As the legal cannabis industry has expanded across the US over the past decade, green is the most prominent color seen in this space. In addition to the color of the flower, sales are projected to reach up to $30.4 billion in the US by 2023, States have generated as much as $369 million in cannabis tax revenues in a single year, and legal cannabis is said to support over 240,000 American jobs.

The colors that aren’t seen as frequently in the industry are black and brown.

It’s no secret that the prior prohibition of cannabis disproportionately and adversely impacted people in communities of color. In an attempt to counter this history of disparity, many states and cities have implemented social equity programs in connection to the legalization of medical or adult cannabis use. Although taking such action is arguably better than taking no measure at all to increase opportunities for individuals and communities who were previously harmed from inequitable cannabis arrests and convictions, the question still remains as to whether such programs are effective in the long run. Below is a scale that measures the likelihood that the legalization of cannabis in a state (whether medical or adult use) has positively impacted communities that were disproportionately arrested in connection to previous cannabis prohibition (“Disproportionately Impacted Communities”). This evaluation also considers whether or not the state has a program to expunge low-level cannabis offenses (“Expungement Initiatives”), due to the positive impact such programs would have on Disproportionately Impacted Communities. States that have no legalized use and no Expungement Initiatives in process have been excluded from the evaluation.

Low Impact

States:

Alaska, Hawaii, Maine, Mississippi, North Carolina, Oklahoma, Pennsylvania, Vermont, and Washington

Rationale:

In Alaska, Hawaii, Maine, Mississippi, North Carolina, Vermont, and Washington, both medical and adult use is legal, but none addressed social equity in its legalization. In Alaska, Maine, Mississippi and North Carolina, however, Expungement Initiatives are pending, and in Hawaii, Vermont, and Washington, Expungement Initiatives are currently in effect.

In Oklahoma and Pennsylvania, medical cannabis is legal, but the state did not address social equity in its legalization. However, in Oklahoma, although social equity is not explicitly addressed in its medical legalization bill, the low licensing fees and unlimited number of licenses has led to a diverse applicant pool. In Pennsylvania, 10% of the points awarded in the evaluation of medical cannabis license applications are given to applicants with diversity plans. Also, non-medical use is still illegal and criminalized in these states (no Expungement Initiatives).

Moderate Impact

States:

Colorado, Delaware, Maryland, Massachusetts, Minnesota, Missouri, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, and Rhode Island

Rationale:

In Delaware, Minnesota, Missouri, New Hampshire, New Jersey, New Mexico, New York, North Dakota, and Rode Island, medical use is legal, but recreational use is still illegal. Missouri, New Hampshire, and New Jersey have an Expungement Initiative pending, and the remaining states have Expungement Initiatives in effect.

In Maryland, medical use is legal, but recreational use is still illegal, and the state has an Expungement Initiative in process. Maryland’s legalization law requires diversity to be considered in its medical license applicant evaluations. However, none of the first 15 growers licenses were awarded to black-owned companies, even though 1 in 3 residents of the state are black.

Ohio, which has only legalized medical use, initially set aside 15% of medical licenses to be awarded to minority-owned businesses. This allocation method was later deemed to be in violation of the State’s constitution. Prior to being deemed unconstitutional, however, more than 16% of licenses were held by minority business owners. Additionally, Ohio has an Expungement Initiative in effect.

In Massachusetts, both medical and adult use has been legalized, and the state’s Cannabis Control Commission states on its website that it would offer training and priority licensing for applicants that have been disproportionately impacted by drug arrests. However out of the state’s first 19 recreational licenses, none were awarded to representatives of Disproportionately Impacted Communities, and only 1.2% of marijuana businesses in the state are owned by minorities. Massachusetts does not have an Expungement Initiative.

In Oregon, although both medical and recreational use is legal, no statewide social equity programs were implemented. The city of Portland, however, which is home to over half of the population in the state, implemented reduced fees for social equity applicants and a 3% tax to go toward economic and education programs in communities where drug laws were disproportionately enforced. These line items were not included in the city’s 2018 budget, and a 2019 audit revealed that a large portion of the tax revenues were used to fill gaps in the city’s own budget and to fund law enforcement. Oregon also does not have an Expungement Initiative.

In Colorado and Nevada, both medical and adult use of cannabis is legal. Although Colorado and Nevada don’t have social equity programs baked into their licensing procedures, cannabis tax revenues in both states have been invested to fund programs focused on their homeless population. Additionally, an Expungement Initiative is currently pending in Colorado, and Nevada has an Expungement Initiative currently in effect.

High Impact

States:

California, Illinois, and Michigan

Rationale:

Both medical and recreational use are legal in these states, and they all have robust social equity programs in connection to its legalization of recreational use.

In Michigan, licensing fees are reduced for applicants living in Disproportionately Impacted Communities, and the state aims to have at least 50% of licensees in certain communities benefiting from the program. Michigan’s Expungement Initiative is currently underway.

California assists municipalities in the provision of loans, grants and technical assistance to cannabis license applicants. Cities such as Los Angeles, San Francisco, and Oakland have created social equity programs that provide low- or no-interest loans to businesses, training on how to run businesses in the cannabis industry, and assistance through the license application process. The state legislature also passed an Expungement Initiative.

Illinois is said to have “one of the most progressive marijuana business licensing frameworks in the country” – not only does the state have an Expungement Initiative, but Illinois awards a significant number of points in its recreational license evaluations to members of Disproportionately Impacted Communities. Also, although all 15 of the medical licenses were awarded to white men prior to the recreational legalization and the social equity measures under the bill, in exchange for being first to hold recreational licenses in the state’s recreational market, existing medical license holders pay fees to fund the Cannabis Business Development Fund, which will be used to provide low interest loans and grants to applicants from Disproportionately Impacted Communities that are awarded licenses.

 

Notably, none of the states have yet to implement a social equity system in its cannabis legalization process that garners diversity in both the medical and adult use cannabis industries. Hopefully, an ideal program is on the horizon, to set the standard for the new states that will soon join the legalization list – and perhaps even for the country.

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

The big news this week is that Alabama is considering a bill that would legalize medical marijuana in the state.  The bill passed the Senate Judiciary Committee; it now heads to a full Senate vote later in this legislative session.

In Pennsylvania, a recreational cannabis bill was introduced this week by Rep. Jake Wheatley.  A member of the “if at first you don’t succeed, try, try again” club, this is the second time Wheatley has tried to enact this legislation.

Meanwhile, in Virginia, both chambers of the state legislature passed decriminalization bills.  Since the governor and the state’s Attorney General have expressed support for this move, it seems certain to become law.

In Connecticut, marijuana legalization is supported by a “higher authority.”  A coalition of clergy held a rally at the Capitol building, advocating legalization and regulation of adult-use cannabis.

On the other side of the country, Los Angeles County is preparing to dismiss almost 66,000 cannabis convictions with the help of Code for America.  District Attorney Jackie Lacey indicated that her office has dismissed felonies for cultivation, transporting, or sales for persons meeting certain requirements.

Staying out west, New Mexico will phase out medical cannabis cards for non-residents, starting mid-year 2020.  Currently enrolled out of state patients would be able to keep their cards for three years, without possibility of renewal.

Turning our attention to the federal government, Senate Banking Committee chair Mike Crapo (R-ID) got a letter this week from Republican legislators asking him to oppose marijuana banking.  Senator Crapo gets lots of correspondence on this topic; last month, he heard from House members, who wanted him to push banking legislation forward.

Finally, the NFL’s new collective bargaining agreement with players may include drastically different rules concerning cannabis use.  Player suspensions would come “only in the event of extreme and repeated disregard of the policy or significant violations of applicable law regarding the possession and use of marijuana.”

See you next week!

As we reported here, the CBD (cannabidiol) craze is sweeping the nation. By 2022, it is expected to be a $22 billion per year industry. That said, if a CBD product has a concentration of more than 0.3% of tetrahydrocannabinol (THC), an amount generally viewed to be sufficient to produce a psychoactive effect, then it is an unlawful Schedule I controlled substance under federal law. Problems arise when employees test positive for THC but then claim to be using a “THC-free” or “pure CBD” product. If the product has less than 0.3% of THC, and the employee isn’t smoking or using other marijuana products, we generally would expect the employee’s drug test to return a negative test result. This quagmire has resulted in employers struggling to determine the impact of these products on their workplaces. Fortunately, some employers subject to certain regulatory requirements as they relate to drug and alcohol testing sometimes benefit from clear agency guidance.

Indeed, on February 18, 2020, the United States Department of Transportation published a bulletin addressing “DOT Office of Drug and Alcohol Policy and Compliance Notice,” which follows a previous notice it had released regarding its position on medical marijuana. With respect to medical marijuana, DOT wrote in a previous bulletin:

Medical Review Officers will not verify a drug test as negative based upon information that a physician recommended that the employee use “medical marijuana.” Please note that marijuana remains a drug listed in Schedule I of the Controlled Substances Act. It remains unacceptable for any safety‐sensitive employee subject to drug testing under the Department of Transportation’s drug testing regulations to use marijuana.

In the new bulletin focusing on CBD, DOT wrote that it does not require testing for CBD but also recognized the problem with some CBD products having enough THC for an employee’s drug test to report a positive marijuana test result. The bulletin states:

The Agricultural Improvement Act of 2018, Pub. L. 115-334, (Farm Bill) removed hemp from the definition of marijuana under the Controlled Substances Act.  Under the Farm Bill, hemp-derived products containing a concentration of up to 0.3% tetrahydrocannabinol (THC) are not controlled substances.  THC is the primary psychoactive component of marijuana.  Any product, including “Cannabidiol” (CBD) products, with a concentration of more than 0.3% THC remains classified as marijuana, a Schedule I drug under the Controlled Substances Act.

We have had inquiries about whether the Department of Transportation-regulated safety-sensitive employees can use CBD products.  Safety-sensitive employees who are subject to drug testing specified under 49 CFR part 40 (Part 40) include:  pilots, school bus drivers, truck drivers, train engineers, transit vehicle operators, aircraft maintenance personnel, fire-armed transit security personnel, ship captains, and pipeline emergency response personnel, among others. 

It is important for all employers and safety-sensitive employees to know:

  1. The Department of Transportation requires testing for marijuana and not CBD.  
  2. The labeling of many CBD products may be misleading because the products could contain higher levels of THC than what the product label states. The Food and Drug Administration (FDA) does not currently certify the levels of THC in CBD products, so there is no Federal oversight to ensure that the labels are accurate. The FDA has cautioned the public that: “Consumers should beware purchasing and using any [CBD] products.” The FDA has stated: “It is currently illegal to market CBD by adding it to a food or labeling it as a dietary supplement.” Also, the FDA has issued several warning letters to companies because their products contained more CBD than indicated on the product label.
  3. The Department of Transportation’s Drug and Alcohol Testing Regulation, Part 40, does not authorize the use of Schedule I drugs, including marijuana, for any reason. Furthermore, CBD use is not a legitimate medical explanation for a laboratory-confirmed marijuana positive result. Therefore, Medical Review Officers will verify a drug test confirmed at the appropriate cutoffs as positive, even if an employee claims they only used a CBD product.

It remains unacceptable for any safety-sensitive employee subject to the Department of Transportation’s drug testing regulations to use marijuana.  Since the use of CBD products could lead to a positive drug test result, Department of Transportation-regulated safety-sensitive employees should exercise caution when considering whether to use CBD products.

DOT-regulated employers should consider reviewing their current policies and practices to ensure compliance with DOT regulations, including the drug and alcohol testing rules in Part 40 and the bulletins that specifically address medical marijuana and CBD. In addition, employers in all industries may need to consider:

  • revising their policies to address CBD use;
  • training their managers and supervisors on how to address situations where an employee defends a positive drug test by claiming use of CBD;
  • educating employees about CBD; and
  • having a conversation with their drug testing providers about CBD and the lab’s drug testing and reporting processes.

Seyfarth Shaw will continue to monitor legal developments in this dynamic area of the law.

Recently, I had the opportunity to moderate panels on cannabis and commercial real estate at programs held in Los Angeles and Chicago.  I won’t say it was the best of times or the worst of times, but I will say “it was the age of wisdom; it was the age of foolishness.”

It was interesting to compare the programs and the audiences in the two cities.  In Chicago, where medical marijuana has been legal since 2014, and recreational marijuana has been legal for just over a month, people from many facets of the real estate industry — brokers, architects, contractors, real estate owners — came to learn about the new opportunities and pitfalls of the cannabis industry.  To be sure, some were experienced, having participated in the medical marijuana business, but others were, well, naïve about how pervasive local, state and even federal laws are in regulating cannabis use of commercial real estate.

In LA, where medical marijuana has been legal forever and recreational for three years, the commercial real estate industry has had enough experience with the cannabis industry to experience the impact of various laws and regulations on commercial real estate.  The audience came prepared to hear about how the cannabis and commercial real estate industries were addressing some of the issues resulting from the intersection of the industries.

Here are some key takeaways from the two panels: Continue Reading Tale of Two Cities: Cannabis and Commercial Real Estate

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

It was a busy week for the states, as Virginia moved towards decriminalization.  The state House and Senate passed versions of a bill to decriminalize, which the governor is expected to sign.

In Kentucky, support is growing for medical marijuana.  The state House Judiciary Committee passed a bill that would legalize medical cannabis.  The next stop for the legislation is the full House, and then it’s on to the state Senate, which may be less hospitable territory.

Meanwhile, in Connecticut, the governor used his state of the state address to push for legalizing adult-use marijuana.  “Like it or not, legalized marijuana is a short drive away in Massachusetts and New York is soon to follow.”

Staying in New England, New Hampshire is also considering legalization.  A bill to allow possession and home cultivation cleared the House Criminal Justice and Public Safety Committee.  They might want to consider the case of their neighbor Vermont, which has a similar system now.  A bill that would permit sales is moving through the legislature now.

And the big story in Maine this week is that the state Office of Marijuana Policy is recommending that trade secrets be kept out of the public record.  We’ll be reporting on this development in depth soon.

In South Dakota, hemp may become legal.  The state House approved a bill that would legalize hemp; the bill now moves to the state Senate.

Things don’t look so promising for marijuana in New Mexico.  A bill creating a recreational industry in the state was tabled by the state Senate’s Judiciary Committee, much to the governor’s dismay.  See her statement here.

The President’s budget request was released this week, and CBD made an appearance.  The Food and Drug Administration would receive an additional $5 million to regulate cannabis and derivatives such as CBD.  The request would also prohibit the District of Columbia from using its own funds to regulate marijuana.

If you’re interested in the employment outlook for the cannabis sector, there’s a new report that indicates the industry supports over 200,000 full-time jobs.

Finally, file this under “location, location, location.”  A Girl Scout troop in Illinois has staked out a prime spot for sales.  They sold 230 boxes in four hours outside a Chicago dispensary, which has asked them to return for the rest of the month.

See you next week!

 

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

Let’s start out with the world of cannabusiness.  MedMen CEO Adam Bierman left the company effective February 1.  Shares climbed 13% on the news.  Bierman is not the only person in the industry losing his job; several companies recently announced layoffs.

Turning our attention to the states, the New York State Bar Association announced its approval of legal adult-use cannabis.  Perhaps a thumbs-up from a bunch of lawyers will do the trick this time?

Missouri is also looking favorably on recreational marijuana.  Missourians for a New Approach supports a ballot initiative; they need 160,000 signatures by mid-May, so the clock’s ticking!

Minnesota is taking another look at adult-use marijuana.  A legalization bill is expected next week.

Many lawmakers have criticized the current cannabis banking system.  Gov. Jared Polis (D-CO) did something about it.  His “Roadmap to Cannabis Banking” lays out a blueprint for state-chartered banks to help the industry.  It’s earned the support of one of the state’s representatives, Ed Perlmutter.

So it’s time for another round of “Where Do The Candidates Stand on Marijuana?”  First up is Senator Bernie Sanders (I-VT) who will legalize cannabis on Day 1 of his Presidency.  Hard to be more pro-legalization than that.

Former New York City Mayor Mike Bloomberg (D-NY) has modified his position on marijuana.  Last year he said legalization was stupid; now he says putting people in jail for possession is dumb and supports decriminalization.

Former Vice President Joe Biden (D-DE), who has been reluctant to support legalization in the past, “kinda sorta” indicated that it was time to legalize.

And finally, in out of this world news, cannabis has now been launched into outer space.

 

In a recent decision, Palmiter v. Commonwealth Health Systems, the Pennsylvania Court of Common Pleas held that: (a) the Pennsylvania Medical Marijuana Act (“MMA”) creates a private right of action for wrongful termination; and, alternatively, (b) an employee who claims to have been terminated for medical marijuana use authorized under the MMA can bring a claim of wrongful termination in violation of public policy.  This Pennsylvania court now joins courts in several other states, including Arizona, Connecticut, Delaware, Massachusetts, New Jersey, and Rhode Island, which have allowed adverse action claims against employers by employees or applicants who used medical marijuana under state law. Continue Reading Pennsylvania Court Allows Medical Pot User To Proceed With Wrongful Termination Suit

Welcome back to The Week in Weed, your Friday look at what’s happening in the world of legalized marijuana.

Following up on last week’s look at New Mexico, a cannabis legalization bill has passed the Senate Public Affairs committee.  Next step: the Senate Judiciary Committee.

New York is also looking at legalization (again).  Just like true love, the course of cannabis in the Empire State is not running smooth, as the governor and the legislature are working out some differences of opinion in how the measure should be passed and where the funds raised would go.

Connecticut is also pondering the legalization question.  Lawmakers plan to introduce a legalization bill in the upcoming session; some have doubts that it will pass.

The Idaho Senate has just introduced a bill to legalize hemp.  No forms of cannabis are currently legal, so this would be a big step for the state.

And speaking of hemp, the comment period on the USDA’s hemp rule has officially closed.  Over 4,000 comments were submitted, so regulators will have plenty of reading material for the long winter evenings.

Turning our attention to the other side of the world, New Zealand voters will weigh in on adult-use marijuana in the next general election, set for September.  And in Australia, over-the-counter CBD sales may be allowed this year.

And finally, you can now make movie posters entirely from cannabis.

If you are in the cannabis industry, you should already know Section 280E of the Internal Revenue Code.  It consists of only one sentence:

No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.

In simple terms, 280E denies a cannabis business the ability to deduct its business expenses in computing its Federal income tax liability.  How this actually works and how can you plan around it are topics beyond the scope of this post, so I suggest you familiarize yourself before continuing.  I’ll wait…………..

Ok, are you back?  Section 280E of the Internal Revenue Code has been on the books for close to 40 years, so, as the title of this post asks, why are we still having this discussion?  We are having this discussion because too many people in the cannabis business, including accountants and lawyers,  really don’t know about or understand 280E.  Some of my clients ask me to review financial information for cannabis companies in which they are considering investments.  In some cases, there is no analysis of the impact of 280E on cash flow. Spoiler alert #1, after considering 280E there may be no cash flow. In other cases, we are told the company’s accountant has good strategies for minimizing the effects of 280E. Spoiler alert # 2, the IRS has won every 280E case that went to court, and it plans on increasing its audits of cannabis businesses in the future.  Last but not least, spoiler alert #3, the management company that doesn’t own any cannabis still can be subject to 280E.

So what’s a budding cannabis entrepreneur to do?   First, hire an experienced cannabis accountant.  This is not like other businesses. Second, hire an experienced cannabis lawyer.  Third, get the accountant and lawyer talking to each other about structuring the business in a way that addresses 280E issues.  It may be more expensive initially, but it will be much cheaper in the long run.  If you are asked to make an investment in a cannabis business that does not fear and respect section 280E, be cautious of the cash flow numbers.  The cash flows may not be accurate, and the company may have hidden tax liabilities of which it is not aware.  Finally, don’t invest in cannabis or get into the business with the expectation that the 280E problem will go away any time soon.

On January 10, 2020, Colorado Representative Jovan Melton (D) introduced House Bill 20-1089, which proposes to clarify that the existing prohibition on an employer terminating an employee for the employee’s lawful off-duty activities, like off-duty consumption of alcohol, extends to activities that are lawful under state law even if they are illegal under federal law (e.g., recreational or medical cannabis).

Specifically, the bill proposes to amend the state’s lawful activities statute to make it a discriminatory or unfair employment practice for an employer to terminate the employment of any employee due to that employee’s engaging in “any activity that is lawful under state law while off the premises of the employer during nonworking hours, regardless of whether the activity is lawful under federal law.” One stated purpose for the bill is to address the Colorado Supreme Court’s 2015 decision concluding that because medical cannabis use is unlawful under federal law, it does not fall within the lawful activities statute’s protection for “lawful” activities.

While the trend recently has been for states to enact specific laws that provide clear employment protections to medical cannabis users, we now are seeing more legislation providing certain protections for recreational users. As we recently reported here and here, New York City and Nevada restrict the ability of employers to consider cannabis use of job applicants (subject to narrow exceptions). If the Colorado bill is enacted, employers in that state may have to revisit their drug and alcohol testing policies and re-think when to test, whom to test (what positions or job categories), what to test for, and how to make sure decisions based on test results comply with applicable law.

In the meantime, employers with operations in Colorado should closely monitor the bill’s movement through the state legislature. We will provide updates about Colorado’s bill as they become available.