Recently, the Internal Revenue Service (IRS) issued tips for cannabis compliance. The federal agency noted that while it’s outside of the agency’s power to resolve many of the unique business predicaments that arise from federal prohibition, it wants to help support cannabis companies in becoming tax compliant. Even though marijuana continues to be classified as a Schedule I narcotic by federal authorities, these businesses are still required to shell out federal taxes.

In September, the agency released tips for tax compliance for cannabis businesses. Among those:

• Know your investors. Thousands of people are fighting to get into the industry, but working with investors may have some tax implications and repercussions for cannabis companies. Unregistered and “silent” financing and ownership arrangements, with investors sometimes being referred to as “beneficial owners,” get the benefits of ownership but avoid having the property title or activity in their name. That creates numerous challenges for the IRS, and it may result in issues for proper tax filing and accurate reporting of gross receipts. Also, cannabis business owners should be wary of nefarious investors who attempt to put their funds into a business like this, but jeopardize the entire operation with allegations of money laundering.
• Make sure you’re licensed. You can’t get federal licensing, but make sure you have proper state and local licensing for your operation.
• Timely file and pay your taxes. Even if your business operates with cash, you’re still responsible to file and pay your taxes on time. IRS code doesn’t parse out which income stems from legal vs. illegal sources. All income must be reported. Note that because you’re dealing with a Schedule I narcotic, you must abide by Section 280E – even if your business is 100 percent state legal. That section doesn’t bar you from reducing gross receipts by properly calculating the cost of goods sold to ascertain gross income, though you may not be able to deduct things like selling or advertising expenses. There aren’t any exemptions from employment tax. It may be beneficial to make quarterly payments. Late payments can result in interest and penalties. Non-filers are a priority enforcement for the IRS. So too are those who use cryptocurrency; it’s imperative to use a reputable exchanger.
• Report cash transactions. Your business may not use traditional banking, but you still need to report all cash transactions. Any company receiving $10,000 or more in cash (which is most California marijuana businesses) need to file Form 8300 within 15 days of receiving that payment. Failure to be diligent about this can cause major headaches for your business.
• Maintain good records. This is mission critical for a cannabis business. Keeping meticulous records – all receipts, canceled checks, any shred of documentation that can support income, deduction, or credit should be kept in some form. Keep these records even for expenses that aren’t legally deductible because it’s going to make it easier to prepare your returns and also answer a question quickly if one arises.

Despite the challenges, the IRS hopes to keep audits to a minimum by promoting voluntary compliance wherever possible, addressing unintentional non-compliance with proactive education. Companies that want to be proactive need to be working with an attorney and a qualified accountant.

Freeing up banks to work with state legal cannabis companies would obviously make working with the IRS (and so much more) a great deal easier. Federal regulators have repeatedly chastised Congress for failing to move forward on marijuana reform. The House of Representatives has five times now passed the Safe and Fair Enforcement (SAFE) Banking Act, but it’s been shot down each time by the Senate. Former U.S. Treasury Secretary Steve Mnuchin repeatedly pushed this issue, saying the existing policy has resulted in substantial problems for the IRS and financial regulators.

Some have gone so far as to call this a public safety issue, given the fact that marijuana businesses that deal almost solely in cash continue to be high-crime targets. Despite this, a recent defense bill that was passed failed to include cannabis banking protections – despite bicameral negotiations.

If you are a marijuana business in Southern California concerned about regulatory and tax compliance, our dedicated marijuana 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:

Providing Resources to Help Cannabis Business Owners Successfully Navigate Unique Tax Responsibilities, Sept. 27, 2021, IRS

By the end of California’s second year permitting the legal sale of adult-use recreational marijuana, the state’s per-capita sales reached just $70 per consumer. Comparatively, Colorado’s year two per-capita sales came in at $99, closely followed by Oregon at $97, while even Washington state reached $89.

California’s Cannabis Market Pitfalls Industry insiders estimate that the Californian market could have delivered an additional $1 billion in sales during its second legal year, if it could only have kept pace with these other states.

Our Riverside County marijuana business attorneys note there are many factors contributing to the state’s cannabis market challenges, such as:

• The size and scope of California’s illicit marijuana market, continuing to secure a sizable piece of the state’s cannabis spend;
• The illicit market’s ability to undercut licensed retail store marijuana prices, particularly as illegal storefronts can dodge the 30% retail tax captured in most cities, plus the $9.65 per ounce tax on adult-use cannabis sold at wholesale; and
• The limits imposed throughout California a number of local municipalities prohibiting cannabis business operations within their boundaries.

Licensed Business Owners Los Angeles business owners have shared that they are yet to see big increases in bottom lines. Even though they have seen pickup in foot traffic through their stores after the California-based online marijuana advertising site, Weedmaps, ceased posting ads for any marijuana stores without state permits, it has not amounted to much. That’s because they typical amount each customer is spending in store has also nose-dived. As a result, even with more customers, store revenue has basically remained the same.

Some Cities Are Making Adjustments Amid warnings that high city and state imposed cannabis taxes are effectively stoking the underground marijuana market, and in response to industry-wide calls for help, Monterrey County and Oakland have lowered taxes on marijuana sales. Whether those tweaks will deem effective in the long term remains to be seen.

Implications There is still huge growth potential for the legal cannabis market in California. The sooner the state can seriously combat and discourage illicit market operators, the better for fully licensed, law-abiding cannabis businesses. If taxes could be relaxed and limitations on operations lifted in certain communities, the growth in California’s legal marijuana market could be huge.

But as it stands, California’s local and state taxes on marijuana sales are set so high that it’s virtually impossible for legal retailers to compete with the unregulated market on price. Safety is a different issue. Following the vaping crisis that has claimed many lives, consumers seeking vaping products appear to be more readily seeking out permitted shopfronts for those transactions. 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: How California’s Legal Marijuana Market Wound Up in Crisis Mode After Two Years — Marijuana Business Daily, (January 30, 2020)

Until now, companies like Juul Labs Inc., a San Francisco-based manufacturer of nicotine pods and vape pens, have managed to squash bills intended to prohibit the sale of flavored tobacco throughout California. Jull Labs Inc. spent $600,000 last year alone, lobbying and supporting political campaigns aligned with their business goals.

Why Change Now As vape products have risen in popularity, particularly flavored varieties appealing to young people, the country has also seen a spate of hospital admissions and deaths, all linked to vaping. Evidence has also shown that flavored vape products successfully lure teen users. So with a human toll already reaching 90, and a heightened awareness of a rising number of teens vaping cannabis and tobacco, the governor publicly announced his support to ban flavored vape products.

Another indication of a possible market shift is that Juul has also ceased selling flavored mint and mango pods in the U.S. If you need legal help with your vaping or cannabis business, our Los Angeles marijuana business lawyers can help.

Attracting Young Users The Centers for Disease Control and Prevention reported last year that one in 10 middle-schoolers and one in four high-schoolers admitted using e-cigarettes.

Of those middle-school users, 49 percent reported using flavored products in 2018. While that number was higher at 67 percent in high-school tobacco users.

With usage levels so high, select Californian lawmakers sought tighter vaping regulation, but those moves set off strong opposition both from the broader vaping industry and tobacco companies, alike.

Bans and Legal Action In 2019, after temporarily prohibiting flavored e-cigarettes, eight different states found themselves facing legal challenges. Similarly, several states also banned flavored cannabis product sales. So far this year, the National Conference of State Legislatures notes that of 184 vaping bills across 20 state legislatures, 47 include flavor restrictions.

In January, San Francisco was the first city in the nation to ban e-cigarette sales. While another 60 Californian cities and counties have followed, either limiting or banning flavored e-cigarette sales as well.

The State of California’s Response Following a particularly bad summer for vaping-related illness, the executive order Governor Newsom issued in September, instructed state agencies to:

• double down on California’s illicit vaping market;
• explore alternative vape product tax strategies; and
• establish a consumer awareness campaign shining a light on vaping risks.

When Governor Newsom unveiled his proposed 2020-2021 budget in January, he also confirmed his full support of Senate Bill 793, which would see California go a step further than the federal government. If approved, it would restrict all tobacco products featuring enhanced flavors, including mint, cotton candy, and fruit flavored vape pens, as well as tank-based products like menthol cigarettes, cigars, hookah tobacco and chewing tobacco.

San Mateo Democratic Sen. Jerry Hill said, “This is affecting our youth… The gateway is flavored product, and we can’t leave it to the industry to police themselves, because they failed to do that.”

Implications Currently, California legislature is yet to consider a bill that restricts flavored cannabis. But we can expect sizable push back from vaping companies within the cannabis industry, if this comes to pass.

Vaping companies throughout California responsibly called for tighter vaping product regulation immediately after illicit vapes began causing illness across the country. With many cannabis businesses already struggling to compete with illicit sellers, vaping companies would much rather see tougher regulation enforced, before banning flavored vaping all together.

The tobacco industry too has a steeped interest in keeping flavored vaping sales open. They also have very deep pockets and are willing to spend it lobbying, which makes them quite a formidable player to watch.

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: The Centers for Disease Control and Prevention The National Conference of State Legislatures Senate Bill 793

Amid a nationwide crisis that has seen more than 1,400 people sickened, and at least 33 dead from vaping-associated pulmonary injury (VAPI), counterfeit vape products sold on the black market are all too often a common denominator reported in VAPI related hospitalizations.

If you need help with any marijuana related legal dealings, our California cannabis attorneys are here for you.

Vape Pen Lab Test Results Anresco Laboratories, an independent, licensed laboratory based in San Francisco, recently tested a number of vape carts purchased from black market stores, for numerous hazardous pesticides, as well as the dangerous vape additive tocopheryl* (vitamin E oil). Not surprisingly, tocopheryl-acetate was present in most street sourced oil samples.

Also known as vitamin E oil, toxicologists and chemists confirm that when inhaled or smoked, the otherwise harmless food supplement blocks the lungs from absorbing oxygen, which can result in hypoxia, chemical pneumonitis or even death, if untreated.

Other shocking test results reveal:

• A Dank Vapes Sour Apple cartridge tested 5,475 times above legal limits for the mosquito repellent, chlorfenapyr (this pesticide residue when vaped goes directly into the lungs and often causes lung injury); this cartridge also tested:
  • 547 times over the permitted limit for bifenazate (this chemical is intended to kill mites); and
  • 362 times above the allowable limit for myclobutanil (this fungicide, when heated, may convert to hydrogen cyanide)
• An Exotic Carts variety known as Mars OG, showed tocopheryl-acetate levels of up to 34.9% (which means a third of the cartridge was filled with an assumed lung toxin);
• A cartridge suspected to be a counterfeit of the Brass Knuckles brand also showed 33% tocopheryl-acetate (again, a one-third lung toxin product); and
• A Cereal Carts vape cartridge in Blueberry Pancake Crunch tested 1,780 times over the Californian limit for myclobutanil (considered a neurotoxin – destructive to nerve tissue – as it’s combusted).

*Tocopheryl-acetate is the leading suspect behind the nation’s VAPI crisis currently sweeping the vaping market.

Expert Warnings Anresco Labs Director of Cannabis Services, Josh Richard, explained the seriousness of these findings.

“When you combust the pesticide, it converts it to other cancerous chemicals,” he said.

“There were a lot more pesticides, both in the amount of pesticide we found, and the number of pesticides in each sample,” Richard said. “It’s kind of scary how many pesticides we found in these samples.”

Deals too Good to be True Adding to the severity of the issue, bootleg stores across California are reportedly selling counterfeit vape pens at incredible discounts, or 2-for-1 offers, to unsuspecting vape customers. Products believed to be counterfeit versions of licensed vape brands (including STIIZY, Brass Knuckles and Cookies) sold for $35-$40 for a gram cartridge, which is about half the legitimate product’s cost. While carts average costs were around $22 each. Similarly, other black market brands (Cereal Carts and Exotic Carts) sold for $15-$20 for a gram of THC oil, where licensed, industry tested and approved grams of THC oil generally cost between $40-$60.

As the old adage goes, if it seems too good to be true, it usually is.

Legal Implications Given that illegal pot stores can be found with the click of a smartphone app, it will be interesting to see just how much longer Californian authorities sit quietly, and when they will more heavily clamp down on unlicensed cannabis outfits. We have seen a spate of law enforcement action, with power and gas being cut to some unlicensed shop fronts, but no $30,000-a-day fines issued to landlords knowingly renting business space to illegal cannabis business-folk, as yet.

The nationwide VAPI crisis that continues, and incoming results from independent lab tests on tainted products such as these, may just be the impetus that kick-start ramped up action on closing down businesses that are not only unsanctioned, but more hazardously, are a major health risk.

About Cannabis Law Group The Los Angeles CANNABIS LAW Group represents growers dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 949-375-4734. Additional Resources: Bureau of Cannabis Control Anresco Laboratories

Fake THC Cartridges Are Flooding California Of all counterfeit cannabis products, refillable THC cartridges used inside vaping pens are currently most common. Surprisingly, states like California – where recreational cannabis use is legal – appear to be most flooded with counterfeit products. Big brands like Kingpen and Rove have tried to get ahead of counterfeits by repackaging their products, but counterfeits have shown they can keep pace, often reproducing new packaging almost as quickly as the legitimate brands.

And industry insiders unanimously agree, the fakes are getting better all the time. Many knockoff THC vape pens are comprised of illegally but locally grown cannabis, which producers then stuff into refillable cartridge pens, before attaching counterfeit labeling they’ve purchased online, and selling the finished counterfeit pens at discounted prices to illegal pop up shops. To most consumers and law enforcement officials alike, it’s very difficult to tell a real pen from a fake one.

The best way for brands and businesses to protect against counterfeits is to legally trademark cannabis products. Once cannabis companies have a trademark in place, Californian authorities then have jurisdiction to enforce against counterfeits. Without a trademark though, it’s very difficult to prosecute. If you need help trademarking your cannabis products, our marijuana business lawyers of Orange County can help.

A Budding Counterfeit Scene All across California, legitimate cannabis businesses are feeling the pinch. The problem is so wide spread that brazen bootleggers are even advertising counterfeit products on Instagram and Snapchat. An admin for DanksOfficial – a watchdog Instagram account cautioning marijuana users against buying THC cartridges on the black market – who prefers to remain anonymous, says unless consumers can test each cartridge, there’s no way to be sure a vaping cartridge is real or safe. Experts Warn of Health Risks Counterfeits Pose Just as vaping is increasing in popularity across the nation, associated long-term health risks are also becoming increasingly clear. The Center for Disease Control and Prevention (CDC) recently announced that 193 cases of severe lung illness, all possibly linked to vaping, have propped up across 22 states. While the CDC did not share exactly how many cases involved products containing THC, Dr. Illeana Arias, senior scientific advisor and acting deputy director for non-infectious diseases noted “in many cases” patients had confirmed using THC-containing products prior to feeling unwell.

Meanwhile, the California Department of Public Health (CDPH) recently stated as many as 28 cases of acute lung disease among people who recently vaped cannabis products, had been reported across the Golden State. Just this August, the CDPH issued a health alert in Kings County after a cluster of hospitalizations. Between July and August, seven healthy adults were admitted to county hospitals, all showing signs of severe pulmonary disease, after vaping THC products. Nancy Gerking, Kings County assistant director of public health, confirmed the products were all purchased from temporary, unlicensed pop-up shops in the local area.

At about the same time, we also saw the Bureau of Cannabis Control (BCC) launch a public awareness campaign warning consumers about the health risks associated with buying marijuana products from unlicensed dispensaries. That’s because knock off products are completely unregulated and avoid testing for pesticides or other contaminants, which can pose dangerous health risks.

Other industry insiders note, because licensed cannabis growers and businesses cannot distribute their goods to unlicensed stores without risk of suffering heavy fines from regulators, if big brand name products are showing up in unlicensed stores, then those products are almost always fake. Consumers can best protect themselves from subpar goods by buying all cannabis products from licensed, registered cannabis businesses. To check if a California cannabis dispensary is legitimate and meets the state’s high safely standards, enter their business name into the BCC online license search tool (www.CApotcheck.com). Be sure your retailer is listed there, before shopping.

Marked Down Knock Offs Bringing in Big Bucks The state’s registered marijuana operations are projected to make more than $3 billion combined this year. But that number is easily overshadowed by the $8.7 billion in revenue expected to be generated by the unregulated cannabis industry across California in the same time frame.

Legitimate cannabis business operators are at pains to compete. It is widely believed that counterfeits are boosting unlicensed dispensary sales, where business owners can afford to sell cannabis products at lower prices, because they’re skipping out on regulation costs and avoiding taxes.

Authority Clampdowns Showing Signs of Success The Los Angeles Police Department is making strides in limiting the rampant illegal cannabis trade. At the beginning of the year there were almost 300 illegal dispensaries operating in the Los Angeles area, compared to less than 200 today. With authorities primarily focused on closing unlicensed dispensaries, clamping down on counterfeit products is not yet a priority.

Rather than issuing search warrants that could lead to seizing knock off cannabis items, the LAPD is focused on first cutting water and power to properties hosting illegal cannabis activity. While this is a strong first step, some fear counterfeit products not seized when closing down illegal operations, can easily circulate somewhere else down the road.

Legal Implications The black market for cannabis activity is thriving, and counterfeits are boosting sales for unlicensed retailers across the United States. Without regulation, corners are being cut, product safety is in question and health risks are becoming a reality. Additionally, the sophisticated production of knock offs show little signs of slowing down.

In this climate, the best way for cannabis brands to protect the integrity of their products, their brand reputations and the well-being of their customers, is to secure product trademarks, invest in difficult to replicate product packaging, and aggressively pursue counterfeits.

Some industry stakeholders believe knock offs will abate as consumers become more informed over time, and others are frustrated that counterfeits are stoking unlicensed dispensaries, who are taking such a large portion of market share. Either way, legitimate cannabis outfits are working hard to stay licensed, and to keep their businesses running. It seems the longer it takes to clamp down on counterfeits, the harder it will become for legal businesses to continue trading. Let’s hope the ramped up authority crack downs continue to make inroads and pave a smoother path for legal cannabis business owners moving forward. About Cannabis Law Group The Los Angeles CANNABIS LAW Group represents growers dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 949-375-4734. Additional Resources: The Center for Disease Prevention and Control California Department of Public Health Bureau for Cannabis Control California

And it’s not what we’ve seen in years past. Growers need not fear raids from Sheriffs in Humboldt, as much as they should civil action. That’s right, fines are now being issued in the amount of $10,000 per day, for each violation, capping out only at $900,000. And if that isn’t deterrent enough, next comes property liens and forfeitures.

Do you need help with notices to abate, property leins and forfeiture or civil fines? Our Southern California cannabis business lawyers are only a phone call away.

Violations Escalate Quickly Once a violation is noted, recipients have ten days to remove their plants. And even if growers remove their plants that same day, they’ll still face a minimum $10,000 fine. Failing immediate removal, fines can run for up to 90 days, maxing out at $900,000, before growers face county collection action, and eventual property loss. Local industry insiders say a number of properties are now on the market simply because of their civil abatements.

This is not surprisingly having a wider effect, and breeding compliance, as no one wants to lose everything they’ve worked for.

Ramped Up Law Enforcement Activity As a further deterrent, a combined effort by local and state authorities has resulted in intensified clamp downs on illicit cannabis businesses right across the state. In June this year, a four-day raid lead by the Santa Barbara County Sherrif resulted in the seizure of 20 tons of illegal marijuana. But this was no overnight occurrence. The operation took place only after a two-month long investigation conducted by an assortment of agencies.

Illegal growers are not the only targets as retail stores are on the radar too. The cannabis regulations law, Assembly Bill 97, which was passed in Sacramento in July, allows for fines of $30,000 per day if operating a marijuana storefront without a license. These fines are intended to target illicit stores in Los Angeles competing with legitimate business owners who’ve paid hundreds of thousands of dollars to operate lawfully.

How the Game Has Changed These days, there’s nowhere for growers to hide. Satellite imagery spots grow structures from outer space and authorities use those images to determine who should be sent abatement notices for operating without cultivation licenses. In Santa Barbara, a newly created task force set up specifically for the purpose of combing through cannabis license applications, compares those applications to satellite images to check for possible license fraud. And if found, that is grounds for abatement.

Civil Charges – Cheaper and Quicker While criminal cases can be stretched out for years, often times to the advantage of a defendant, civil code violators have just ten days to appeal a notice to abate. If appeals are made, they are done so quickly, without a judge or jury, and with fairly loose rules surrounding evidence. So no matter how the case plays out, we see action and outcome affected almost immediately. Similarly, sending out 100 abatement letters could cost $49 in postage, while the overtime and man hours needed to carry out police raids can cost well into the millions of dollars.

Implications The outcome of a move toward quick, punitive civil fines being issued in place of long, drawn out criminal trials, means offenders are now avoiding prison time. But they are also getting hit where it hurts business folk most – the pocketbook. This new brand of civil action is leaving offenders bankrupt and without their properties. The fact that criminal charges are being replaced with civil ones, shows that while the war on drugs continues, it has been civilized. And this civil action is closing down California’s long time illegal cannabis operators in a way that criminal prohibition could not. Put simply, civil court cases are faster, cheaper, easier and more effective to pursue, so we can expect to see a lot more of this strategy implemented in future. About Cannabis Law Group The Los Angeles CANNABIS LAW Group represents growers dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 949-375-4734. Additional Resources: Assembly Bill 97 – The Control, Regulate and Tax Adult Use of Marijuana Act of 2016 (AUMA)

For context, in 2018 local law enforcement worked in conjunction with the state Bureau of Cannabis Control, and together they served six unlicensed cannabis businesses with search warrants. These raids resulted in the seizure of more than 1,500 pounds of marijuana, said to carry a street value of $13.5 million.

Comparatively, according to data release in July, within the first half of 2019 alone, the bureau had already served 19 search warrants to unlicensed sellers. Those raids were successful, and saw more than $16.5 million worth, or about 2,500 pounds of illicit marijuana, confiscated. Just shy of $220,000 cash was also seized from cannabis businesses operating illegally during this time.

Proposition 64, which came into effect in November 2016 and permits adult possession (up to an ounce) of marijuana for personal use, was intended to curb the illegal pot market. But so far, this has not been the case. Research firm New Frontier Data estimated the marijuana black market in California was worth $3.7 billion last year alone, which was four times higher than the lawful market.

To help tackle the issue of illegal pot retailers, Governor Gavin Newsom recently threw extra support behind current law enforcement crackdowns. In July, the Governor approved $30,000-a-day fines for cannabis growers, sellers and distributors, who operate throughout California without a license.

Despite this emphatic deterrent, Lindsay Robinson, the California Cannabis Industry Association executive director, says unlicensed retailers, who number in the thousands, continue to operate illegally throughout the state, and many even feel comfortable enough to advertise their businesses.

State officials have conceded they’ve run into problems while working to issue new licenses in the cannabis market. Obstacles such as cities refusing to permit marijuana sales, as well as local and state taxes raising the price of legal marijuana by approximately 45%, have both contributed to an unexpected thwarting of the legal market.

Another challenge for the bureau appears to be staffing. The state’s Department of Finance recently conducted a recent audit which found, the bureau is not properly resourced to handle all the activity it endeavors to fulfill. California has had a year to establish a new bureau that drafts regulations and procedures relating to the legal cannabis market. But auditors reported that only 15 of the Enforcement Unit’s 68 authorized positions had been filled.

Given the Enforcement Unit’s current staffing configuration, “the Bureau’s ability to process complaints, perform inspections and investigations, and review and inspect testing laboratories is severely impacted,” the audit said.

Trade groups in particular have voiced their disappointment, following the unveiling of the new state budget recently signed by Newsom. As it stands, the budget fails to include an industry proposal suggesting an addition of $10 million. That allocation would fund a clamp down on retailers operating without a license, and assign sworn peace officers to follow up by enforcing the law.

Legal Implications Thus Far It remains to be seen whether continued crack down efforts by law enforcement will ultimately deter illegal marijuana businesses. Industry stakeholders will be pulling for law abiding cannabis outfits to benefit from running above board businesses, by way of increased market share.

Need Legal Help Obtaining or Renewing a Commercial Cannabis Business License? Our Los Angeles cannabis business licensing lawyers can help answer any questions you may have.

The Los Angeles CANNABIS LAW Group represents growers dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 949-375-4734. Additional Resources: Proposition 64 California Bureau of Cannabis Control California Cannabis Industry Association

CBD is naturally found in cannabis plants, and is widely known for its relaxing properties. But CBD won’t produce a ‘high,’ as it lacks the psychoactive tetrohydrocanabidiol (THC), found in marijuana. CBD-derived products have quickly grown in popularity, thanks largely to a wide range of potential health benefits, including relieving pain, anxiety, seizures and brain injuries.

According to Michael Lux, partner at Crowe accounting firm, the next 6-12 months will involve strategic minority investments in the CBD space. He noted too that while the majority of CBD companies are of interest to investors, they are still less than five years old, so they’d likely need a little more time before preparing to engage in full exit strategies.

US Farm Bill Opened the Gates Over the last eight months, a slew of beauty, personal care, and pet brand products have quickly become available across a variety of retail stores. In part thanks to the US Farm Bill, which was passed in December last year. This bill essentially relaxed restrictions, allowing licensed cannabis growers to produce hemp on an industrial scale, without fear of prosecution. It also relaxed restrictions around selling hemp-derived products interstate. The passing of the US Farm Bill was a tipping point, enabling CBD-derived products to go mainstream.

A recent Forbes report even projected the combined U.S. CBD sales market would likely exceed $20 billion by 2024.

Too Early for Buyouts Meanwhile, one industry banker noted it will be some time before makers of CBD products start to see buyouts from traditional consumer packaged goods (CPG) companies, especially with regard to food and beverage products. Mostly because the Food and Drug Administration (FDA) is still working to outline its CBD regulatory framework, and that tweaking will likely be ongoing. Just last month the FDA announced it has prioritized efforts to establish clearer CBD guidelines, and plans to publish a report this fall.

Until then, companies selling personal care CBD products are particularly well poised to attract strategic investments. That’s because regulators are far more comfortable with non-ingestible products, which significantly minimizes an investor’s risk.

Regulators Pave the Way Once the FDA clarifies its regulations on CDB-derived products, we can expect strategic buyers to show interest in acquiring CBD brands across consumer, pharmaceutical, and food and beverage industries. In the meantime, there are five key regulatory concerns most investors are monitoring before investing in CBD businesses:

1. Drug Enforcement Administration regulation of CBD – marijuana is currently considered a Schedule 1 drug and is not approved for medical use in the U.S.; but hemp is defined as the plant, or any part of the plant containing a THC concentration of no more than 0.3 percent.
2. FDA regulation of CBD products – advertising or using CBD as a dietary supplement is currently prohibited.
3. Some state laws restrict CBD product sales – North Carolina, Maine and New York restrict CBD products, just to name a few, and could severely impact overall CBD product sales.
4. FDA limits advertising and label claims made on CBD products – the agency will diligently pursue companies making unsubstantiated marketing claims.
5. Regulation of CBD products will continue to evolve – a specific internal agency working group will continue to explore options for dietary supplements containing CBD to be marketed lawfully.

Legal Implications Thus Far While CBD businesses continue to blossom, investors will become increasingly active in the growing CBD sector. Investors, like so many other industry stakeholders will watch closely on how ongoing regulations will impact the marketplace. It is clear that no matter how the industry progresses, regulators and legislators will play a large role in defining just how products are developed, where they can be sold, and what can be touted in advertising and marketing efforts.

Need Legal Help Investing in or Acquiring a Commercial Cannabis Business? Our California Hemp & CBD attorneys can help answer any questions you may have.

The Los Angeles CANNABIS LAW Group represents growers dispensaries, ancillary companies, patients and those facing criminal marijuana charges. Call us at 949-375-4734. Additional Resources: 2018 US Farm Bill FDA Guidelines

Recently, The Olympian reported recently that a pot shop owner in a Washington state suburb drew the attention and ire of state regulators for allegedly passing out free samples in violation of the state’s recreational marijuana laws. An undercover investigation was launched after officials received an anonymous tip about an alleged illegal marijuana club on site. Social media advertisements indicated free samples to the product were provided upstairs. Undercover officers began investigating the pot shop, and were offered free samples by an employee, who told them they could try it in another section of the building that wasn’t licensed. The officers reported that when they got to this portion of the building, they saw several individuals smoking marijuana.

The problem is marijuana retailers cannot, as Los Angeles cannabis business lawyers can explain, offer a ‘try it before you buy it” sort of deal for marijuana customers. This is largely owing to the fact marijuana business licensees in California, just as in Washington, are required to keep track of their product from seed to sale. By diverting products to be distributed as free samples, they are in violation of the law.

However in this case, the pot shop owner said he plans to challenge the citation (which could cost him his license) because No. 1., he insists the marijuana distributed at the shop was sold, not given out, and No. 2, the site where marijuana was being consumed was a separate business, owned by his film production company. He argued these two separate businesses were being treated as one by prosecutors. He is facing a Class C felony charge of operating a marijuana club.

Marijuana dispensaries in Los Angeles, Orange County and surrounding communities have caught heat in the last few months, despite the state legalizing recreational use of the drug, because a significant number don’t have licenses, as reported by The Los Angeles Times. In some cases, individuals are calling the business something entirely to avoid detection. For instance, one man in Costa Mesa reportedly referred to his marijuana dispensary as a church. Although he was visited by code enforcement several times and allowed a walk-through of his facility, undercover agents allegedly purchased marijuana from him on site on several different occasions. They were likely tipped off by the fact it is listed on weedmaps.com, a popular site consumers search to easy find marijuana sales. However it’s important to note police and federal agents can view it there also.

Even if you are a fully-licensed manufacturer or dispensary, you will want to check in with your Los Angeles marijuana business attorneys before running any kind of specials, particularly if it involves a give-away of marijuana, to ensure the practice aligns with the rules set forth by the Bureau of Cannabis Control and the California Department of Public Health.

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

Additional Resources:

Lacey marijuana store in hot water with regulators over ‘free samples’, Nov. 28, 2018, By Abby Spegman, The Olympian

More Blog Entries:

California Marijuana Investor Accused of Plot to Kidnap, Murder Cannabis Business Partner, Nov. 25, 2018, Los Angeles Marijuana Lawyer Blog

going to Canopy Growth. Canopy Growth, a Canadian company, was already considered one of the giants of the cannabis industry, and this investment will only further their global footprint, according to a report from Esquire. Meanwhile, Constellation is diversifying its portfolio, which currently consists of major alcohol brands, such as Modelo and Corona.

The relationship between Constellation and Canopy Growth is not a new one. Last year, Constellation made an investment in the company of $191 million to develop a drink infused with cannabis. Now, with Canada passing full legalization of marijuana, Constellation executives are getting on board one of most anticipated industries in the world in a more substantial way; they now hold a 38 percent stake in Canopy Growth. The most recent investment won’t just go to beverage research, but also into edibles, new medical marijuana advancements, and worldwide growth.Canada’s nationwide legalization of marijuana will be effective starting in October, but Canopy Growth has its eye on a much bigger prize. According to company representatives, there are about 30 countries they have identified as being on the verge of legalizing medical marijuana federally. They will be focusing a portion of the new investment specifically on these regions in anticipation for the wave of change that is certain to take over the globe, hoping to already be established in these locations when the countries flip. It begs the question of which came first, the investments or the move to legalize cannabis. Our marijuana attorneys in Orange County recognize that such investments are made possible by countries loosening their cannabis laws. We also know large-scale investments like this legitimize the marijuana industry, which helps to grease the wheels among government representatives who are considering marijuana legalization.

This could also mean good news for smaller marijuana businesses. After all, a great deal of trouble has come from Controlled Substances Act, 21 U.S.C. Section 812 and its Schedule I classification of cannabis. Corporations have traditionally used their impressive resources to sway people of power. If money can be made from marijuana, you can bet many businesses will be using their influence to remove the federal ban. Not only would this help the big businesses lobbying for change, but also the smaller operations who have been struggling under prohibition for too long, unable to use banks or buy insurance or export product to other states.

Some fear the day when the industry is overrun by major corporations. We’d all love a $4 billion investment, but the fact is most business owners in the marijuana economy are part of grassroots operations. Big corporations are able to dip into vast resources to establish new businesses and pay for massive fees and taxes associated with the cannabis industry. This has given those businesses an advantage so far in snapping up licenses and carrying the expensive burden of state and local regulations. As our attorneys know from experience, though, it’s not necessarily about bigger business — it’s about smarter business. Do you have questions about how your cannabis business can thrive in an ever-changing and expanding marketplace? Give our skilled lawyers a call to set up your free consultation today.

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:

Cannabis Producer Gets $4 Billion Investment From Beer Company, Aug. 16, 2018, By Vanessa Romo, NPR

More Blog Entries:

Recreational Marijuana Creates New Opportunities for Business Partnerships, Sept. 23, 2017, Cannabis Law Group

brewery in northern California called Lagunitas is doing just that with a line of sparkling waters it plans to sell in dispensaries. Drinks with cannabis are not common, but the brewery was able to achieve what other marijuana businesses have been afraid to tackle thanks to some creative thinking and close consideration of the law.

As our cannabis attorneys can explain, many in the beverage industry have been nervous to dabble in cannabis drinks out of concern for Controlled Substances Act, 21 U.S.C. Section 812. Because the law bans marijuana and lists it as a Schedule I narcotic, brewers worry that crossing the federal government could put their alcohol licenses at risk, even if they are abiding by state laws. That’s where ingenuity, creative problem solving and help from a knowledgeable legal team can help.Most California cannabis business owners will tell you it’s a delicate dance they must perform in order to run a business that is appealing to customers, profitable, and follows all ordinances and regulations. The most successful have worked state and local laws into their business plans right from the beginning, giving them a strong foundation to build on. Lagunitas, for example, was very conscious of any ways federal law could conflict with their licenses, so they decided to brew the water and hops flavoring at its own facility, then ship the water to another company to be infused with THC and CBD, according to an article from The Press Democrat.

The hops will give the sparkling water a beer-like quality to emulate an alcohol/cannabis experience without actually mixing the two entities. Two versions of the water will be available: one with 10 mg of THC and a milder formula with 5 mg of THC and 5 mg of CBD, the non-psychoactive element in cannabis. Previously the brewery had made a name for itself in creating beers with cannabis flavorings, so this new foray into cannabis beverages with beer flavorings was a natural next step.

For some business owners, marijuana laws are too overwhelming or difficult to navigate. Some will go out of their way to avoid learning about legal matters that will affect their business plans or will bury their heads in the sand and hope that ignorance will save them in the end. Still others might just hope the punishment is minor enough that it won’t matter if they miss a regulation or two. Our experienced Riverside marijuana business attorneys can tell you without a doubt that all of these paths are extremely naïve and dangerous. Ignoring regulations or breaking the law, even accidentally, can damage your reputation, hurt your bottom line, and potentially cause you to lose your business for good. A smart business plan, though, can go a long way, and enlisting the help of skilled cannabis attorneys is the surest way to create a plan that integrates all necessary laws and guidelines. We are here to clarify California and regional laws and explain how they affect your business, leaving you the freedom to focus on the creative solutions your business needs to succeed.

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:

Lagunitas Breaks from Ber, Announces ‘IPA-Inspired’ Hopped Sparkling Water Infused with THC, June 26, 2018, By Alysse Pereira, SFGate

More Blog Entries:

Marijuana Sales are Reducing Alcohol Sales, Dec. 8, 2017, Riverside Marijuana Lawyers Blog

granted a recreational marijuana license. In the past, the event was only a gathering of people who appreciated cannabis, with booths, activities, food, music, and marijuana-related products, but not the real deal. Now marijuana businesses and consumers alike can enjoy the thing they all have in common, allowing the community to share cannabis goods and knowledge on a new scale.

This is only the second event in the U.S. that allowed the sales and consumption of cannabis, according to a report from High Times, host of the event. The Central Valley Cannabis Cup in Sacramento in early May was the first event to receive such a license and was also hosted by High Times. While the first event was groundbreaking, in some ways it is the second event that is a sign of times to come. Attendees and marijuana businesses at the Central Valley Cannabis Cup proved that an event of this kind can be run safely and responsibly, making it possible for more events in the future. These gatherings can also have a major impact on local economies, bringing in tourists and vendors to the area. This is, of course, in addition to the publicity and money-making opportunities available to businesses inside the event.Though recreational marijuana is now legal in California, public consumption of marijuana is still banned. Under Medicinal and Adult-Use Cannabis Regulation and Safety Act Sec. 102, local jurisdictions may issue temporary licenses for events that wish to allow cannabis use and sales on site. To remain in compliance with MAUCRSA, attendees must be 21 or older, marijuana consumption cannot be visible from public spaces or from areas where there are people under the age of 21, and alcohol sales and consumption are not permitted on the premises. Tobacco use and sales are also forbidden on site. Attendees with proper identification may purchase up to one ounce, as afforded by Proposition 64.

While some of these rules might be overly precautious, it is a testament to how serious Californians are about responsible use. Marijuana advocates understand that cannabis can be both safe and enjoyable, while also requiring common sense regulations, just like alcohol. Most people are simply glad to be able to share in a product they are passionate about with like-minded individuals, particularly if they live in an area of the state that does not yet allow cannabis sales. High Times has been hosting Cannabis Cups for 30 years and said they hope to set up more events around the country.

Our Riverside marijuana business attorneys are excited for what events like this could mean for the future of cannabis. We appreciate seeing opportunities where our cannabis business clients can network, grow and succeed. The more people have seen what the community is really all about, the more it has become accepted. Since some stigmas around marijuana still exist, these gatherings also strengthen the cannabis community by creating a space where people can learn from each other. Our legal team has been helping cannabis businesses thrive for years, and can assist you with licensing, businesses plans, and compliance — including at conventions and other events.

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:

High Times to Host First-Ever Licensed Recreational Cannabis Event, May 2, 2018, By Sean Cooley, High Times

More Blog Entries:

California Department of Public Health Launches Education Campaign Ahead of Recreational Marijuana Sales, Oct. 19, 2017, Cannabis Law Group

stemming primarily from the introduction of legal cannabis Jan. 1st and the barrage of regulations that came with it. Marijuana businesses have varied reports on supply issues thus far, with some experiencing few supply chain problems, and others reporting major lapses. Many of these issues are typical growing pains associated with a budding new industry. These problems could become major snags this summer, though, when tourist season his, and we’re flooded with curious new customers.

In San Diego, for example, about 8 million tourists visit during the summer months, according to a recent report discussing the potential impending shortage from San Diego Union-Tribune. Lines are already out the door at stores in this city, so there is worry businesses may not be able to keep pace. The issue is not necessarily that overall supply can’t keep pace with demand, but more that businesses are grappling with supply bottlenecks due to erratic regulation across jurisdictions throughout California.As our trusted Orange County marijuana business lawyers can explain, cannabis growers have been registered as cultivators for dispensary collectives in California for years, in accordance with the Compassionate Use Act of 1996 and the medical market guidelines that followed. The addition of recreational marijuana has rocked the scene, however, with the ushering in of Prop 64 and the establishment of Medicinal and Adult-Use Cannabis Regulation and Safety Act, which sought to streamline regulations for both the medical and recreational markets. While this system is far more efficient than maintaining separate oversight for each sector, the lagging issuance of licenses at the state level has caused long-time cultivators to stand in line to participate in the very economies they helped found. Right now, there are no cultivators specifically serving San Diego, which means product must be imported.

Other business owners are reporting issues finding distributors who are state-certified, and the distributors who are active are often asking higher prices due to the additional fees and taxes they must pay.

Meanwhile, more bottlenecking is occurring at the point-of-purchase. San Diego has only issued 13 of the agreed upon 36 licenses for storefronts to sell marijuana. It is clear that zoning issues are the root of this problem, preventing businesses from setting up shop in several districts. This issue is further complicated by the fact that not all of those are licensed for adult-use sales, limiting the locations tourists can visit even more.

If this sounds like a lot for cannabis business owners to sort out on their own, you are right. That is why it is essential to have someone on your side who will advocate for your rights and look out for your best interest as a business owner. Our team of skilled marijuana business attorneys have the experience and know-how to help your business remain in compliance while meeting the demands of a growing customer base to optimize your potential for success.

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:

With Growers in the Shadows, California Faces Cannabis Shortage, March 26, 2018, By Pete Hecht, Leafly

More Blog Entries:

California Now Accepting Recreational Marijuana Business License Applications, Dec. 12, 2017, Marijuana Business Lawyers Blog

On the flip side, we have San Bernardino. The city recently passed a regulation (Ordinance No. 1464 Section 5.10) that prevents any cannabis business that has “conducted commercial cannabis activity in the City of San Bernardino in violation of local and state law” from obtaining one of the 17 licenses available in the city.

One savvy business owner isn’t taking this move lying down, though. She is suing the city after officials in December raided and shut down a facility she owned and leased out to cannabis growers. They confiscated 35,000 marijuana plants, according to a report from High Times. And though the owner of the facility was never charged, she still falls under the current restrictions and is not qualified for one of the licenses, currently being given to other establishments who have the same intention as her: to run a facility for growing marijuana.Our knowledgeable Riverside marijuana business attorneys know the actions of officials in San Bernardino are in stark contrast to other areas of the state, which are actively trying to get unlicensed operations in compliance with state and local laws. Smart leaders know the best way to curb illegal activity is to make the path to compliance as smooth as possible. Legal sale and taxation of recreational marijuana went into effect in California Jan. 1, 2018, thanks t0 Proposition 64 and its follow-up bill, the Medicinal and Adult-Use Cannabis Regulation and Safety Act, which consolidated California recreational and medical marijuana laws. And since the beginning of legalization discussions, the state has made it clear that one of its goals was to make amends for suffering that has befallen people due to the bunk War on Drugs, particularly minority communities who were punished disproportionately for the same crimes committed in predominantly white communities.

Many cities are automatically expunging past misdemeanor records, and reducing harsher punishments, while others are educating people on their right to clear their name under the new law. Some have outreach programs meant to lift up communities hit hardest by drug arrests in the past, and some are making sure to give preferential treatment to license applicants with marijuana-related criminal history as a way to make a fresh start.

We hope this lawsuit will be a wake-up call to San Bernardino that the past is best left in the past and it is wise to move forward in good faith toward a brighter future where authorities and cannabis business owners can co-exist in a mutually beneficial, symbiotic relationship, instead of at each other’s throats.

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:

San Bernardino Adopts New Marijuana Regulations, Feb. 22, 2018, By Jim Steinberg, The Sun

More Blog Entries:

Two California Cities Erasing Misdemeanor Marijuana Convictions, Feb. 9, 2018, Cannabis Law Group