also poses a high regulatory risk for future applicants and licensees. Although application and license fees are low, the high real estate costs in DC, and even higher real estate costs for the cannabis industry, requires a level of certainty that the DC government will not arbitrarily revoke a license or fine the business for technical violations. In our review of the legislation, we noted eleven items that create a high level of risk of doing business in DC (we could have added more), and only four positive attributes.

Anyone interested in applying for a license should pay close attention to the provisions that allow DC to revoke or cancel a cannabis establishment license. The high risk posed by DC’s Cannabis Act, coupled with the volatility in Congress and low barriers to entry, could prevent DC from attracting the capital providers that could help the market grow in a professional and responsible manner.

Cons

  • The Mayor has public emergency power to, without prior notice, prohibit the sale of cannabis or cannabis products.

  • Applicants and licensees may only hold a limited number of licenses.

  • The legislation requires 60% of the owners to be residents of DC who must receive a return on investment and incur the same financial obligations and risk as other owners.

  • The legislation requires 60% of cultivation, manufacturer’s, or off-premises retailer’s licensee employees to be DC residents. Can you fire an employee that decides to move?

  • Licenses will be revoked if the licensee falls below the 60% ownership or 60% local hiring threshold. The Act does not account for the death or other act of god that accounts for a sudden, unexpected piercing of the threshold.

  • Transfers may be rejected by the board if the sale would result in going below the 60% local ownership threshold.

  • Medical marijuana license holders receive license priority for the first 6 months.

  • The owner or the board designated manager must be at the cannabis establishment’s premises during all hours of operation. The Act’s language does not appear to permit more than one board designated manager, which leaves 2 persons to manage the day-to-day operations. There will be no company off sites!

  • The security plan must include a guard that is carrying a gun.

  • Testing standards do not provide for retesting or remediation.

  • A manufacturer is allowed to “process” cannabis, which is undefined. It is not clear whether manufacturers will be allowed to perform extraction or infusion functions.

Pros

  • Licenses are issued for 3 years instead of 1 year as required by most cities and states.

  • The fees are low

    • $1,000 application fee

    • An annual fee ranging from $3,000 - $10,000

  • On-site consumption, temporary events and social lounges including hotels are allowed after 24 months of the Act’s effective date.

  • Storefront retailers will be allowed to deliver cannabis to consumer’s homes.