As our Los Angeles cannabis lawyers know, there are many different types of audits. If you’re proactive, you conduct internal audits – of your policies, your practices, your financial records, your compliance accuracy, etc. There are external audits, which might be requested by the board, investors, etc. for a lot of the same reasons as an internal audit, except with a fresh set of eyes from the outside. And then there’s an IRS audit or compliance audit.

Three years ago, the Department of the Treasury’s Inspector General for Tax Administration indicated that the IRS intended to ramp up its audit of cannabis businesses nationally. That report flatly stated the IRS did not believe most marijuana industry companies were correctly applying IRC 28E, and thus might owe millions in taxes. (This was based on 2016 tax filings.)

Of the subsequent IRS audits that took place in three states (California, Washington, and Colorado), roughly 60 percent of cannabis companies had to adjust their tax returns – which totaled nearly $50 million in unpaid taxes just for 2016.

This year, the IRS has better staffing than in recent years – plus the ability to conduct most audits virtually. Owners of plant touching businesses need to be especially primed and ready for this.

Tax attorneys will tell you that while the IRS has been called upon to provide clear guidance to those in the cannabis industry so that they can ensure they’re following all regulatory guidelines, the available resources aren’t super helpful. It’s critically important if you are operating a cannabis company or CBD businesses that you keep meticulous records and that you already have a marijuana industry lawyer on retainer – for consult, if nothing else. This will help ensure that if you are audited, you can respond promptly and accurately and hopefully put the whole thing behind you without much trouble.

Being audit-ready means not being reactionary, but proactive. Reacting to an audit by ordering your policies, procedures, and processes is not the ideal. You want to already be prepared for that by having an airtight accounting and reporting system. This includes not only tracking transactions and goods sold, but your inventory, revenue, labor costs, etc. The amount of detail with every record will help not only ensure that your accounting is accurate, but also provides a blueprint of how you arrived at those conclusions. That way, if there’s ever a question or a mistake uncovered, it’s made clear that at least it was an honest one. (This can go a long way in curtailing potential penalties.)

You need to make sure that your standard operating procedures are clearly spelled out step-by-step, and that your staff has clear guidance on how to maintain the books. Follow Generally Accepted Accounting Principles wherever possible. Companies with end-to-end business processes (sequential steps that identify key controls and fraud risks) can go a long way in helping to accelerate an audit as well.

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:

Documents reveal how IRS became more adept at evaluating marijuana company taxes, April 12, 2021, By John Schroyer, Marijuana Business Daily

More Blog Entries:

California Cannabis Businesses Should Prepare for DCC Inspections, Sept. 20, 2022, California Marijuana Business Lawyer Blog

The two Southern California customers claim that the products they purchased from the company are reported to have a very high level of THC. Tetrahydrocannabinol, of course, is the compound in pot that gives users that feeling of being high. Plaintiffs accuse the defendant cannabis company of false advertising, negligent representation, and unfair competition.

As our Los Angeles marijuana lawyers can explain, the California Department of Cannabis Control expects cannabis companies to label their products with accurate information regarding the THC content within. That can be expressed either in milligrams or as a percentage. Per state cannabis regulations, labeled content is required to be within plus-or-minus 10 percent of the actual amount.

Plaintiffs allege that because consumers of cannabis are typically willing to pay a premium for products that have a high THC content, companies that fudge the numbers on THC content are cheating consumers and engaging in unfair market competition. In an independent analysis of the THC content, plaintiffs say the the joints sold by the defendants had far lower TCH content than advertised. In effect customers are overpaying for product that is far weaker than claimed.

The defendant cannabis company and its subsidiary responsible for producing the products at issue say that the claims are without merit and “ridiculous.” The company says its practices are in compliance with state-required cannabis testing requirements – and that includes blind testing by an independent third party laboratory.

The company’s website indicates that the strongest pre-rolled joints it sells have a THC content that is a minimum of 30 percent. However, plaintiffs say that despite advertising certain products as having more than 45 percent THC, independent lab tests revealed them to contain as little as 23 percent THC.

The Pressure to Present a Premium Pot Product

Producers of legal cannabis products are undoubtedly under a great deal of economic pressure to produce high-content THC products. Unfair competition from the black and grey markets is an ever-present issue, and higher THC concentration in legal products means higher prices.

And while it is true that the state requires independent lab testing, there is concern on the legal side that some cannabis firms may be engaging in a bit of “lab shopping.” Labs that consistently seem to report higher THC potency on the products they test may find themselves with a larger customer base. This has created an incentive both for producers and testing labs to push for higher potency testing results. At least one lab took to social media with express claims about how their testing methods consistently yield 2-3% higher potency levels. In a bullet-pointed list of advantages, the company noted fast turnaround, reliable results, reasonable pricing, and “great potencies.”

That is certainly the sort of evidence that could be presented in a lawsuit alleging inflated potencies. But it also underscores some systemic issues. Individual businesses competing with impossibly cheap black market competitors are just trying to stay afloat. Should pricing be set on factors other than just THC concentration? Cultivators and distributors have incentive to shop for labs with consistently higher potency results, though they do have some plausible deniability in terms of knowing whether the lab results are truly accurate. Labs are under a great deal of financial pressure as well. Meanwhile, state regulatory authorities have done little to address these incentives – or reward companies that strictly toe the line on accuracy.

Our team is committed to representing cannabis cultivators, producers, labs, and dispensaries facing such allegations.

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:

A California marijuana company is being sued over the potency of its joints, Oct. 26, 2022, By Zoe Sottile and Claudia Dominguez, CNN

As our Los Angeles cannabis business lawyers can explain, the illegality defense has been used (with varying success) to invalidate business contracts that would be strongly enforceable in any other industry.

The illegality defense essentially holds that any contract requiring one party to engage in illegal conduct is not enforceable. It’s been employed by cannabis companies, vendors, distributors, etc. to avoid being held to their prior agreement.

We saw an example of this just last year in Sensoria et al v. Kaweske et al, before the U.S. District Court for the District of Colorado. In this case, a group of plaintiffs wanted to recover their investment from a cannabis company it said engaged in breach of contract, breach of fiduciary duty, civil theft, and fraud. Plaintiffs say the invested hundreds of thousands of dollars in a cannabis enterprise, only for the company to essentially cut them off from communications and ultimately, shut down after opening up a rival firm. Investors not only were deprived of a return on investment – they didn’t receive back their initial investment.

The defense responded with the illegality-based defense as a bar to recovery. The federal court noted that the overarching issue was the cannabis company’s direct involvement in the growing and selling of marijuana – legal under Colorado law, but not under the federal SCA. The court held that the plaintiffs’ failure to explain how relief could be obtained without endorsing or requiring illegal activity or how it would be paid from an asset source independent of marijuana.

Plaintiffs returned to court three times, rewriting the complaint each time in an effort to sidestep the illegality defense. Plaintiffs argued they were passive investors with intent to invest in the lawful side of the business – namely CBD and hemp, which are not in violation of federal drug laws. However, the court responded that even if the intention was to engage in lawful business, that didn’t render the illegality issue null and void. Trying simply to reframe the relationship wasn’t adequate. The court explained that material aspects of the litigation centered on activities that are either actual, ongoing violations of the Controlled Substances Act by the defendants or the plaintiff’s attempts to recover investments in an enterprise whose activities implicate the Controlled Substances Act. The role of cannabis in the case was not an indirect aspect of the dispute, and the court declined to issue any decision on the fairness of any business contract stemming from the growth, processing, or sale of the substance. The remedy, if plaintiffs were to win their case, would be limited to the return of investments paid from non-marijuana assets, which is not an option. Since marijuana is at the heart of the claims and the drug is illegal at the federal level, the federal court cannot award any damages from it.

Citing this illegality defense, the defendants have moved for summary judgment as a matter of law in their favor. That motion is likely to be granted.

In addition to allowing us an opportunity to examine the illegality defense, this case also underscores the importance of avoiding a federal forum when it comes to any case involving marijuana businesses. Until federal law changes to permit the broader legality of marijuana, courts at that level are going to be limited in terms of the resolution and remedy they can provide – no matter how skillfully the case is presented.

If you have questions about the best way to pursue a marijuana business or contract dispute in California, our Los Angeles cannabis 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:

Sensoria, LLC et al v. Kaweske et al, April 3, 2020, U.S. District Court for the District of Colorado

Some of the legal barriers to California cannabis samples:

• Age restrictions
• Public consumption bans
• Legal licensing and distribution laws

These were exacerbated by the COVID-19 pandemic.

But there is good reason for manufacturers to keep trying because we know that free samples can boost sales of a product by as much as 2,000 percent. More than one-third of customers who sample a product end up buying a full-size version during that same shopping trip. If you offer in-store samples, you have the potential to increase sales by more than 100 percent, even nearly a half a year after the samples were offered.

With this kind of incentive, cannabis company entrepreneurs have had to get creative – starting with CBD.

We should point out that federal law does not allow hemp companies to put CBD into topicals or foods. However, enforcement on this has been incredibly lax. Some companies have taken advantage of that, even going so far as to have brand ambassadors offering up drink samples outside their brick-and-mortar stores. As a result, sales went up. Similar successes were noted for CBD tonics as well.

Given that CBD companies haven’t received much pushback, purveyors of THC products have taken note. Some THC product makers have begun infusing some of their regular product lines with CBD (as opposed to THC) in order to get the item in front of customers. Companies say that gives people the opportunity to experience the general flavor profile, and get the experience of a fast-acting impact, without the lasting high they’d get with the “real” THC product. This strategy has proven so successful for some companies that they ended up adding an entire CBD line to their regular THC offerings.

But while food products companies can typically get away with providing samples with relatively little red tape, cannabis companies need to proceed with greater caution. In addition to concerns about whether offering samples is legally allowed in your region in the first place, you should also touch base with your cannabis business lawyer to see what – if any – tax implications there might be for distributing free samples. Specifically, you may incur something called a “use tax” when products are used for free as part of a company promotion.

Marijuana product manufacturers may want to consider setting up a sample shop at places that are already age-restricted or designated as “consumption lounges” to limit potential liability. They might also consider partnering with a reputable, professional sampling partner company. Finally, they may want to market to existing customers by tucking in a free sample to a customer who has already placed an order.

Before initiating a cannabis sample campaign, it is highly recommended that you discuss your plans with your Los Angeles cannabis business lawyer to ensure you aren’t running afoul of any state or local regulations.

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:

Cannabis product sampling is taking off, despite legal and pandemic challenges, May 16, 2022, By Kristen Nichols, MJBizDaily

More Blog Entries:

Study: California Cannabis Companies 100% Compliant With ID Checks to Prevent Youth Purchases, June 25, 2022, Los Angeles Cannabis Business Lawyer

This lawsuit is being closely watched by cannabis company legal advocates as it could have a direct impact on their bottom line and ability to engage in financial transactions.

The plaintiff, with more than 25 years in banking, launched her logistics/armored vehicle business four years ago in Colorado. Since then, it’s expanded to operation in 28 states. Her goal, she told Colorado News Online, was to address some of the challenges that cannabis companies face with financial transactions. Although many states now allow medicinal and even recreational marijuana, THC products are still considered illegal under federal law. That makes federally-backed banks – bound to comply with the U.S. Anti-Money Laundering Act and Bank Secrecy Act – wary of doing business with cannabis companies. For the 700-or-so banks that will accept money from marijuana dispensaries, there is a large compliance list that involves things like background checks, verification of money origins and destinations, and other stringent guidelines. Plaintiff said she only works with banks that are meticulous about meeting all the strict requirements.

Meanwhile, particularly in states where possession of marijuana for any reason is still criminal. Kansas is one of those. State law enforcement officials there report that in the last three years, its officers have seized more than $8 million from all motorists (not just those ferrying marijuana-related funds through the state). That accounts for half of all civil forfeitures, which is a process by which law enforcement agencies can seize money, vehicles, real estate, weapons, and other personal property they suspect may have been involved in criminal activity. It is not necessary for the cops to arrest anyone or secure a conviction in order to seize the money/property. In Kansas, half of all forfeitures were done with no criminal case being filed. All they had to do was demonstrate a connection between the property and a crime – and show a lawful reason for making the stop. (As any attorney will tell you, follow behind any driver long enough and you’ll find some minor traffic infraction that can be used as cause to pull them over.)

The lawsuit alleges that the company’s vehicles have been stopped by law enforcement in Kansas and California a total of five times since last May – twice resulting in cash seizures of more than $1 million, money that was later turned over to the FBI.

These actions prompted the company to stop driving through Kansas and halt all business operations in San Bernardino County, CA – the largest in the U.S. It has also lost customers due and put the kibosh on rolling out any new services in other states because of these incidents. Should these incidents continue, as there is every indication they will, the company claims it will face difficulty continuing to do business – something that will hamper state-legal cannabis operations. The company noted that there wasn’t a single incidence of a driver being issued a traffic citation in any of the stops – something the company says supports its case that the initial reasons for stops were dubious.

An FBI spokesperson declined to comment to the press on pending litigation. In a response filed in court, the DOJ asserted the company lacked standing to file the lawsuit, as it is merely transporting money owned by the cannabis companies, not losing money itself.

The sheriff of San Bernardino responded on Twitter to an initial report of the lawsuit, saying more than 80 percent of marijuana is grown illegally, and that such operations have adversely impacted quality of life for residents in the county. He said he’s confident that the facts of the case are on the side of his officers.

While this case is being closely watched, it’s worth noting that President Joe Biden has thus far not issued any public guidance to his DOJ about how to navigate conflicts between federal and state marijuana laws. When he was a presidential candidate, a spokesman told the media that Biden would allow states to make their own calls on legalization, though he did intend to push for rescheduling the drug from its current Schedule 1 status (the most restrictive) to Schedule 2, making it easier to study. That has not yet happened.

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:

FBI and California sheriff illegally seized marijuana cash belonging to licensed dispensaries, lawsuit claims, Jan. 31, 2022, By Josh Campbell, CNN

Los Angeles cannabis business lawyers can explain that residential mortgage for marijuana business owners may not be as tricky as commercial loans or rental agreements for marijuana companies. But owners and employees of marijuana companies have struggled to get approved for a mortgage loan because they are not allowed to factor income from the dispensary or other marijuana-related revenue. That all goes back to marijuana’s continued classification as a highly-restricted Schedule I narcotic at the federal level. Residential mortgages are federally-backed loans. That has meant that cannabis owners and their employees must clear numerous hurdles to qualify for a mortgage.

That said, as the industry grows (and the workforce with it), there are some options still on the table for these workers. It’s important for workers to understand home loan restrictions and alternative financing options.

Recently, one wholesale mortgage lender, Encinitas, quietly released the news that it would be accepting borrowers with cannabis-related income applying for home loans. Restrictions for at-home grow operations or farms would still remain in place. The terms are generous, though the interest rate you pay for such a deal is quite high.

Financiers recognize the marijuana industry is pulling in adequate funding. Taxable sales for Q2 of last year were more than $1.3 billion in California. Total state taxes were assessed at more than $330 million. There is growing recognition that those involved in marijuana growth, production and sale have money to invest in real estate. There are nearly 12,150 licensed cannabis companies in the state – including more than 1,330 in Los Angeles, 110+ in Orange County, 400+ in Riverside County, and more than 210+ in San Bernardino. Nationally, legal cannabis is the No. 5 crop in U.S. agriculture. That’s bigger than cotton. Legal cannabis revenue is projected to reach nearly $5 billion for all of last year. Legal sales just in California are expected to to reach $9 billion annually by 2025. Further, 48 states have legalized marijuana for medicinal and/or recreational purposes – a fact that doesn’t align with the federal government’s classification.

But are federal law enforcement agencies likely to pursue lenders who offer mortgages? Probably not. Per the Cole Memo, issued in 2014 during the Obama administration, it’s considered a low priority for federal enforcement. That doesn’t exempt banks from being required to submit reports on suspicious activity, given that any business stemming from marijuana is still technically unlawful. And they are probably going to charge higher administrative fees because of the potential risk of an overzealous prosecutor. But the SARS reports are generally going to shield them from liability risk, especially the longer these practices persist – or at least until the federal government passes legislation to declassify marijuana.

Although we do consider it great news that legal marijuana business owners in California are finally able to secure housing mortgages, it’s still unfair that they’re locked out of the same kind of rates as everyone else. But until federal legislation legalizes cannabis, this is likely to be the best compromise.

If you are considering buying property or renting to a cannabis operator, our dedicated Los Angeles marijuana commercial contract 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:

Yes, there are ‘marijuana mortgages’ for California borrowers, Nov. 4, 2021, By Jeff Lazerson, The OCR

More Blog Entries:

California Marijuana Laws Entangling Tech Companies, Jan. 10, 2022, Los Angeles Marijuana Lawyer Blog

However, it would be erroneous to assert that marijuana sales are legal everywhere in the state. As our Los Angeles marijuana lawyers can explain, cannabis still remains widely unavailable in some of the largest cities in the Golden State.

Of the state’s 482 cities, only 174 of them allow some type of licensed, cannabis business to operate within their district. In a number of those jurisdictions, the only allowable businesses are those that are not classified as retail locations. That means that a key piece of the supply chain puzzle is missing. Ultimately, this leaves millions of people without immediate access to retail recreational cannabis.

The one exception is delivery. Having a state license from the California Department of Cannabis Control authorizing delivery allows that company to deliver in any jurisdiction in the state – something that has been affirmed in subsequent court rulings challenging this right. However, those companies might still be subject to local jurisdictional requirements. All cannabis company owners and operators should be working with an experienced marijuana business attorney to help ensure their operation rights are protected.

But the benefit of accessible cannabis for all communities goes beyond the shop owners. It benefits the industry as a whole, as well as citizens. Accessible legal cannabis constricts opportunities for those in the black market to gain a foothold.

So what’s the holdup?

Primarily, it comes down to a provision of Proposition 64 (the bill that legalized marijuana for adult recreational use) grants a significant degree of local control. Some industry proponents have been lobbying the governor to back efforts to do away with that provision entirely. However, there are a fair number who argue that the local control provision was central to the promise made in Proposition 64 – that cities and counties could retain explicit control marijuana-related businesses within their jurisdictions, including banning them entirely if they so chose. Most cities that approved the introduction of recreational cannabis dispensaries were ones that already had medicinal marijuana and/or needed an economic boost (which cannabis businesses have indeed provided).

But allowing the black market to thrive isn’t serving the communities or their constituents. Increasingly, the people support permitting legal cannabis retail shops in their areas. But the “Nay” votes mostly come down to politics. Voting in favor of retail cannabis could mean lost support from certain PACs (Political Action Committees or groups like local police chiefs, etc.

California’s biggest cities that bar cannabis dispensaries are:

• Fresno, a community of 525,000 people. However, this is on the verge of changing. The city has created an Office of Cannabis Oversight, and is slated to approve nearly two dozen retail businesses within the next few months.
• Bakersfield, a community of more than 400,000 people. Neither this city nor the unincorporated parts of Kern County allow for cannabis sales.
• Anaheim – home of Disneyland, but not to any marijuana dispensaries. The city council in the community of about 350,000 voted against cannabis retail operations last year.

Other larger communities in the state that don’t allow cannabis retail include Irvine, Fremont, Santa Clarita, Fontana, Oxnard, Huntington Beach, and Glendale.

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:

Weedmaps.com

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

Criminal prosecutors for the U.S. attorney ordered records from 30 cannabis companies, including Ghost Management Group LLC, owner of the subsidiary Weedmaps. Through its website, Weedmaps not only provides consumers with lists of nearby cannabis retailers, it also allows consumers to find retail deals, place delivery orders, and rate compare and cannabis stores.

Among the points of interest within the subpoena, the prosecution demands documents surrounding marijuana businesses noted on Weedmaps, as well as records documenting the website’s online ordering service. Additional records sought by the government pertain to other pieces of information kept by Weedmaps, including notes on its staff, accounting practices and business investors. More specifically, the demands extend to communication with, and payments made to federal, state and local employees, elected officials, and any candidates for those offices.

While intentions behind the initial investigation remain unclear, our Orange County cannabis business lawyers believe the requests outlined within this subpoena signal early stages of a probe. An important component of the request appears to surround a set of records associated with services provided by Weedmaps that allow for internet generated marijuana purchases.

Terra Tech (now known as Onyx Group Holdings following a merger) and CannaCraft are among the companies for which the subpoena requests documents. CannaCraft is licensed for cannabis manufacturing, while Terra Tech holds a retail license through a subsidiary.

The prosecution’s call for documentation will likely seek to determine whether or not Weedmaps, and others, have adhered properly to the state of California’s stringent cannabis regulations. Under federal law, in order for the prosecution to successfully prosecute a company, it must show that a cannabis entity is non-compliant with California’s cannabis regulations.

While federal law still prohibits the possession and sale of marijuana, Congress has thus far cut off funding to the Justice Department, in a move to block the pursuing of such cases, so long as the companies or individuals in question are complying with their state’s medicinal marijuana regulations.

Shortly after Colorado legalized marijuana use, federal prosecutors swooped in and made an effort to pursue companies appearing to be in fundamental violation of the state’s cannabis regulations.

Implications Unlicensed cannabis businesses have troubled law-abiding businesses to no end. Either by milking licenses, then siphoning marijuana off into the illicit market, only to undercut legal storefront price points. A Californian U.S. attorney’s office investigation into Weedmaps and its business associations signals a possible change from the ‘hands-off’ approach the federal government has shown toward state marijuana regulations, thus far.

It also highlights the possible outcomes associated with taking a risk in conducting illegal business dealings, and sends a very clear message that unlicensed businesses can no longer expect to carry on unlawfully without fearing the consequences for those 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 Marijuana Laws Overview (Medical Marijuana, Proposition 64, Cannabis Taxes, etc.)

While other dispensaries carried on with business as they always had done. They kept buds out and available for close-up inspection before being weighed, and a complimentary joint was often handed out to welcome first time purchasers. But if you shop at a dispensary of this kind today, chances are it’s an unregulated, illegal shop.

How Did it Come to This? Thanks to a host of bureaucratic challenges — including sky high permit application costs, stringent licensing requirements, limited product availability, and a host of other hurdles — moving a once legal medical marijuana dispensary into the legal realm of today’s marijuana marketplace, is neither cheap nor easy. As our Los Angeles cannabis attorneys can tell you, California is littered with marijuana businesses that were once legal for medicinal customers, but now are not.

Plenty of law abiding companies risked all they owned to secure and maintain state licenses and permits required to keep their businesses legal. Only to find their operations quickly losing market share to their much cheaper, and unlicensed, competitors.

A New Tool to Help Bolster Legal Businesses While the majority of California’s legal marijuana stores became compliant in the current era by updating their old stores and systems, there were also many who did not. So with both legal and illegal outfits looking much the same, it has been very difficult for customers to know the difference.

To help shoppers make the distinction quickly, the Bureau of Cannabis Control (BCC) has created a emblem to display in all legal marijuana businesses. Each one possesses a unique QR code, which quickly links customers to vital licensing information for that particular business. The QR code emblems are already being rolled out across the state, and will be complete in the coming months.

How Does the QR Code Work? To access information about a marijuana business, simply point a SmartPhone at a unique QR code, which generates a notification on your screen. Click that notification and you will see whether or not the store is licensed to conduct a cannabis business in the state of California. If not, it is an illegal store.

How Else Can You Tell if Your Store is Legal? Can’t find a QR Code in your store? You can also check CAPotCheck.com, which lists all legal marijuana businesses across California, and is searchable by business name, license type or location. When in store, customers can also learn quite quickly whether a store is licensed or not by asking questions of owners about product testing and taxes.

Alex Traverso, Assistant Chief of Communications at the BCC shared, “If you go into a shop and still see big bags and jars of cannabis on the shelves instead of individually packaged stuff, there’s a good change that it’s not a legal shop.”

Implications Launching the new QR program is proving a great way to help consumers determine quickly and easily whether they are shopping from a licensed store or not. From a product security standpoint, the unique code function of the QR code mechanism also serves as a tall hurdle for illegal businesses to replicate.

Business owners holding state permits are very much in favor of the new emblem. They want customers to know they are running a completely lawful business and that their products are safe, because to hold a state license, they can only sell highly regulated products. The QR codes and emblems themselves also serve as an accolade business owners can display, to tout all the hard yards they have committed to California’s legal cannabis industry.

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: Bureau for Cannabis Control – Search Form

It’s been nearly three years since voters in California legalized recreational marijuana sales, cultivation and possession with Proposition 64. Yet fewer than 1 in 3 California cities allow marijuana businesses to set up shop and sell recreational-use marijuana, creating so-called “weed deserts” that has given black market sales a means to thrive.

Now, a recent poll by the U.C. Berkeley Institute of Government Studies, conducted for the Los Angeles Times, shows that nearly 70 percent of Californians want cities and counties to allow pot shops in their communities. Prop. 64 was passed with the support of 57 percent of voters.

As our Los Angeles marijuana business lawyers know, city and state officials have been duking it out in the courts and legislative bodies for control of the legal marijuana market. State lawmakers have been trying to force cities to open their doors to marijuana businesses, noting that failure to do so goes against the will of the people.

The director of the poll said voters don’t regret passing the legal marijuana law – if anything, support has increased. But it does appear local policymakers are in tune with their constituencies.

Even so, California is quickly rising to become the largest legal marijuana market globally, on track to post $3.1 billion in licensed cannabis sales this year. Unfortunately, this has been largely eclipsed by the black market – fueled in no small part to excessive (and expensive) regulation and communities refusing to allow legal businesses to flourish.

This is a big part of the reason state tax revenue on legal cannabis sales has fallen far short of the estimated prediction – $465 million as of last fiscal year compared to the $1 billion that was estimated. But it’s not that the shops aren’t paying their fair share. In fact, taxing and government regulation adds an estimated 45 percent to the margins of a marijuana store. The original state prediction was based on the estimation that there would be as many as 6,000 marijuana retail locations in the first few years after legalization.

But as our marijuana business lawyers know, there have been a grand total of 601 brick & mortar stores and less than 275 marijuana home delivery services. City bans on the stores have contributed to the stunted growth of the legal market.

Proposition 64, championed by the governor even before he took office, gives cities the power to ban pot shops – and three-fourths of them have chosen to do just that, despite the will of their respective constituencies. In Los Angeles County, nearly 70 percent of those polled said they favored local cannabis store permits. Even in areas where there was the lowest support – San Bernardino and Riverside counties – the majority (54 percent) still leaned toward allowing more shops. Marijuana business lawyers see that this poll, evidence of broad support, as hope the results of the survey could potentially put more pressure on local officials to consider relaxing their hard-line rules against the shops.

City councils, county commissions and mayors say the concern is that opening their doors to these shops would entice a criminal element. Some say they’re just waiting to see how it goes with those who have allowed shops on site, as Los Angeles and San Francisco have. In some jurisdictions, they’ve taken the question to local voters. Others have taken the matter of right to ban shops to court. One of those cases, pertaining to marijuana delivery services, is pending in court.

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:

Most Californians want marijuana stores in their communities, new poll shows, Oct. 1, 2019, Los Angeles Times

The ban was proposed by the state Legislature to serve as a counter to a competing bill – Senate Bill 625 – that would allow such recreational use aboard commercial vehicles, but with certain restrictions, so long as the users were over 21 and the driver compartment was concealed. Both of these address a 2017 law that allowing cannabis on charter-party carriers licensed by the state.

Given that California has grown to be one of the biggest – if not the biggest – legal marijuana market in the world since it was legalized by voters in Prop. 64 three years ago, numerous companies have sprung up in almost every sector. One of those are tours of local cannabis businesses in commercial passenger vehicles. This is similar to companies that take customers to breweries and wineries throughout the state.

Fate of Pot Party Bus Ban Remains Unclear

The ban, which was passed in the Assembly this month, is welcome news for anti-marijuana interest groups, such as Smart Approaches to Marijuana. The leader of that organization was quoted by the L.A. Times as saying that the potency of modern marijuana would make it irresponsible to allow them to be used on the road. This is despite the fact that the measure would have allowed state highway patrol officials to inspect commercial passenger-carrying vehicles to ensure the driver compartment is concealed.

The California Cannabis Industry Association, however, fiercely opposes the pot party bus ban, saying it runs counter to the will of the voters who passed Prop. 64. The CCIA supported the competing measure, but SB 625 has been tabled for now – with supporters saying lawmakers need more time to consult with transportation and law enforcement experts on how best to help marijuana smoke impacting commercial drivers or posing any other safety risk on the road.

Los Angeles marijuana business attorneys know that with cannabis tourism on the rise and important opportunities for economic growth in the state on the line, a ban could have a chilling effect on the tourism industry in California.

Still, most do agree there is a public safety interest compelling enough to require some regulation of these operations. The concern is potential over-regulation, such as what has happened in the overall legal market. Those against allowing active marijuana use in any vehicle say it is impossible to fully and effectively seal driver compartments so that whoever is driving is completely immune to the effects of second-hand smoke in the passenger compartment.

Now that the party bus ban has passed been passed by lawmakers, it will now go to Gov. Gavin Newsom. The outcome remains unclear, as Newsom’s office has declined to share his thoughts on the measure, though it’s worth noting he was a top supporter of Prop. 64.

Anyone operating a marijuana tourism company should consult with an experienced Los Angeles marijuana business attorney to ensure their policies, procedures and operations are all in compliance with state and local laws.

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:

A ban on marijuana use on party buses wins approval from California lawmakers, Sept. 12, 2019, By Patrick McGreevey, The Los Angeles Times

Imitation vape pens are not only hurting brand profits, they’re also sending consumers to the hospital. The Centers for Disease Control and Prevention (CDC) recently noted “anyone who uses e-cigarette products should not buy these products off the street.” That’s because this year alone, several people have been hospitalized suffering from severe respiratory distress after using bootleg vape pens bought from illegal dispensaries, in California and across the Midwest.

Experts believe there are a number of ways cannabis companies can work to protect their products and brands from counterfeits, such as:

• Securing legal trademarks for all products and brand names – this should be every brand or manufacturer’s first step in defense against knock offs.
• Closely auditing the product development supply chain – double checking each stage from seed to store may unveil leaks in the chain.
• Aggressively pursuing counterfeits in court – once a trademark has been established, then law enforcement has jurisdiction to go after the counterfeiters.
• Investing in hard-to-replicate product packaging – companies like California-based AuthentiBrand, develop a number of unique authentication solutions, such as custom made holograms, to help brands block bootlegs.

If you need help securing a cannabis product trademark, issuing cease and desist letters, or pursuing counterfeits in court, our Southern California marijuana business attorneys are here for you.

New Technologies Can Give Consumers Piece of Mind Another new tool brands and retailers are using to offer consumers a heads up on subpar cannabis products, is an online marijuana community called Weedmaps. There, users can review and discuss cannabis strains, as well as local marijuana dispensaries. To date, Weedmaps has helped prevent more than 15,000 unverified cannabis products from making their way into the hands of unknowing consumers.

Weedmaps for Retailers Retailers can demonstrate their legitimacy for consumers by gaining a Weedmaps Verified seal on their profile. To do so, retailers must first upload a menu of brand items to their Weedmaps store listing, and request a verification from each brand to confirm they are authorized partners. Once a brand accepts the retailer’s request, the retailer’s profile page receives:

• A Weedmaps Verified seal on their listing;
• Official, brand developed product information and images, posted to their listing; and
• Verified placement on product and store locator maps.

To help consumers determine where they can purchase regulated, safe marijuana products, Weedmaps allows users to filter cannabis store locator maps by brand, and choose to view only cannabis products that carry the Weedmaps Verified label. By highlighting the quality of products retailers are selling in their stores, this simple process helps legitimate cannabis business owners win back consumer trust.

Weedmaps for Brands To help weed out illegal cannabis outfits and unregulated products, a brand’s profile page on Weedmaps will only show retailers who have been authorized as verified partners. Brands are also free to reject retailer requests for partner authorizations, as they see fit. That means, unlicensed dispensaries and counterfeit goods will not receive verification icons, nor will they appear on brand pages. Effectively helping to inform consumers about where to buy cannabis safely, and disrupting the sale of unsafe products. Legal Implications So many unregulated cannabis markets across the United States offer perfect conditions for counterfeits to emerge. Given the scale and sophistication of bootlegging we’ve seen to date, cannabis brands must act quickly and take proactive steps to thwart the assembly, and sale, of knock off products, if they are to aid consumer safety, maintain customer trust and defend their market share. 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: Centers for Disease Control and Prevention – Emergency Preparedness and Response Weedmaps

To start, the idea of tracking marijuana traveling throughout the supply chain sounds simple enough. In theory, all cannabis products would be given unique identification numbers, noting from which ‘batch’ or ‘lot’ they were born. Products would then be sent to labs for testing. Next, approved products would be passed from producer to distributor, and finally to retailers for sale. At each step, the state should be able to track each piece of marijuana as it moves through the chain, making sure nothing is being redirected out of state, and ensuring everybody is paying their required taxes.

But in practice, a few hiccups quickly come to light. First up, only businesses holding ‘provisional’ or ‘annual’ licenses are required to subscribe to the track-and-trace system. And until last month, there were more than 600 marijuana businesses operating on ‘temporary licenses,’ who would not have had to track-and-trace. This means, there was no way regulators could comprehensively account for every legal product moving about the state.

While those 600 temporary cannabis business licenses all expired at the end of July, and many of those cannabis business owners await approvals on provisional or annual license applications (another story in and of itself), Lori Ajax, State Bureau of Cannabis Control (BCC) chief, recently said it’s a priority of the bureau to get all temporary licenses transitioned onto either provisional or annual licenses, as quickly as possible, so those businesses won’t have to halt their operations.

It’s true that when the provisional or annual licenses are approved, those marijuana business owners are immediately required to begin tracking-and-tracing. And as the CCTT is quite complicated, many companies already required to track-and-trace are hiring full-time employees to traverse the system.

Tagging Products Has Proven a Challenge One common complaint from marijuana retailers holding provisional or annual licenses, is that they must apply unique identification tags to all products. And because until very recently, many holders of temporary licenses weren’t held to those same standards, products would reach stores without said tags, leaving retailers having to sticker and tag products, at their own extra labor costs.

But the problem doesn’t stop there. Now with 600 odd businesses in line waiting for the state to approve their new license applications, and often a need to continue earning a living in the meantime, many are generating lots of paperwork for companies adhering to CCTT requirements while trading with businesses not yet in the system.

On the use of CCTT throughout the marketplace, Josh Drayton, communications director for the California Cannabis Industry Association (CCIA) says it’s a patchwork at present. “We’re not seeing it work it’s way all the way through the supply chain, which ultimately means it’s kind of a broken system at the moment,” he said.

Software Compatibility Also a Hurdle Another shared grievance is that CCTT is not properly set up to work smoothly with a common point-of-sale software system used by retailers. CCTT also does not account for businesses like growers or manufacturers awaiting provisional or annual licenses, who may have missing data. As a result, some retailers using that software are forced to simply ‘create’ information in order to move through to the next step within the CCTT platform.

So Was Track-and-Trace Just a Sweetener? One of the promises California’s 2016 Proposition 64 made, was that the state would always be able to locate every piece of marijuana sold, all the way ‘from seed to sale.’ Creating a tracking system then, was always going to be necessary to meet this promise.

Helping to prevent cannabis flowing out onto the black market was another reason. But so far, activity on the illicit market has shown little signs of slowing. One analyst estimates the underground cannabis market in California totals $3.7 billion per year, which outdoes the legal market fourfold.

Some believe the track-and-trace system was only offered up as a way of getting legalized marijuana over the line.

The Burden of Compliance Others believe that requiring compliance with an inventory control system places a needless burden on legal cannabis businesses committed to operating within the law. Amid the many opinions on the matter, one thing is certain, a slow transition to the new system has brought with it a whole lot of new red tape. And manufacturers and vendors may just have to prepare for further hiccups and delays as the industry presses ahead.

Legal Implications Thus Far Thankfully, marijuana businesses still getting up to speed with CCTT have been afforded some leeway. The BCC seems to understand this is a process, and hasn’t made an example of anyone as yet. But there are no assurances from the authorities that this is in fact the case. Most affected by this issue are businesses either moving to, or waiting on their, provisional and annual licenses following the expiration of their initial temporary licenses, as well as any new cannabis business operators coming into the fold. As a result, all industry stakeholders will watch carefully to see just how effective the CCTT system can be as it becomes more widely embraced in the coming months.

Need Legal Help Tracking and Tracing For Your Marijuana Business? Our California marijuana 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: California’s Cannabis Track and Trace (CCTT) System Proposition 64