The case, Northeast Patients Group et al. v. Figueroa, involves a challenge to the law in Maine (existing in many other states) that contains an in-state residency requirement for license applicants and operators. California doesn’t have a residency requirement law, but operators here may be barred from expanding into other regions due to their state residency requirements. This ruling could impact that barrier.

Last year, the District Court of Maine struck down the state’s residency requirement, finding that it was a violation of the U.S. Constitution’s Dormant Commerce Clause, a measure intended to block discrimination against interstate commerce. However, attorneys for the State of Maine appealed that decision, finding the federal law isn’t applicable to the cannabis industry, as trade remains technically unlawful under U.S. law.

Similar challenges have been brought before in other courts, but as our Los Angeles marijuana business lawyers can explain, this is the first to reach a federal appellate court. A ruling by the First Circuit could have a substantial impact for the cannabis industry throughout the country.

As it now stands, the cannabis industry in the U.S. is mostly governed by a ramshackle patchwork of state laws cobbled together with little federal direction or assistance.

The Dormant Commerce Clause was used in Tennessee a few years back to overturn the state’s residency requirement for liquor stores, the state supreme court in that case holding that the state had no compelling interest in preventing folks who didn’t live there from holding liquor licenses and operating alcohol-related businesses.

Yet when it comes to cannabis, dozens of states and cities have passed – and enforced – requirements of residency that prohibit outsiders from holding licenses or portions of licenses. In some cases, non-residents are prohibited from investing at all in local cannabis businesses. These statutes were primarily intended to boost local ownership, with the hope of also mitigating the potential for interference from the federal government in state-run cannabis programs.

For the most part, these laws have gone unchallenged. Even where it has been raised, some courts have seemingly been reticent to weigh in. For example, a federal court in Oklahoma recently granted a request from the state to dismiss a residency requirement challenge – ignoring the question of the dormant commerce clause altogether.

There have been a few examples, though, where such challenges have prevailed. For example, a federal court in Missouri stopped the state from enforcing the prohibition on non-residents serving as directors, officers, or owners of dispensaries. A federal court in Michigan stopped the City of Detroit from giving preferential treatments to residents in issuing cannabis licenses.

What makes the Figueroa case so noteworthy is that it’s the first time such a matter has made it to a federal appellate court.

It’s one our Los Angeles cannabis business lawyers will be carefully watching.

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:

NORTHEAST PATIENTS GROUP et al v. MAINE DEPARTMENT OF ADMINISTRATIVE AND FINANCIAL SERVICES et al, U.S. District Court for the District of Maine

The Department of Cannabis Control, managed by state officials, designated the funds be sent to 17 cities and counties where there are a disparate number of provisional marijuana business licenses (as opposed to full year licenses). As our Los Angeles marijuana business lawyers can explain, those provision licenses were intended to help quickly prop up the adult-use market, but the entire category was set to expire Jan. 1, 2022. That deadline has since been extended, allowing more municipalities time to kick-start the permitting process, while also meeting stringent environmental requirements.

The $100 million in grant money is intended to further accelerate progress – in turn squeezing out black market operators. The thinking goes that the more competitive, state-legal operations there are in a district, the fewer opportunities there will be for underground pot purveyors.

Applications to receive money through the Local Jurisdiction Assistance Grant Program, opened four months ago. Municipalities that were awarded the additional funding were those that had significant license processing backlogs. Funding is also available to implement social equity programs.

Goals for funding were outlined as followed:

• Hire or designate additional staff to help wade through the sizable workloads necessary to transition businesses into a well-regulated local market.
• Create streamlined license processing with dedicated IT systems.
• Complete thorough environmental assessments to ensure water is protected and energy is renewable.

Municipalities can use their funds in other ways, but they must be approved by the state. One example is in Long Beach, where part of the funds are going to be used on website design, technology updates and training.

Other California Cannabis Business Funding

In addition to this program, cannabis companies may be eligible for other non-profit funding to help bolster operations. For instance, nearly $30 million in was awarded to nearly 60 non-profits focused on addressing the fallout of the ill-conceived war on drugs. The state’s Department of Fish & Wildlife solicited proposals for a program aimed at helping small cannabis growers on environmental clean up and restoration.

Elsewhere in the country, there have been hundreds of millions of dollars in public-private funds designated for the promotion of social equity in the marijuana business market.

Cannabis Companies Generate Billions in Tax Revenue

Although such programs are generous, it’s important to note that the legal market in this country have generated billions for state governments. According to the Marijuana Policy Project, states with legal cannabis have generated $10.4 billion in state sales taxes since adult-use marijuana first hit the legal market in Washington State and Colorado in 2014. That figure includes the more than $3 billion+ generated in sales taxes last year.

Bottom line: States with legalized marijuana for adult sale are seeing substantial financial benefits, which can help to fuel education, construction, conservation, and community reinvestment. Ensuring communities that want to introduce a thriving legal cannabis market to do so is in the best economic interests of not only the businesses, but also the state and local governments.

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:

California Awards $100 Million To Support Local Marijuana Business Development, Jan. 7, 2022, By Kyle Jaeger, Marijuana Moment

More Blog Entries:

California Cannabis Companies Eye Tax Revolt, Dec. 15, 2021, California Marijuana Business Attorney Blog

As it stands, the state’s excise tax on cannabis is 15 percent. Municipalities can also set their own rates. Plaintiff, Catalyst Cannabis Company, alleges these tax rates are effectively smothering the legal cannabis industry in California. Operators of pot shops throughout the state are “treated as second class” members of the business community, while they burden an unfair share of taxes and receive little protection against the unfair competition of illegal operators.

In a press release, plaintiff told state media outlets the goal of the litigation was partly to glean information about what state regulators know regarding illegal distributors and partly to compel them to participate in reasonable cannabis industry tax reform that would allow legal operators to survive. As our Los Angeles marijuana business lawyers have been made aware, eking out a profit has become increasingly difficult for California pot shops because of high-taxes and the relentless (and growing) underground market. Legalization of marijuana for recreational use has been a positive in many respects, but it’s also reduced penalties for unlawful marijuana sales, allowing black market cannabis outfits to thrive.

The Catalyst lawsuit also alleges the state has done little to crack down on so-called “burner licenses,” alleged criminal enterprises that obtain legal cannabis distribution licenses with the use of front men, allowing them to conceal the identities and intentions of those actually behind the wheel. According to the lawsuit, these gray market distributors use their legal licenses to purchase huge quantities of lawfully-harvested marijuana at wholesale, and then turn around and sell that product cheap on the black market. They can do so for much lower prices compared to lawful businesses, which struggle to meet all regulatory burdens, including paying for applicable taxes and quality/safety checks.

The lawsuit alleges that state government regulators have largely ignored these actions – to the detriment of legal operators. As Marijuana Business Daily reported recently, the combination of practical and financial setbacks for legal purveyors of pot has led more than a few to reason they must break – or at least bend – the rules to survive amid such cutthroat competition. Anonymous source farmers told MBD that a fair number of legal cannabis stores have marked batches of bud “destroyed” for failing to meet the state’s stringent quality standards, only to turn around and sell it on the black market or across state lines to stay afloat. This is inadvisable, but it does illustrate why the legal action by Catalyst has become necessary. Until the legal framework that increases the risks of illegal sales and increases profits of legal sales changes, unlawful sales are going to persist and legal operators will flounder.

Among the key regulatory issues in question:

• Widespread bans of marijuana retail operations in two-thirds of California’s cities and counties.
• Extremely high local taxation for legal marijuana.
• Substantial compliance costs for businesses large and small.

These pose not only barriers to entry but also, some say, de facto prohibition.

California cannabis companies struggling to make ends meet should consult with an experienced marijuana business attorney to ensure current and planned practices do not run afoul of state law and future enforcement actions.

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:

California Cannabis Brand Sues Regulators Over High Taxes, Illicit Market, Sept. 21, 2021, By TJ Branfalt, Ganjapreneur

The California Cannabis Reform Project and Weed for Warriors organizations are working together to hammer out a ballot initiative that would, among other things, deprive local governments of the power to approve or deny licenses for cannabis business operators. They allege local governments have failed to wield that power effectively, in turn causing more harm than good, giving illegal operators a leg-up while making it harder for many law-abiding consumers in massive swaths of the state to obtain safe, legal cannabis.

As noted by analysis in the New York Times, roughly 8 in 10 of the state’s local governments have outlawed the sale of marijuana within their borders, effectively creating marijuana retail deserts. Local governments’ loss of control is effectively evidenced by the huge – and growing – illicit marijuana market.

Whether the ballot initiative has any hope of passing is questionable. As a Los Angeles attorney practicing cannabis law, I think it’s a fair assumption that local governments aren’t likely to cede any of the control they currently hold. A big part of the battle to pass Proposition 64 was gaining local government buy-in. Assurance of local control, while controversial, made it more digestible and was one of the only reasons some cities didn’t fight it harder.

However, five years in, it’s become clear that reform is necessary if we want to wrest control from the black market. Addressing issues of taxes and local control is going to be critical.

Organizations that represent cities so far haven’t commented on the effort, saying they don’t offer opinions on proposed ballot measures that have not officially qualified. Still, blanket statements were issued to the effect that local control of cannabis issues is something they still staunchly support.

Another element to the proposed ballot measure would be to restructure California cannabis taxes. The proposal would eliminate the cultivation tax, which is $9.65 per ounce of dry cannabis flower, $2.87 per ounce of dry cannabis leaves and $1.35 per ounce of dry weight for fresh cannabis plants. Further, it would reduce the existing excise tax, currently 15 percent of the average market price, to 5 percent. Further, it would bar local government entities from imposing any cannabis taxes. To compensate municipalities, it would grant local governments 1/5 of the total revenue of state excise taxes.

The effort of the cannabis activists is still in the early stages. Just getting the question in front of voters is estimated to cost $6 million on the low-side. The current planning phase involves discussions with lawmakers, lawyers and industry insiders and weighing whether such a measure would be best suited for presentation next year or in 2024.

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:

Should California reform its marijuana laws? Why advocates want cannabis back on the ballot, April 20, 2021, By Andrew Sheeler, Sacramento Bee

More Blog Entries:

California Cannabis Companies Should Expect More Audits, Taxes, March 30, 2021, Los Angeles Cannabis Lawyer Blog

More than likely though, this will change – not so much a matter of if, but when. For one thing, we’re looking at a brighter than ever possibility of federal legislation that would end prohibition and legalize the drug. Beyond that, however, there’s a clause in the U.S. Constitution that bars states from unfairly restricting commerce between states under something known as the dormant commerce clause. State laws that restrict marijuana commerce with other states are probably unconstitutional under this clause (though it hasn’t been tested). As of right now, though, states don’t have any significant incentive to change it because it’s bolstering the economy of their own citizens. There haven’t been any lawsuits to challenge it either (yet) probably because litigation is expensive, it’s unknown how the value of limited licensing in marijuana-legal states would be impacted and fiercer competition is still an unknown for these burgeoning industries.

How Marijuana Trade Between States Would Impact the Legal Industry

As longtime Los Angeles marijuana business lawyers, we’ve seen the industry ushered through many major changes. Interstate commerce would be another significant one for nearly every sector. High-quality boutique offerings could find a bigger market. Larger firms that commoditize cheaper products would be in high demand. We’d likely see an immediate demand in more efficient supply chain and logistics experts.

Retailers might not see an impact right away (unless they are close to a state border). Even if/when marijuana prohibition ends at the federal level, most retail is likely to stay local. It’s probable that federal lawmakers would want to impose limitations or an outright ban on shipping marijuana via mail. (The same is done for tobacco products.)

What is less clear is how the value of state-issued permits would become.

Working With a Marijuana Business Lawyer on Strategy to Prepare

Although there is much we still don’t know about what interstate marijuana commerce will mean, we know enough to say that preparing for it with the help of your Los Angeles marijuana business lawyer is wise.

Some things you may want to think about include the fact that we could see interstate trade of cannabis even prior to legalization at the federal level. For example, Oregon has begun the process of entering trade agreements with neighboring states where the drug is legal. It will be important for all marijuana companies to have a good sense of how big they want to get and what their target market is. In an interstate market, there will be room for those mass-producing cheap products, but there will also be space for suppliers who are highly niche and pricier.

One thing you won’t want to overlook is branding. You want to establish strong brand awareness, but also be careful not to inadvertently run afoul of trademark laws. This could become an even sharper concern if cannabis companies in California are suddenly in competition with those in neighboring states. Before, them sharing the same name or trademark may not have mattered. Increasingly, it will.

Distribution is also something to start looking into now if you plan on interstate trade. Having a few delivery drivers likely isn’t going to cut it, depending on the size of your operation. Some companies may benefit of working with a dedicated third-party logistics (3PL) firm.

Understand that with federal legalization, the market could see a very quick rush of investors. Competition may rapidly consolidate. Things may happen fast, and you want to be ready for all of the potential implications. Our dedicated 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:

How interstate commerce could upend the marijuana industry, Feb. 3, 2021, Marijuana Business Daily

Now, as our L.A. cannabis business lawyers can explain, companies are slated to receive a number of state benefits, and perhaps even federal aid in order to ensure their survival.

Marijuana Business Daily reports the state is planning to offer a number of extensions, relief and deferrals that should allow many pot shops, manufacturers and growers to keep operations chugging along and also meeting payroll. Many are hoping that this could ultimately lead to substantial, longer-term regulation – especially where taxes are concerned.

California Cannabis Tax Relief Measures

Among the relief issued by state tax agencies since early March:

• State tax return filings and payments less than $1 million have been extended until the end of July.
• Some tax interest and penalties will be forgive.
• There will be a two-month extension for filing annual reports, audits and refund claims and an additional two months to pay installment payments and annual fees.
• Tax appeals have been extended until the end of July.
• Sales and use taxes of up to $50,000 for businesses making less than $5 million in annual taxable sales has been deferred for a full year.
• The deadline for quarter taxes of businesses earning less than $1 million a year has been extended until the end of July.

For some entrepreneurs, this relief – which can amount to hundreds of thousands of dollars – is saving their businesses from going under. It’s even allowing some cannabis companies to invest in expansion, hiring and compliance.

It is a good idea to discuss these kinds of business plans with an experienced California marijuana business lawyer because such action will need to be strategic, particularly if the economy continues to fall or is slow to recover. If more Californians lose their jobs, it could result in prolonged revenue declines. With the black market factor still looming, it would make a lot of sense for the state to offer extended tax relief if they want to help the cannabis market from going under.

Federal Aid for Cannabis Companies Floated

More potential relief could come from the U.S. government – something that would be an unprecedented acknowledgement of the cannabis industry’s legitimacy from a system that still categorizes the plant and its derivatives as a dangerous, addictive Schedule I narcotic.

Legislation has been proposed by U.S. House Reps. Earl Blumenauer (D-OR) and Ed Perlmutter (D-CO) that would extend eligibility of the Economic Injury Disaster Loans, the Paycheck Protection Program and other emergency advances to cannabis companies.

Marijuana shops have been conferred essential business status, which has kept them in operation for both medical and recreational sales. But despite the state tax relief, they haven’t been able to apply for aid or loans through the federal government’s programs even if they otherwise meet the requirements. That includes payroll protection.

As Perlmutter explained, cannabis companies are substantial local economic contributors throughout the country, and there is no legitimate reason they shouldn’t be extended the same relief as other businesses.

The bill has been titled the Emergency Cannabis Small Business Health and Safety Act.

For more information on how our L.A. cannabis lawyers can help you with business plans and aid applications, contact us for a free, initial consultation.

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:

New bill calls for cannabis companies to be eligible for federal COVID-19 help, April 23, 2020, By Taylor Hatmaker, TechCrunch.com

The Orange County Register reports The Pentagon is reviewing the federal security clearance of California tech billionaire Elon Musk following an on-air marijuana toke on a comedian’s podcast last fall. Musk reportedly refiled the SF-86 security form required of federal contractors and/or employees who seek security clearance. The form requires filers to answer truthfully whether they have used any illegal drugs at any point in the previous seven years. Musk reportedly had a higher-level secret clearance, thanks to his position spearheading a company (Space Exploration Technologies Corp. – SpaceX for short) that is permitted launch of military spy satellites.

The company’s day-to-day operations aren’t overseen by Musk, and the company won several national security space launch contracts in the wake of the podcast, but the Register reports it’s only with the refiling that Musk may have some issues.

Employers, Contractors Allowed to Set Ground Rules for Off-the-Clock Cannabis Use

Los Angeles marijuana employment attorneys know that while most people aren’t grappling with billions of dollars or military spy programs and top-level security clearance, many ARE dealing with employers who are leery of cannabis use.

Some key points for employees to know are:

• Federal law places very few restrictions on employer drug testing of employees or prospective hires.
• The right to drug test employees/potential hires extends beyond just those in government jobs to those in the private sector too.
• California courts have held that the employer’s reason for drug testing does need to be balanced with the right of the employee for privacy.
• State courts have held it is lawful for employers in California to require applicants to pass a drug test as a condition of employment – so long as all applicants for a certain position are tested and there is no singling-out of applicants on an unlawful basis.

Although California law allows individuals to use marijuana for medicine or for recreation, there is no requirement that employers must hire a person who tests positive for marijuana. In fact, the California Supreme Court has held that employers are not required to do so – even if they are prescribed the drug for a disability.

Still, employers may be on less solid legal ground in drug-testing existing employees, absent some reason to suspect drug use.

In most cases, one’s off-the-clock use of the drug in California is increasingly less of an issue, as the stigma of marijuana use subsides. But as Musk found out, even billionaires aren’t necessarily immune from the impact in some cases, particularly considering marijuana use remains a federal crime, despite the fact that nearly three dozen states have taken measures to decriminalize it.

How On-Air Use of Pot Could Impact Musk’s Security Clearance

Musk’s decision to smoke marijuana during a podcast discussion with comedian Joe Rogan highlights the discrepancies between state and federal law pertaining to marijuana, but as many federal attorneys noted, the security clearance challenges should come as no surprise.

Although it’s possible the U.S. Defense Department could simply close the case and update Musk’s record without issue, it should be noted that smoking marijuana is considered a “serious breach of security protocol” and rounds for termination of a federal employee or loss of clearance for a contractor. A department spokesperson said the agency doesn’t comment on individual applications, reapplications and reviews for individual security clearances.

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

Additional Resources:

Elon Musk’s security clearance under review over pot use, March 7, 2019, Bloomberg

More Blog Entries:

San Bernardino Cannabis Landlord Arrested in Raid at Her Home, March 11, 2019, L.A. Marijuana Employment Attorney Blog