Canada’s attempt to finalize its marijuana legislation making it the second country to legalize adult use marijuana (after Uruguay) hit a snag when Health Minister Ginette Petitpas Taylor conceded yesterday it won’t be done in July 2018. New timetables based on legislative necessity target August or September of 2018. As a result, many of the publicly traded Canadian cannabis companies stock price took a multi-point dip today. As the various states in the United States that have legalized adult-use marijuana can contest, implementing regulations for a brand new industry is full of complexity and challenges. Canada’s marijuana market will continue to be frothy in the near term but they are well on their way to being a dominate player in the marijuana industry because of the full support of its government (unlike the United States).
Attorney General Sessions rescinded, effective January 4, 2018, previous enforcement priorities of the DOJ related to marijuana – including the Cole Memo. The Sessions Memo dictates that federal prosecutors should follow the “Principles of Federal Prosecution” originally set forth in 1980 and subsequently refined over time in chapter 9-27.000 of the U.S. Attorney’s Manual. Sessions goes on to state in his memo that “These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” It is important to note that Sessions has not previously set any specific enforcement priorities with respect to marijuana, nor has this memo created any new enforcement priorities of the DOJ. Rather Sessions has removed the foundational guidance that states have relied on to regulate the production and distribution of marijuana pursuant to state law and the will of each states’ citizens. The Cole Memo actually set 8 enforcement priorities for the DOJ with respect to marijuana, which Sessions has now unilaterally rescinded.
“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.
Check out my colleague’s blog post on OSHA’s injury reporting deadline at Safety Law Matters.
On June 27, 2017, a three-judge panel for the 10th U.S. Circuit Court of Appeals vacated a district court ruling that nixed Denver-based Fourth Corner Credit Union’s bid to receive a master account with the Federal Reserve Bank of Kansas City. Fourth Corner has been waiting since the end of 2015 for such ruling. The ruling effectively allows for the credit union to continue with its lawsuit against the Federal Reserve in an attempt to obtain its master account so it can function as a state-legal credit union in Colorado.
What does this mean?
The opinion relied on the fact that the case is not about Fourth Corner violating federal drug laws. U.S. Circuit Judge Robert E. Bacharach wrote: “The district court dismissed the amended complaint, reasoning that Fourth Corner would use the master account to violate federal drug laws. This ruling was erroneous,” Essentially, the district court relied on suspicions about what Fourth Corner might do and such standard is not sufficient to approve a motion to dismiss.
Fourth Corner still has a long road to haul until it can reach a resolution, but this ruling is a positive step towards normalization of state-legal marijuana in Colorado.
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.
Last week, the DOJ sent a letter to trustees who handle consumer bankruptcy reminding them that marijuana is a federally illegal drug and warned them not to handle any money from the sale of marijuana-related property. The letter goes on to state “Our goal is to ensure that trustees are not placed in the untenable position of violating federal law by liquidating, receiving proceeds from, or in any way administering marijuana assets.”
What does this mean?
Colorado courts have already dismissed numerous cases where the company was engaged in state-legal marijuana cultivation and sales, so this is nothing new. However, this letter might be illustrative of Attorney General Sessions’ previous statements that the DOJ will increase legal scrutiny on marijuana.
While it is clear that marijuana business likely do not have federal bankruptcy protection based on the current law, there are state laws regarding the receivership and assignment for the benefit of creditors that can be utilized to assist a failing marijuana company deal with its debts.
The Colorado adult-use marijuana industry is off to a record-setting start in 2017, with sales increasing by more than 30% over figures from 2016. This is on the heels of a record setting $1.3 Billion in sales last year and threats over a federal crackdown on adult-use marijuana.
What does this mean?
If the trends hold, 2017 will be the third-year in a row for Colorado seeing dramatic growth. While there are numerous factors driving the increase, the linked article points to “hoarding” by regular users if their access is denied by the DOJ. I would also point to wider acceptance from the community in general, less fear mongering of the dangerous of adult-use marijuana by the anti-legalization movement and more diverse product offerings from the industry. Subject to federal intervention by the DOJ, I expect the adult-use marijuana industry to continue to grow and expand for several years to come.
Today, on 4/20, I was invited by the Academy of Hospitality Industry Attorneys (AHIA) to present on Colorado marijuana issues at the Spring 2017 meeting in Colorado Springs, CO. This presentation will take a look at the current marijuana market in Colorado as well as discuss national marijuana trends. For more details, please read here.
Senator Ron Wyden and Congressman Earl Blumenauer introduced “The Path to Marijuana Reform” this week. As provided for in the executive summary linked in the previous sentence:
The Path to Marijuana Reform includes three bills that pave the way for responsible federal regulation of the legal marijuana industry, including:
- Small Business Tax Equity Act
This legislation would repeal the tax penalty that singles out state-legal marijuana businesses and bars them from claiming deductions and tax credits.
- Responsibly Addressing the Marijuana Policy Gap Act
This legislation would reduce the gap between Federal and State law by removing federal criminal penalties and civil asset forfeiture for individuals and businesses acting in compliance with state law. It would also reduce barriers for state-legal marijuana businesses by ensuring access to banking, bankruptcy protection, marijuana research, and advertising. It would protect individual marijuana consumers in states that have legalized marijuana, by providing an expungement process for certain marijuana violations, ensuring access to public housing and federal financial aid for higher education, and ensuring that a person cannot be deported or denied entry to the U.S. solely for consuming marijuana in compliance with state law. Finally, it would remove unfair burdens by ensuring veterans have access to state-legal medical marijuana, and protecting Native American tribes from punishment under federal marijuana laws.
- Marijuana Revenue and Regulation Act
This legislation would responsibly deschedule, tax, and regulate marijuana. It would impose an excise tax on marijuana products similar to current federal excise taxes on alcohol and tobacco, escalating annually to a top rate equal to 25 percent of the sales price. Marijuana producers, importers, and wholesalers would be required to obtain a permit from the Department of Treasury, and the marijuana industry would be regulated in a manner similar to alcohol. Strict rules would prohibit sale or distribution of marijuana in states where it is illegal under state law.
What does this mean?
Of particular note is the Small Business Tax Equity Act. This bill is notable because it is a potential fix to the massive problem of 280E but is also co-sponsored by Sen. Rand Paul (R-KY) and Rep. Carlos Curbelo (R-FL) is sponsoring companion legislation in the House. Curbelo is a member of the House Ways and Means Committee, which oversee all tax-related legislation. This is a great step forward for the cannabis industry in garnering bi-partisan support.