Below is the conclusion of the conversation that Burns partner and Cannabis Business Advisory Group co-chair Frank A. Segall had recently with Steven Hoffman, Chairman of the Massachusetts Cannabis Control Commission, regarding the state of the industry in the Commonwealth.
FRANK SEGALL: Let’s talk about [the 3% sales tax incentive]. Host-community agreements have received some attention – for those in the audience, the regulations are pretty clear: Towns can charge up to 3% of gross revenue, with respect to costs that are associated – we’ll say directly, but it’s not clear – with operating an establishment. What we’re seeing is, it’s pretty much 3% flat, with no analysis as to the costs. And there are additional requests that towns have been making – we’d like that new fire truck, we’d like that new park – that have created some consternation and raised questions about whether the rules are being followed and the playing field is level. What are your thoughts on that?
COMMISSIONER HOFFMAN: This is a complicated issue – there’s been a lot of comment and feedback on this. We’ve looked at 15+ host-community agreements that we’ve signed thus far, and there are three things that we … Keep reading
At last week’s State of the Cannabis Industry Conference, Frank A. Segall, Co-Chairman of Burns & Levinson’s Cannabis Business Advisory group and Chairman of the firm’s Business Law and Finance practices, sat down with Steven Hoffman, Chairman of the Massachusetts Cannabis Control Commission, for a wide-ranging interview that touched upon a number of hot-button issues regarding cannabis in the Commonwealth. Below is a transcript of the first half of their conversation. ________________________________________________________________________________________________________________________________________________________________________
COMMISSIONER HOFFMAN: From day one, we’ve said that we’re going do this right—we’re not going to adhere to an arbitrary deadline. There are some deadlines in legislation: We had to have final regulations populated by March 15th, which we did; we had to start accepting license applications by April 1st, which we did. We’ve always said that we’re going to try to hit the deadline [for recreational sales], but we’re going to do it right, and that’s more important to us. I’m very proud of the progress we’ve made—we’re doing it right, we’re doing it carefully, and I hope the citizens of this state care more about what this business looks like in July of 2019 or 2020, than arbitrary deadlines.… Keep reading
Last week, the industry was energized by the Drug Enforcement Administration’s order placing certain drugs containing cannabidiol, or CBD, in Schedule V of the Controlled Substances Act. This marks the first time in history that the DEA has removed any type of cannabis from Schedule I, and clears the way for the sale of the first non-synthetic, cannabis-derived medicine to win federal approval.
Under the CSA, CBD remains a Schedule I substance, which means that it is not considered to have any currently accepted medical use. On June 25, 2018, the Food and Drug Administration announced that it approved the drug Epidiolex for the treatment of seizures in connection with epilepsy. Epidiolex is an oral solution that contains CBD, and is also the first FDA-approved drug derived directly from the cannabis plant. According to the DEA order, because the drug was recently approved by the FDA, it is now considered to have an accepted medical use. Therefore, it no longer meets the criteria for placement in Schedule I. The shift in policy means that Epidiolex may now be prescribed by doctors and accessed by patients through traditional pharmaceutical channels, rather than through a marijuana dispensary or compassion center.
While … Keep reading
Picking up from an earlier post this month post, this week, we’re drilling down into the arguments raised by Century Bank and Trust Company—one of the non-government defendants—as to why the Plaintiffs’ RICO claim against it should be dismissed. Century Bank provides banking services to Healthy Pharms and, according to the Plaintiffs, does so “knowing that [Healthy Pharms] intends to operate a marijuana business.” Plaintiffs bring one count against Century Bank for alleged violation of 18 U.S.C. § 1962(d), which makes it “unlawful for any person to conspire to violate any of the [substantive RICO provisions].” As explained in the prior post, the court left ultimate resolution of the pending motions to dismiss open-ended, granting 30 days’ leave to allow the Plaintiffs to file an amended complaint, based on the fact that Healthy Pharms opened and began operating after Plaintiffs’ original complaint was filed. However, the court also seemed to cast significant doubt as to whether an action could be maintained against Century Bank, as evaluated below.
Century Bank presented multiple arguments as to why Plaintiffs’ complaint should be dismissed, including abstention and failure to allege that Century Bank was involved in a RICO enterprise beyond … Keep reading
After nearly 50 years as a Schedule I federally controlled substance, hemp is set to become a legal crop. If passed, the 2018 omnibus farm bill (which includes the Hemp Farming Act of 2018) will allow cannabidiol (CBD) to be legally sold in all 50 states. While related as members of the Cannabis sativa family, hemp and marijuana have different biological characteristics. Most importantly for federal legislators, hemp contains negligible amounts of the psychoactive constituent tetrahydrocannabinol (THC).
The federal government’s decision to the legalized hemp is part of a longer, more comprehensive process that stretches back four years, when President Obama signed the 2014 farm bill. At Senate Majority Leader Mitch McConnell’s urging, the 2014 farm bill created a pilot research program that authorized state departments of agriculture and universities to grow and research hemp under limited circumstances. However, due to continued federal prohibition on the crop, there were many restrictions on its cultivation during the pilot period. For example, farmers seeking to participate in the program needed to obtain a waiver from the Drug Enforcement Administration, and the bill also limited the number of acres that farmers could legally plant. The pilot program was a success, … Keep reading
The Ohio Board of Pharmacy declared that over-the-counter sales of cannabidiol (CBD) are illegal, despite the substance’s current widespread availability in grocery, health, and other non-licensed stores across the state.
This means that CBD sales are now only legal in Ohio from state-licensed medical marijuana dispensaries. The problem, however, is that no state medicinal marijuana licenses have yet been issued, even though Ohio approved medical marijuana in 2016, and may not be until 2019, due to the state’s regulatory delays.
“Until dispensaries are operational,” the Board wrote, “no one, including board licensees, may possess or sell CBD oil or other marijuana-related products.” The board issued 56 provisional licenses in June of this year, granting licensees six months to build out their facilities and meet all obligations in state law and rules.
The new guidance means that all products containing CBD must comply with the same rigorous testing procedures and adhere to the same rules as products with real cannabis. Further, any product derived from cannabis must have a “known source,” showing quantities of active ingredients, and CBD must undergo testing in a state-licensed lab. However, no labs that were issued provisional licenses are presently open for business, and … Keep reading
Recently, in a closely watched cannabusiness case, U.S. District Court for the District of Massachusetts Judge Allison D. Burroughs issued a memorandum and order on motions to dismiss in Crimson Galeria Limited Partnership, et al. v. Healthy Pharms, Inc., et al.  For a bit of background, the Plaintiffs are property owners in Cambridge, Massachusetts’ Harvard Square, whose property either abuts or is located within 200 feet of Healthy Pharms’ now-open registered marijuana dispensary. At the time the Plaintiffs filed suit, Healthy Pharms was not open for business, so the Plaintiffs based their claims on the idea that Healthy Pharms’ disclosure of the potential dispensary hurt their property values and interests.
The Plaintiffs alleged that Healthy Pharms’ potential operation diminished the market value of their properties and hurt development opportunities, in their eyes, the RMD made Harvard Square a less desirable location for prospective buyers or renters who “reasonably worry” about “increased crime” and “pungent odors.” The Plaintiffs asserted claims against the “Government Defendants” for declaratory and injunctive relief, arguing that federal law (i.e., the Controlled Substances Act) preempts Massachusetts’ legalization of medical marijuana dispensaries. This was a clear attempt by the Plaintiffs to create a private right of … Keep reading
Today, we’re picking up right where we left off last week, shedding more light on Section 280E by examining some of the noteworthy cases (and one memo) that have come to define it.
IRS Chief Counsel Advice Memorandum
In 2015, the IRS Office of Chief Counsel issued guidance on the application of Section 280E in the form of a memorandum. It’s a very technical document, but also very useful in understanding the statute, walking through the distinction between gross receipts and gross income (primarily, COGS) and discussing what constitutes COGS for purposes of Section 280E. The key takeaway from the Chief Counsel Advice Memorandum is that COGS should be determined under the Section 471 inventory rules, and that the Section 263A UNICAP rules have limited bearing, as they require capitalization of otherwise deductible expenses. Effectively, a cannabis business can’t use Section 263A to convert business expenses disallowed under Section 280E into COGS.
Finally, on to some new case law. Alterman doesn’t offer any new issues to contend with. It is, in many ways, similar to Olive, but with somewhat more compelling facts. Alterman sold cannabis products, and in order to meet Colorado licensing requirements, also had … Keep reading
It’s been a busy summer for cannabis business Section 280E controversy, with three published cases (Alterman v. Commissioner; Loughman v. Commissioner; and Alpenglow Botanicals, LLC v. U.S.) construing the statute, and generally not in favor of the taxpayer-cannabis business. The limitations of Section 280E and their effects on after tax profits should be fairly familiar to cannabis entrepreneurs, but to keep things fresh in your minds, the statute provides:
[n]o deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
What does that single, parens-laden sentence really mean? When it comes to the Internal Revenue Code, one sentence can leave much to unpack. Take Section 482, for example—not a very relevant Code section, unless you’re taking your cannabis business cross-border (maybe into Canada?), but, nevertheless, illustrative. One … Keep reading
As the legal cannabis market continues to explode, extract products, in particular, are receiving a lot of attention. Cannabidiol (CBD), for instance, is a cannabis extract widely produced and sold in the U.S., often advertised as having certain medicinal benefits. And while the laws surrounding these extract products can sometimes be cloudy, the regulatory requirements pertaining to their packaging and advertising can create even more confusion.
CBD is a non-psychotropic cannabinoid that can extracted into edibles, oils, tinctures, capsules, and topical creams. Although neither psychoactive nor addictive, and containing only nominal amounts of THC, the DEA ruled in 2016 that CBD is derived from cannabis and is, therefore, classified as a Schedule I drug under the Controlled Substances Act. While many have argued this ruling, a Ninth Circuit court recently upheld the DEA’s decision, and as a result, CBD remains a Schedule I drug at the federal level.
Regarding packaging and advertising, the U.S. Food and Drug Administration, which is responsible for the control and supervision of dietary supplements and over-the-counter drugs (among other things), has only provided a handful of opinions about what is and is not permissible. First, the FDA has affirmatively decided that CBD products may … Keep reading