California Announces Educational Campaign Targeted at Illegal Cannabis Industry

The California Bureau of Cannabis Control announced an educational campaign that is focused on moving consumers away from the growing illegal cannabis market. The campaign called #Get weedwise educates consumers and unlicensed cannabis businesses on the dangers associated with the illegal market.

The consumer campaign educates health conscious consumers about the importance of buying tested products from a licensed retailer in order to avoid products contaminated with foreign objects, fecal matter or heavy metals. The campaign is also asking consumers to provide regulators with information about illegal cannabis activity.

The campaign also reminds illegal cannabis businesses about the risks associated with engaging in unlicensed sales activities including the confiscation of products and cash.

California Bill Will Allow Individuals to Deduct Cannabis Expenses

The California Senate will vote to pass a bill that allows individuals to deduct business expenses associated with legal commercial cannabis activity. The proposed amendments to the Personal Income Tax Law ensures that the cannabis industry is treated like all other businesses, and provides a stepping stone for industry growth.

Currently, California’s Corporation Tax law permits the deduction of cannabis business expenses even though these deductions are prohibited under federal law by Section 280E of the Internal Revenue Code. Under federal law, expenses associated with the illegal sale of drugs are not allowed to be deducted. California’s personal tax law currently refers to this portion of the Internal Revenue Code. The bill removes the reference to the federal regulations, which will allow persons to deduct cannabis business expenses in California.

Governor Jerry Brown vetoed the a similar bill during the 2018 legislative session due to the loss of state revenues. The Franchise Tax Board estimates the loss in tax revenues to be in the tens of millions of dollars.

New Mexico Schedules Hearings for Hemp Manufacturing Rule

The New Mexico Department of Agriculture scheduled hearings on June 28 and 29 to obtain public comment on a proposed rule that implements the Hemp Manufacturing Act.

Under the bill, the Department of Agriculture would establish a hemp harvest certification program requiring the state verify that each licensed grower’s harvest is below the maximum .3% THC threshold. The harvest certification program prevents non-licensed growers or manufacturers from selling or transporting hemp to or in New Mexico. Growing hemp or manufacturing hemp products without a license would be a Schedule 1 offense, and transporting hemp without a harvest certificate is a petty misdemeanor that is subject to a $500 fine. New Mexico law enforcement may also seize the hemp for up to five days if the transporter does not have a harvest certificate. These ramifications are serious as a Schedule 1 violation would limit a business from obtaining a hemp growing license under the 2018 Farm bill or obtaining cannabis or hemp licenses at the state level.

The DOA’s proposed manufacturing rule sets out licensing requirements for facilities that test raw hemp, and persons that create new or improved hemp breeds. The application fees and annual fees for both types of entities is $500. The rule will become effective on September 1, 2019.

Utah's Cultivation License Scoring Methodology Favors Well Capitalized, Successful Businesses

The Utah Department of Health’s application window for medical cannabis cultivators opened on May 31, 2019, and applications may be submitted through July 1, 2019. Utah’s applications process is unique in that it is scoring methodology favors applicants that can articulate a strong business plan and demonstrate access to capital and the know how to harvest medical cannabis by the first quarter of 2020.

Utah voters approved Ballot Proposition 2 in November 2018 to legalize medical marijuana. The Utah legislation enacted the Utah Medical Cannabis Act in December 2018, which replaced the Ballot Proposition 2. The Medical Cannabis Act mandates the implementation of the medical cannabis industry by March 1, 2020. Opening the application window for medical cannabis cultivators is the first step in this process.

Below are four things to know about the application process in order to obtain one of the ten available licenses.

  • Forty percent (40%) of the score is based on whether the applicant can demonstrate a strong business plan and show that it can harvest medical cannabis by March 2020. Applicants must show how they will become operational and make money given the size of Utah’s medical cannabis market. This includes disclosing pricing models, sales and marketing plans, cultivation analysis, and a project timeline for producing a harvest between January 1, 2020, and March 1, 2020.

  • The timeline for producing the first quarter harvest will require applicants to build an indoor cultivation facility. The state is limiting the facilities to 100,000 square feet. The expense of building, staffing, and implementing operations within the required timeline will limit the potential licensees to those who can demonstrate they have access to the capital, know-how and track record for execution.

  • Utah’s application scoring methodology takes a broader approach to social equity, which accounts for 15% of the overall points. Applicants must describe how they have positively impacted a local community, and if they obtain a license, how they will build a positive connection with the community in which it is based. This open-ended approach may produce creative and positive solutions for local communities.

  • Utah’s emphasis on a business’ long-term viability is further reflected in the fact that the state will allow out of state investors to own and operate the cultivation facilities. In response to questions by bidders, the DOH indicated “[a]lthough the initial rule discussions included language of Utah residency. We are working to have that removed. At this time the State of Utah is not excluding non-residents of Utah.”

Rhode Island's Blockchain RFP Provides Opportunity to Disrupt Seed-to-Sale Technology

Rhode Island has issued a request for proposal for vendors to help the state understand whether blockchain technology can improve the security and efficiency of various state processes including medical marijuana seed-to-sale tracking. Responses must be submitted to the state by June 21, 2019.

The state issued the RFP for a proof of concept to determine how blockchain can make state functions more efficient and cost effective. The state has identified possible use cases including fraud reduction, contract management, medical marijuana tracking, and chain of custody for criminal matters.

Blockchain is a distributed ledger that records each step in a supply chain or transaction. Blockchain technology can be on a public network, such that everyone can see and access the information on the chain, or it can be on a private network, such that only persons in the network can access the information.  

Blockchain technologies would be an optimal solution for seed-to-sale tracking system as it would provide regulators with real-time transparency into cannabis inventory levels, and the movement of cannabis through the supply chain. The information captured in the distributed ledger is secured and cannot be changed.

Oregon State University to Launch Global Hemp Innovation Institute

Oregon State University announced that it plans to open the largest hemp research center in the United States. The Global Hemp Innovation Institute will strive to be the world’s most comprehensive research facility for hemp in the areas of plant research, food innovation, pharmacy, public health, public policy, business and engineering. As of May, over 1,300 hemp growers obtained licenses in Oregon to cultivate over 42,000 acres of land.

OSU will be the first university in the nation to launch a hemp seed certification program for the state’s Department of Agriculture. The university will also create ten (10) hemp experimental growing sites that will across the state to understand how the plant reacts to different growing conditions including soil and temperatures.

OSU currently has forty (40) faculty members who are actively engaged in research or teaching courses on hemp. The university intends to continue to push its global dominance in hemp research, and regain its prominence for hemp research in the US. From the 1880’s through 1932, OSU led the national hemp research program with the US Department of Agriculture.

California to Hold Hearing Today on Bill that Legalizes Consumable CBD Sales

The US FDA held hearing on May 31, 2019 on whether CBD is safe and effective for public use. Today, the California Senate Health Committee is holding a public hearing on a bill that will permit the sale of consumable CBD products within the state. Under the bill, manufacturers producing consumable CBD products must register with the state, and obtain a certificate of analysis from an independent testing facility.

Currently, only licensed dispensaries are allowed to sell CBD products in California. The California Department of Health issued a frequently asked question in 2018 that prohibited the sale of consumable CBD outside of the licensed dispensary system until the US FDA determined that CBD products can be used as a food or California made the determination that CBD was safe.

Since the release of the FAQ, the DPH issued 13 violation notices, 7 voluntary condemnation and destruction regulatory letters, and 9 embargoes in response to fifty complaints. Under the bill, California will deem CBD products as safe, and permit the legal sale of products created by registered manufacturers that comply with the bill’s requirements.

The bill has received tremendous support from the industry and California municipalities such as Oakland and Emeryville. Only a couple of parties opposed the regulation due to lax testing standards and the breadth of availability upon the effectiveness of the new law.

Maine's Adult Use Regulations Limit Industry's Access to Capital

Maine’s Office of Marijuana Policy released its provisionally adopted rules last Friday. The rules are relatively modest as they include only 78 pages of regulatory requirements. However, the benefits of a friendly regulatory environment may not overcome the onerous in-state licensing and ownership limitations.

Maine’s adult-use regulations are structured to award licenses to local residents. Applicants must be either a natural person who is a local resident; or a business entity whose officers, directors, general partners and majority of shareholders are natural persons and Maine residents.

These restrictions limit the ability of Maine residents to access the capital needed to grow the industry in a manner that benefits the state and local license holders. Applicants may find it difficult to raise sufficient capital to fund the long road required in starting a cannabis business. A lack of capital may also reduce initial revenues and tax dollars generated in the state.

The regulations also require cannabis businesses to disclose any “party of control”, which refers to a person or group of persons who exert more than a minimum influence over the businesses operations. Cannabis businesses must transfer its license when the party of control changes. By defining a party of control, Maine can stop entities from using a side door contract to entering the market without transferring the license.

Maine requires cannabis businesses to disclose contracts for IP, branding or loans that may include provisions that exert control over a business in exchange for money. The lack of objective standards around determining when a person becomes a “party of control” increases the risk that Maine’s regulator may determine that these contracts constitute a transfer to a party of control or may prohibit contractual provisions that dictate the quality of products and services. Entities entering into such agreements should seek guidance from the regulator so it avoids triggering such an event.

Maine’s regulations may guarantee the continued slow roll out of the adult-use cannabis industry as applicants’ will need to raise funds from local friends and neighbors. Hopefully Maine will reconsider this approach and allow the cannabis industry to grow in a responsible manner. The industry is facing multiple challenges, and additional capital roadblocks should be removed.

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.

Colorado Thieves Break Into 34 Marijuana Dispensaries in 2019

The Denver police department issued a warning to the cannabis industry about an uptick in burglaries at marijuana dispensaries. Police indicate that the suspects broke into thirty-four (34) marijuana dispensaries during 2019 near major roadways using stolen Jeep Cherokees or Liberties.

The group of four men and two women use crow bars to enter the front door or through a glass window. Police are requesting that businesses ensure that motion sensors and outdoor lighting are working, and that video cameras are covering entryways. The police also recommends storing products in a safe when closed.