Welcome to another edition of Tailored Benefits Cannabis in the News.
Another action packed week for cannabis in the news. Many in California’s cannabis industry were consumed last week on with trying to comprehend and digest the 315 pages of draft regulations issued by the three state agencies that oversee California’s multibillion-dollar marijuana market. Initial analysis by two industry experts suggests that the biggest highlights to an earlier set of emergency rules involve delivery, packaging, edibles and concentrates. Among the key changes, the draft rules:
- Allow marijuana products to be delivered into any jurisdiction in California, a move that will expand the market for delivery companies and allow MJ businesses to serve more consumers.
- Permit an increase in potency for some manufactured edible products.
- Update the requirements covering child-resistant packaging for products.
The entire California industry has been operating under emergency regulations since they were first issued last November, but state law mandates that the rules must be finalized by the end of 2018. Sadly, the agency left in place a controversial loophole allowing for no limits on “small” cultivation licenses for any given business, in essence allowing for huge commercial-scale grow facilities. Also, as to the edibles, not a complete win and more compromises. The 500-milligram potency applies only to “orally dissolving products” such as sublingual strips. And the doses still must be in 10-milligram increments.
“That means 1,000-milligram K brownies won’t be making a comeback anytime soon.”
Without federal assistance, Sec 280E will continue to be the bane of our existence in addition to banking. That being said, In Alpenglow Botanicals LLC v the United States of America the US Court of Appeals, 10th Circuit, just ruled that the IRS has the authority to determine that a cannabis business is trafficking in a controlled substance for purposes of applying IRC §280E. Not shocking or unexpected, however, this decision is going to shift how cannabis businesses pay their taxes and how cannabis tax lawyers view cannabis tax obligations. And not in a good way.
As to the facts of the case, Alpenglow Botanicals LLC is a medical marijuana business. The IRS audited Alpenglow’s tax returns and determined Alpenglow was trafficking in a controlled substance and so it denied the company’s business deductions under IRC §280E. Alpenglow paid the tax assessment and filed for a refund, which was subsequently denied by the IRS. The Court determined that a criminal conviction is not a prerequisite for the IRS to apply IRC 280E and that the IRS has the authority to determine on audit that a taxpayer is trafficking in a controlled substance. The Court relied on its earlier decision in Green Solutions Retail Inc. where it stated that “the IRS’s obligation to determine whether and when to deny deductions under IRC §280E, falls squarely within its authority under the tax code.” The Court in Alpenglow went further than Green Solutions in ruling that there’s no evidence Congress intended to limit the IRS’s investigatory power here. The moral of the story, if you are a cannabis business that has filed a tax return challenging the application of IRC §280E, it may be time to rethink the strategy.
With more and more States approving Adult Use of cannabis, the question is can you put on a Cannabis event? California’s Bureau of Cannabis Control (“BCC”) regulates and licenses temporary cannabis events. Under the BCC’s readopted emergency regulations, obtaining a cannabis event is a two-part process in California. Before you can host a cannabis event, you first have to secure a cannabis event organizer license. Obtaining an organizer’s license is no easy feat, as applicants face the same daunting application requirements that cannabis retailers, delivery-only retailers, distributors, and testing laboratories face. Assuming you’ve cleared the BCC’s regulatory hurdles and secured your organizer’s license, you can now move forward with your application for a temporary cannabis event. Then there is the cost: you must submit a non-refundable annual license fee. This fee is five thousand dollars ($5,000) for an organizer planning one to ten events and fifteen thousand dollars ($15,000) for organizing more than ten events in a year. That being said, for those of you who know Outside Lands Music Festival, (a major festival for San Francisco celebrating its 11th year and bringing more than 200,000 people over three days to Golden Gate Park to enjoy music, food and arts) organizers hope to cash in on the “growing” interest in legalized recreational cannabis. At a special area called “Grass Lands,” visitors will be able to learn more about marijuana, however, there will be no sales of product. It’s a start.
For one organizer who wanted to create a cannabis friendly event, it was not so easy. Cannabis, art, and music event Chalice Festival has filed a lawsuit in California Superior Court against the newly developed Bureau of Cannabis Control and the city of Victorville. The lawsuit filed against the BCC and Victorville claims that the BCC’s refusal to provide Chalice Festival with a temporary event license is “based on an incorrect interpretation to the law and is contrary to the law.” Chalice Festival argues that the BCC was wrong in denying a permit for the 3-day festival that has resided in Victorville, California for two years. This year’s July 13-15 festival has been postponed by an estimated four months by Chalice parent company, Wisdom Apparatus, since Victorville officials voted no on July 3 on a permit for the event at the San Bernardino County Fairgrounds based on the new cannabis regulations. It is imperative to obtain a local permit. High Times’ Cannabis Cup slated for 4/20 of this year faced a last minute permit denial from San Bernardino County just 48 hours before gates opened for the event. Organizers were forced to move forward with the event without the sale of cannabis due to a newly adopted city ordinance. To date, only two open consumption events have occurred in California. The High Times Cannabis Cup NorCAL 2018 held at the Sonoma County Fairgrounds followed the Central Valley Cannabis Cup in Sacramento held in May, which made history as the first legal cannabis consumption event. Both events were produced by High Times.
However, there is a new player in town, Red Light Management, founder Coran Capshaw , who manages 2018 Coachella performers Portugal. the Man and Odesza. He is positioning his promotion company Starr Hill Presents to take a lead once California lawmakers clarify what is and isn’t allowed at cannabis-centric events. Northern Nights Music Fest recently announced a partnership with Starr Hill and the Emerald Cup, a cannabis event Capshaw invested in last year. By joining forces with Northern Nights, which takes place on the banks of the South Fork Eel River in the heart of the Emerald Triangle (California’s weed-growing Mendocino, Humboldt and Trinity counties), Capshaw and Starr Hill are hoping to introduce a legal cannabis component to the dance music and camping festival in 2019. In past years, Northern Nights has had a medical pot component that it’s hoping could one day allow for recreational use. Other major pot brands, like High Times magazine, are also getting into the space and hoping to eventually seize the Golden State’s two largest markets — Los Angeles and the Bay Area. In March High Times Productions, the event-management team for High Times Media, announced an exclusive partnership with Reggae on the River, another Emerald Triangle festival.
Tailored Benefits is an employee benefits company that has had cannabis clients for over eleven years. Jeffrey Rosen, Tailored Benefit’s founder, practiced law for ten (10) years in San Francisco, Silicon Valley & Taipei, Taiwan. He has run an employee benefits company for over twenty years. Tailored Benefits’ has evolved over the past several decades to play an integral part in the cannabis industry and specifically Employee Benefits. With the surge in demand for cannabis employees, Tailored Benefits’ specific cannabis employee benefit solutions is how you can set yourself apart, attract and retain valuable employees.
If you need more information on how to insure your cannabis business, Tailored Benefits is here to guide you and keep you informed on local and federal policies.