Sen. Cory Gardner of Colorado wants to attach an amendment to the GOP-led tax reform bill that would allow state-legal marijuana growers, processors and sellers to deduct normal businesses expenses from their taxes.”  Section 280E of the tax code, forbids businesses from deducting otherwise ordinary business expenses (advertising expenses, insurance, employee wages, etc.) from gross income associated with the “trafficking” of Schedule I or II substances. The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance under the Controlled Substances Act.  Gardner’s amendment will include a 280E fix so that the provision no longer applies to marijuana businesses that operate in accordance with state or local laws.

What does this mean?

A 280E fix would be monumental for the cannabis industry.  The inability for state-legal cannabis businesses to take deductions for normal business expenses has the potential to cripple the industry if not addressed in the near future.  While I believe that getting this amendment in on the tax bill is a moon shot, I hold out hope that it is still a possibility.  At a minimum, the GOP is finally listening to the plights of our industry and is attempting to be part of the solution.

 

Husch Blackwell Partner Steve Levine is presenting today, September 19, at the Colorado Real Estate Journal 2017 Industrial Summit & Expo. Steve will be moderating a Cannabis Update panel that will include Chuck Smith, Chief Operating Office from Dixie Elixirs & Edibles and Paul Kluck, First Vice President at CBRE. See more info on the industrial market on the CREJ website here.

Edibles

The deadline for compliance with new edible restrictions and labeling requirements is fast-approaching. Infused product manufacturers (medical and retail) may no longer produce, transfer, or donate any edible marijuana products in the shape of a human, animal, or fruit or shapes that bear the likeness or contain characteristics of a realistic or fictional human, animal, or fruit, including artistic, caricature, or cartoon renderings. Also beginning on October 1, 2017, no medical marijuana center or retail marijuana store may sell any non-compliant edible product. Any marijuana business with non-compliant edible products must follow waste disposal rules.

Potency Testing

Also beginning on October 1, 2017, each container holding medical and retail marijuana product must be labeled with the potency of THC and CBD. The potency must be expressed in milligrams and either be:

  • in a font size that is not less than 10 point font and at least two font sizes larger than the surrounding label text, and must be bold, and enclosed within an outlined shape such as a circle or square; or
  • highlighted with a bright color such as yellow.

These new potency labeling regulations apply to medical and retail establishments. Operators have been aware of these rules for some time and should be in compliance ahead of the October 1 deadline. We suggest operators use the next few weeks to double check inventory for old stock of non-compliant product.

On May 24, 2017 Vermont Governor Phil Scott vetoed legislation that would have begun the process of Vermont becoming the 9th state to legalize recreational marijuana. However, the legislation is not dead. Governor Phil Scott, referencing his libertarian streak, reiterated in a letter to the Senate he is not “philosophically opposed to ending the prohibition on marijuana”. He continued he believes if the Governor and the legislature work together they can “move forward on this issue”. The Governor offered his recommendations on the legislation which included removing confusion around what penalties apply to the sale and dispensing of marijuana to minors; more aggressive penalties for consumption while driving and use in the presence of minors (smoking marijuana in the car with a child present is only a small civil fine); ensure public safety officials can continue to enforce remaining drug laws; and expand the key stakeholders on the Marijuana Regulatory Commission to include Departments of Public Safety, Health, and Taxes.

The Governor reiterated his concern for public health and safety and his desire to “get this right”. He wants the Commission to have at least one year to create recommendations. He wants to ensure Vermont knows how to measure and detect impairment on roadways (the Governor confirmed he reached out to the Coalition of Northeastern Governors to engage in a discussion about creating a regional highway safety standard), fund additional substance abuse prevention education, and keep children safe while penalizing those who don’t.

The Governor opened the opportunity to discuss and work with the Legislature during the summer session on these revisions to move this legislation forward.

Like much of the industry, we will have to stay tuned.

See the full letter to the senate here and blog post here.

Over the last few weeks, we have tried to glean what the direction of state and federal policy on marijuana may be. On May 5, Trump used a signing statement to signal his disagreement with provision 537, which prohibits federal funds from being used to prevent states from implementing their own laws that authorize the use, distribution, possession or cultivation of medical marijuana. This provision lists 44 states that have some form of medical marijuana legalization at the state level. (Indiana and North Dakota were not on the list but have enacted medical marijuana programs).

As these statements spur discussions, it seems people are relatively unaware of the current landscape of state marijuana policies. Numbers can fluctuate depending on how you classify marijuana and legalization, (some states only allow cannabidiol or CBD oil, others have laws allowing medical marijuana but it is inaccessible because the states lack infrastructure for the purchase, sale, and manufacturing). The below summary is done as a waterfall, so once it is in one category it will not appear in a subsequent category. (For instance, a state that allows recreational marijuana also allows medical or a state allowing medical marijuana may also decriminalize the possession of recreational marijuana). Below is a summary of state policies as of May 12, 2017.

Federal Policy

Cannabis is illegal at the Federal level. Under the Controlled Substances Act, Marihuana is classified as a level 1 drug, the same schedule as heroin. The DEA confirmed as recently as December, the level 1 classification covers all cannabiniods from marihuana and cannabis. This is vastly inconsistent with the majority of Americans’ views and state law definitions of marijuana. In fact, there is not a single state that penalizes an individual in the same manor for marijuana and heroin possession.

Some key points on the analysis – the analysis covers all 50 states and the District of Columbia. The population numbers used are from the U.S. Census bureau estimates on July 1, 2016, where the total U.S. population was 323,127,513.

Recreational

There are currently eight states and the District of Columbia that have passed legislation for legal adult-use (recreational/retail) marijuana. The states that currently offer licenses and have established legal frameworks are Alaska, Colorado, Oregon, and Washington. In November 2017, four more states approved adult-use marijuana and are developing a legal framework for licensing – California, Maine, Massachusetts, and Nevada. The District of Columbia allows you to possess and home grow marijuana but has not developed any legal structure for purchase, sale or manufacturing. That is 68.7 million people, or 21% of Americans live in a state (or district) that allows recreational marijuana. Continue Reading The States of Marijuana

Today, May 19, Steve Levine presented at the 5th Annual Recreational CLE Conference. The CLE program covers Weed & the Government: Post Election Outlook. Steve’s presentation specifically covered Mergers and Public Offerings. This event is being held at the Embassy Suites in downtown Denver and brings industry professionals up-to-speed on issues including real estate, employment, intellectual property, mergers and public offerings and ethics. For more details, please read here.

Vermont may become the 9th state to allow recreational marijuana and the 1st state to do so via legislation. Last Wednesday, the Vermont house approved a bill 79-66 which would create a regulatory structure for the cultivation, processing, sale and use of recreational marijuana by July, 2018. The Vermont Senate previously passed the bill with a 20-9 vote. The bill will now be sent to the Governor for a veto, signature, or no decision, only a veto would prevent it from becoming law. The other 8 states that allow recreational marijuana have done so through voter referendums.

July 2018 is not a random date, the bill references two neighboring states, Maine and Massachusetts, which will allow retail stores to sell marijuana in July 2018. Another border neighbor-Canada is looking at Summer 2018 for when licensed retail stores will begin selling marijuana as well.

We will update this blog either when the Governor acts on this bill or Ben & Jerry’s commemorates the passage with a new ice cream flavor. We are anxiously awaiting both.