If the effort is successful, there is a potential for its impact to be global, given that California’s marijuana market is not only the oldest but the largest in the world. Thus, its influence across the industry is oversized.

The taxation changes will effectively erase a tax on cultivation of marijuana (which had been the source of about 15 percent of state marijuana taxes – roughly $166 million as of last year). The changes were part of a larger state budget agreement, which is also going to carve out some tax credits for certain marijuana companies, as well as expand labor rights in the industry and switch collection of a state excise tax from distributors to retailers. The tax will be paused at 15 percent for three years, at which point the state will have the option to raise it again to make up for revenue lost by ending the tax on growers.

Programs that benefit from marijuana taxes include youth and environmental programs, and the state says it must balance out these needs with those of marijuana cultivators and shops that are burdened by heavy taxes and tight regulations. As our Los Angeles marijuana business lawyers are aware, many companies are treading water – if they aren’t drowning – because they’re in direct competition for sales with black market dealers that can sell their products more cheaply because they aren’t taxed or responsible for screening their supply for harmful contaminants. This year especially has been tough, given last year’s bumper crop contributing to oversupply.

Many smaller operators are likely to fail or consolidate before the tax credit goes into effect, but it’s nonetheless a welcome windfall for those in the industry. It’s been largely recognized as an operational burden, as it was paid out by growers prior to obtaining any revenue for sales. So even if that product never sold, cultivators were still getting taxed.

The tax break is expected to help with issues of growers burning excess crop (to avoid paying tax on product they won’t actually sell) and problems with shady under-the-table deals intended to sidestep the tax payment. These issues have been especially prevalent given that taxes were based on weight, as opposed to the price at which the product was sold. This has made growers vulnerable whenever there are price declines, compelling them to simply burn the product rather than paying a tax on crops there was no guarantee of selling.

Hope is that the tax cut will filter through the cannabis industry to wholesalers and other distributors, then on down to consumers – incentivizing them to buy legal product over black market options.

Among the other details of the tax plan:

• Tax breaks for cannabis companies who pay more than 150 percent of the minimum wage.
• $10,000 in tax credits for the social equity operators in the marijuana industry (minority groups disproportionately impacted by marijuana arrest rates). These groups will also get a 20 percent rebate on taxes paid to the state, which they can use to reinvest in operations.

The goal here, of course, is not only to bolster the legal industry, but to cut down in the notoriously difficult to hit illicit industry – estimated to be some three times the size of the above-board market. As it stands, legal marijuana sales in California will generate about $6.4 billion just in 2022. A hit on the black market in California will be a benefit to cannabis companies across the country, who must compete not only with illegal operators in their own state, but the massive amount of illegal crop grown in California that is unlawfully smuggled in across state borders.

This isn’t the first tax relief effort aimed at the state cannabis market, though many of earlier packages were mostly handed down at the local level. Companies that need assistance wading through their tax obligations should be working with an experienced marijuana business attorney. The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 949-375-4734. Additional Resources: World’s Biggest Pot Economy Just Inhaled More Fiscal Stimulus, July 11, 2022, By Tiffany Kary, Bloomberg.com

Let’s start with trade samples. These are samples of cannabis plants or products that are sent to cannabis licensees by producers, processors, wholesalers, and holders of hemp certificates to create brand and product awareness. It’s considered a solid means to generate more business. Trade samples allow products to be sampled, tasted, and smelled by licensed business buyers. An example would be marijuana producers who sell immature plants to other producers. Prospective buyers may want to know what kind of strain those immature plants are going to ultimately produce. A trade sample can show them. Similarly, producers could send samples to retailers to convince them to stock their product. Other industries have engaged in this for eons, but there has been some question about how those in the California cannabis industry could not only do it lawfully, but without having to pay the hefty taxes associated with retail sales.

Now, with the passage of AB 141 (a large piece of legislation that went into effect Jan. 1, 2022), cannabis products can be designated as trade samples from one licensee to another for marketing purposes. This will allow them to bypass cannabis taxes they’d otherwise have to pay. Exempted exchanges will include all harvested cannabis that has been or will be designated as a trade sample, as well as all cannabis that is used to manufacture a cannabis product that is/will be designated as a trade sample. Furthermore, the cannabis excise tax won’t apply to product that is designated as trade and simply given to another licensee absent consideration.

It should be noted that only operators can distribute trade samples, and they can only do so to other licensees and only after properly designating the product as a sample for targeted advertising. It should be clearly labeled as “TRADE SAMPLE: NOT FOR DONATION OR RESALE.” Event organizers, testing labs, and retailers are NOT allowed to distribute trade samples. Once product is designated as a trade sample, that designation can’t change. The movement of any trade samples must be recorded and trackable by METRC. Trade sample designations are capped monthly at 2 pounds of flower and 900 units of manufactured/non-manufactured products. Conversely, recipients of trade samples can only receive a maximum of 5 grams of flower per strain (no more than 6 strains) and up to 5 units of no more than 6 different products each month. Any employee who is transporting cannabis trade samples can’t carry with them any amount that exceeds the personal possession limits.

Next, let’s look at the updates to provisions of California law on donations of cannabis for medicinal purposes. Starting in March 2020, state law began allowing retailers of cannabis products to donate free medicinal cannabis and marijuana products to patients. Licensees were also allowed to donate free medicinal cannabis to retailers for subsequent donation to medicinal marijuana patients. Cultivation taxes – including excise taxes and use taxes – for crop designated as intended for medical donation is waived, though the cannabis must still be tracked by the state’s track-and-trace system.

Retailers can also designate cannabis products as donations in the METRC system, but they can’t change this designation once it’s set.

Although they don’t have to pay taxes for growing and distributing cannabis designated for this purpose, the plant/product still has to comply with regulatory and quality requirements mandated for other cannabis goods. Whatever is being donated per caregiver or patient can’t exceed personal possession limits. Finally, all information pertaining to these donations must be carefully recorded and those records properly maintained.

If you are a California cannabis company or cultivator with questions about legal compliance with trade samples or medical cannabis donations, our Los Angeles marijuana business lawyers can help.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

AB 141, California Legislature

Washington, where requirements for marijuana businesses are strict, yet muddled. What started as a residency restriction meant to control big outside mega corporations from putting local businesses at a disadvantage has led to corporations researching ways to exploit residency loopholes and limiting who longtime residents can bring on as partners. Now, due to unclear definition of what qualifies a person for residency, some are concerned how to prove their status.

You see, according to RCW 69.50.331(1)(b), one must be a resident of the state for six months to apply for a marijuana business license. Not only that, all members of the business, no matter how small the stake, must meet the same residency requirement. Further, a “partnership, employee cooperative, association, nonprofit corporation, or corporation” must be formed in Washington according to state laws and meet the above outlined residency requirements in order to be issued a license. Lastly, licensees must comply with residency requirements throughout the duration of the license. Without a firm definition on what constitutes residency, though, some businesses have been in the lurch.In 2016, the Washington State Liquor and Cannabis Board eased up the chokehold on businesses a bit by allowing for non-bank financing to come from out-of-state, but these investors still could not hold a stake in the company, as outlined in the Cannabis Law & Policy Project. This adjustment in regulations by the board also included the amendment that increased the residency requirement for all interested parties of the business from three months to the current six months. Both moves were an attempt to discourage out-of-state investors from setting up makeshift residency in the state and encouraging them instead to be a more passive investor.

Good news for some Californians, there are no such residency restrictions at the state level. Many cities and local governments, however, have their own residency requirements in an effort to favor in-state and local businesses, according to a report from Marijuana Business Daily. Some have only allowed pre-established businesses access to limited licensing, trying to give grassroots businesses who have been working in medical marijuana a fighting chance now that recreational cannabis has hit the scene. Others have rules designed to give preference to owners who come from neighborhoods most negatively impacted by biased drug enforcement policies of the past. Others, still, will welcome entrepreneurs from anywhere, primarily seeking the influx of tax revenue from new businesses.

Similar to Washington, these regulations can often raise more questions than they answer. How long does one need to reside in a certain area to be considered a resident? How much time do they need to be on the premises for it to be considered their home? What about neighborhoods affected most by the War on Drugs? Can someone new move in and take advantage of these special opportunities? If questioned, what proof must you show? Does everyone in the business need to be a resident? Luckily you do not have to be a scholar on local laws to break down these answers. Our skilled Los Angeles cannabis business attorneys are well-versed in residency rules and the distinct set of guidelines you will face in each city and county. A free consultation is your first step to making sure your business is fully in compliance.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients, defendants, workers and those facing criminal marijuana charges. Call us at 949-375-4734.

Additional Resources:

For Washington’s Pot Industry, Out-of-State Owners Could Supply a Lifeline — Or Invite Trouble, By Bob Young, Feb. 7. 2107, Seattle Times

More Blog Entries:

Strict Regulations Make Legal Marijuana Scarce in Washington, Oct. 11, 2014, Cannabis Law Group

on a U.S. stock exchange by a marijuana producer. Ontario, Canada-based cannabis conglomerate Tilray went public on New York NASDAQ recently. The stock price spiked 30 percent in one day proving what we have been saying all along: cannabis is very, very good for business. According to a report from Quartz, investors rated the value of Tilray at time at $2.65 billion.

Tilray grows and processes cannabis to meet pharmaceutical standards. The company has really taken off in the wake of Canada voting to make marijuana legal nationwide, but the company’s products can be found in 10 countries, including a production facility in Portugal. Though located in Ontario, the company has its roots in a private equity firm in Seattle that has been investing in brands connected to the marijuana industry in hopes of positioning businesses to be on the forefront as prohibition is lifted worldwide. Canada is the second country to make adult use legal (Uruguay being the first). The U.S. has 30 states that have legalized at least medical marijuana, though they are still somewhat bound by the federal Controlled Substances Act, 21 U.S.C. Section 812. Many countries have partial allowances, such as the infamous cannabis cafes in the Netherlands. Despite the best efforts of backward thinking anti-marijuana propagandists, the writing is on the wall for cannabis legalization to continue to grow, and companies like Tilray are primed and ready.

Simply being in the cannabis industry is not enough to guarantee success, though. Other marijuana stocks and pharmaceutical stocks related to the marijuana industry have faltered or gone stagnant. Like anything related to business, it takes the right ingredients at the right time to appeal to investors. There’s also a very real fear for these marijuana companies who are paving the way that once the U.S. finally wakes up and makes marijuana legal nationwide, big name brands will jump into the market, sucking up investors on their name recognition alone.

These concerns are true not only of big-time players in the stock market, but also of the bold entrepreneurs who have faced adversity in order to bring cannabis products to the people of California and other states who have legalized this highly beneficial drug. It is exciting to be a business owner getting in on the ground floor of what is clearly going to be the next big thing. As we’ve already established, though, it takes the right ingredients at the right time. Our Los Angeles cannabis business attorneys have acted as consultants for numerous businesses, giving advice on compliance issues and how to best work in the parameters of local, state, and federal laws. A strong infrastructure is key to long-term success. If certain regulations are skipped or issues are ignored early on, they tend to snowball, causing bigger problems down the road. Establishing yourself as a business owner that can be trusted now will increase your chances of having a loyal customer base in tact as the industry continues to grow and evolve, and being in compliance now will make you more agile as more changes head your way.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients, defendants, workers and those facing criminal marijuana charges. Call us at 949-375-4734.

Additional Resources:

Tilray IPO: Five Things to Know About the First Pot Company to Go Public on Nasdaq, July 18, 2018, By Max A. Cherney, Market Watch

More Blog Entries:

Investors Eye Marijuana Stocks, Jan. 23, 2017, Cannabis Law Group

business owners. Some legislators agree, but others think the higher taxes should stand, at least for a while longer. For now, the current tax rate will remain, as an assembly bill addressing cannabis taxation failed to advance out of committee, according to an Associated Press report.

AB-3157 seeks to amend The Control, Regulate and Tax Adult Use of Marijuana Act, which currently sets the excise tax rate at 15 percent of the average market price. The new proposal would drop the excise tax rate to 11 percent and suspend the cultivation tax, with each expiring June 21, 2021. Right now, when excise and cultivation taxes are combined with sales tax, county, and city taxes the total tax rate can be almost 50 percent. Some fear this high of a tax rate is driving people to purchase marijuana on the black market, instead. There is some compelling evidence to back that claim.Our Los Angeles cannabis business lawyers understand one of the enticing promises of recreational marijuana legalization was the boon of taxes in government coffers. Extra money could be used to bolster infrastructure, city and state programs, and assist with cannabis education and drug abuse prevention programs. However, paying up to 50 percent in taxes is an astronomical hurdle for many businesses, particularly new ones trying to get off the ground. That could explain why tax revenue related to cannabis was much lower than projected in the first quarter of fiscal year 2018. Excise tax in the first three months came in at just under $34 million. At this pace, it is unlikely the state will bring in the original prediction of $175 million for the year.

Californians are certainly getting their marijuana from somewhere, though, and if not at the licensed retailers, then where? Assemblyperson Tom Lackey, co-author of the new bill, says its the black market and that the oppressive tax rate is to blame. By lowering the excise tax rate, marijuana businesses would have a more even playing field with unauthorized sellers, helping to boost already licensed businesses and encourage unlicensed businesses to come into the fold as well. The bill was stalled in committee by assembly members seeking more evidence of a connection between the tax rate and black market. Temporarily adjusting the excise tax, however, would be the most efficient way of testing the market, while also lending a hand to local businesses.

It can be overwhelming for new business owners to sort through all that is required of them to satisfy legislators, while also providing a solid experience for their customers. It takes skill and experience to know how to create a successful business plan that takes into account state and local taxes, additional fees related to testing and distribution, and still remains in compliance with regulations and laws. That’s exactly what our marijuana business attorneys in California have to offer: the skill and experience you need to put you on a path to success. Cutting corners or making poor decisions early on can be extremely costly for businesses down the road. Our legal team can make sure you make smart decisions early on to help keep your business strong down the road.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients, defendants, workers and those facing criminal marijuana charges. Call us at 949-375-4734.

Additional Resources:

California Gov. Jerry Brown’s New Budget Says Pot Revenue is ‘Slower than Anticipated,’ May 11, 2018, By Jeff Daniels and Chloe Aiello, CNBC

More Blog Entries:

Tax Bill Would Offer Relief to Cannabis Businesses and Consumers, March 21, 2018, Cannabis Law Group

While it remains to be seen exactly when cannabis business licenses are issued, the state has taken an important step toward implementing an efficient licensing system. Government Technology reports that the state has selected software from Accela, Inc. to manage licensing for the cannabis industry. State Chief Information Officer Amy Tong says the software was chosen due to a competitive price quote, ease and flexibility of use, and its successful history within the industry and other state licensing entities. While this successful history does bode well for cannabis business licensing, it is, of course, no guarantee of success in meeting the state’s January 1 deadline.

Tong also notes that the software launch in January 2018 will likely not have full functionality for long-term needs, such as license renewal. Instead, the goal for January 1 is to be able to accept cannabis business applications through a web portal.

What This Means for Cannabis Businesses

While an efficient technology system is an important step toward issuing business licenses, there is no guarantee that state will, indeed, be able to issue business licenses on January 2, 2018. (January 1 is a state holiday.) State Representative Jerry Hill claims there is “a fair amount of skepticism” in the state legislature about whether the state will meet the deadline. The Desert Sun reports that one cannabis attorney does not think business licenses will issue in January 2018 for “a multitude of reasons”. These include the amount of coordination required between Proposition 64 and existing marijuana regulations, and the inevitable lawsuits against the state by organizations objecting to its regulations.

Cannabis business owners should be prepared against the contingency of not immediately receiving a business license on January 2, 2018. Financial reserves and strategic business plans can protect against interrupted operations. Business owners can also prepare now to apply for a state business license in January. Municipal and county permits should be attained in advance, and all supplemental documentation should be assembled and ready to attach to a state business permit application. Applications for state business licenses are expected to be available before the online portal launches in January. Owners should obtain applications as soon as possible to ensure that they are properly completed with all supplemental documentation.

It remains to be seen how soon and how effectively California implements its cannabis business licensing system. An experienced cannabis lawyer can help business owners to design flexible business plans which allow for delays in licensing without interrupted daily operations.

The Los Angeles Cannabis Law Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

California Chooses Accela Software for Cannabis Licensing System, February 3, 2017 by Matt Williams, Government Technology

More Blog Entries:

Preparing the California Cannabis Industry for Recreational Use Regulations, July 9, 2017, by Cannabis Law Group