On Thursday, March 29, the Cannabis team at Husch Blackwell and Navigant, will host a cannabis seminar on developing quality systems for the cannabis/hemp industry. We will discuss the process, validations and preparation for Good Manufacturing Practice (GMP) certification. For more details, please read more here.
Yesterday, details of the Fiscal Year 2018 Budget were released. Congress has once again elected to prohibit the Department of Justice (“DOJ”) from spending money on actions that prevent medical marijuana states giving practical effect to their state laws that authorize the use, distribution, possession, or cultivation of medical marijuana. Congress also continued existing provisions shielding state industrial hemp research programs from federal interference. Adult-use was left off.
What does this mean?
It’s a nice reassurance for industrial hemp/medical marijuana businesses, their employees and patients acting in compliance with state rules. Note, this does not prevent the DOJ from using funds to prevent adult-use marijuana programs. However, just last week, a bipartisan group of 59 lawmakers wrote a letter that the DOJ should be blocked from enforcing federal marijuana prohibition in states that have enacted legalization, medical AND adult-use. It is still unclear when there will be enough appetite in Congress to get adult-use marijuana shielded from the DOJ, but I remain hopeful.
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).
The state’s marijuana shops raked in $1.51 billion sales of medical and recreational flower, edibles and concentrate products during 2017, according to Colorado Department of Revenue data released last Friday. Adult-use sales topped $1.09 billion in 2017, with the remaining $416.52 million coming from medical marijuana. Cannabis sales in the state were up 15.3 percent in 2017 compared to sales growth of 31 percent in 2016.
What does this mean?
Colorado continues to have solid growth in state-legal marijuana sales but have slowed down considerably compared to 2016. Clearly the market is moving towards a plateau or possibly even a regression in 2018 due to new adult-use markets like California and Nevada recently coming online. Operators in Colorado need to be prepared for market consolidation, tighter margins and increased competition.
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.
As you probably heard, Denver Police, along with several agencies including the Aurora Police Department, the Marijuana Enforcement Division and Denver Department of Excise and Licenses, closed 8 Denver-area marijuana centers and stores on December 14, 2017. The Department of Excise and Licenses suspended 26 licenses including retail stores, medical centers, cultivations and manufacturing (all under related ownership). 13 people were also arrested on criminal allegations related to the sale of marijuana in excess of allowable amounts.
PLEASE be aware that enforcement actions are occurring. This was a concerted effort among multiple agencies over a year-long investigation period.
Poor training and lack of supervision of staff can result in the immediate closing of facilities, suspension of licenses, and criminal charges. Now is a great time to review your internal policies and procedures and ensure each staff member is aware of and adhering to company policy and following all laws and regulations.
“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.
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.