Just months ago, the hemp industry seemed to be on a clear path to legal certainty when the 2018 Farm Bill was passed on December 20, 2018 (the “2018 Farm Bill”). Though the passage of the 2018 Farm Bill legalized the production of industrial hemp, one of the main sources of cannabidiol (“CBD”), and the transport of hemp-derived CBD products across state lines, the CBD industry now finds itself in a state of disarray. So why all the confusion surrounding the CBD industry, especially at a time when CBD-infused products are flooding the marketplace? What the 2018 Farm Bill did NOT do was change the Food and Drug Administration’s (the “FDA”) authority to regulate any products containing CBD that are sold as food additives, topicals, drugs or dietary supplements in accordance with the Federal Food, Drug, and Cosmetic Act. As a result, the FDA has since made it clear that it is currently unlawful to introduce food or supplements products into interstate commerce that contain CBD, without first going through the FDA’s approval process.
So you must be wondering why the FDA has taken this position, given the intent of Congress with the passing of the 2018 Farm Bill. … Keep reading
On Monday, New Jersey legislators voted in favor of a measure that would both legalize marijuana and expunge past marijuana convictions. Many industry stakeholders were relieved last week, when Gov. Phil Murphy and Assembly leaders announced that they had reached an agreement on the proposed bill following months of intense negotiations.
Approved by the Assembly Appropriations Committee and the Senate Judiciary Committee, the bill is expected to be put on the floor for a final vote next week on March 25. If passed, the Garden State will become the 11th state to legalize adult-use cannabis. Broadly, the measure legalizes the possession, use and purchase of marijuana and establishes a proto- regulatory regime not unlike what we have seen in Massachusetts. It calls for the establishment a five-member commission “to oversee the development, regulation and enforcement of activities associated with the personal use of cannabis,” according to the NJ Assembly Democrats.
The bill, among other things:
- Permits municipalities to collect up to a 3% tax from cannabis retailers in their jurisdiction, 2% from growers and processors and 1% from wholesalers;
- Provides for conditional licensing which would allow time for potential license holders to obtain financing;
- Enshrines the right of
… Keep reading
The $867 billion 2018 Farm Bill was signed into law by the President on December 20th, 2018.
The reconciled farm bill mainly just reauthorized many expenditures in the prior 2014 Farm Bill. However, it put an end to five decades of hemp prohibition. Hemp was afforded limited legal protections in 2014, when Congress passed a farm bill that authorized states to develop pilot programs for its research. The 2014 Farm Bill eventually gave rise to a patchwork of state regulations regarding hemp and hemp-derived CBD. While the bill did include legislation that impacts traditional U.S. farmers, the portion of the bill that stands to have the most impact is the part that focuses on hemp.
The 2018 Farm Bill, among other things:
- Removed hemp’s low amounts of THC from the Controlled Substances Act;
- Allows the U.S. Department of Agriculture to regulate the crop like any other agricultural commodity;
- Permits hemp products – like CBD – to be introduced into interstate commerce.
- Allows hemp production in all 50 states for any use, including flower production and CBD or other cannabinoid extraction;
- Allows interstate commerce for hemp and hemp-derived CBD
However, this updated guidance was interpreted and misinterpreted throughout the hemp … Keep reading
Given the United States’ current political climate, bi-partisan unity has become a seemingly rare occurrence, especially in the country’s highest court. That’s what makes the Supreme Court’s recent decision in Timbs v. Indiana all the more special, especially in light of the civil rights subject matter in question. The February 20, 2019 unanimous ruling confirmed that the Eighth Amendment’s prohibition on excessive fines applied to the several states (by way of the Fourteenth Amendment), specifically with respect to state and local government asset forfeiture laws. However, despite this ruling, asset forfeiture laws still stand as uniquely effective enforcement tools that the county’s federal, state, and local law enforcement officials have at their disposal, posing a threat to the recreational cannabis market.
Generally speaking, asset forfeiture is a process by which law enforcement officials take possession of certain assets that they have deemed to be involved in criminal activity and will only be obligated to return such assets to their former owner upon a court ruling to the contrary. The person or entity from which the property was seized need not be convicted, or even charged with, a criminal offense. As a civil case, the burden of proof in civil … Keep reading
- Both Code sections end with a capital letter.
- Both are in Subchapter B.
- Both have to do with deductions.
- Both treat certain types of businesses differently than others for no good reason.
- Both feature separate/multiple trades or businesses tests.
It’s the last bullet that makes me wonder if or how §199A might influence the application of §280E in the future (assuming § 280E isn’t repealed and/or marijuana descheduled in the near term).
A Very (Very) Brief Obligatory Overview of §199A
The Tax Cuts and Jobs Act of 2017 reduced the corporate income tax rate from a maximum graduated rate of 35% to a flat 21%. In order to create some parity between the lower corporate rate and the rates applicable to pass-through forms of business, §199A was added. Section 199A provides an income tax benefit to investors in pass-through businesses (e.g., partnerships and S corporations). Non-corporate investors may (after navigating a minefield of thresholds and exclusions and re-inclusions and exceptions to exceptions) be eligible to claim a deduction of up to 20% of the “qualified business income” earned by such pass-through businesses (the “QBI Deduction”).
Separate Trade or Business Considerations
There are several interesting cases that … Keep reading
Discoveries advance on a regular basis as to how cannabidiol and related therapeutics can heal or at least relieve the pain associated with health conditions. From cancer and opioid addiction to chronic pain and glaucoma, medicinal cannabis shows great promise. As with other efforts to address a patient’s condition, this field will morph toward a more personalized set of therapy regimes. The broader precision medicine field has a significant head start, though, because of the years of both longitudinal and historical data studies. The medicinal cannabis field must leap ahead in this direction.
The proliferation of different, proprietary data sets is seen slowing the growth and penetration of more ‘traditional’ personalized medicine. Each pharmaceutical company, bio bank and research organization has already collected large amounts of data from clinical trials, patients, providers and other sources. But the data an organization owns might not contain the insights it needs to achieve a breakthrough in personalized medicine.
As medicinal cannabis providers collect and combine data sets, the key will be ensuring that those sets are correctly linked and that the data itself provides enough depth to yield real insights. That points to the need to set consistent standards for collecting data … Keep reading
One of the biggest challenges facing the legal cannabis industry today (as we’ve covered extensively on this blog) is access to, or better yet lack of access to, banking services. Because the use and sale of marijuana remains illegal at the federal level, banks and credit unions have been hesitant to provide services to cannabis-related businesses, even in states that have legalized both medical and recreational cannabis. The concern from a banking perspective is that providing banking services to these companies could potentially lead to allegations of money laundering and aiding and abetting federally-illegal operations. While this has not completely prevented cannabis companies from operating in states where it is legal, it has forced a burgeoning industry to operate on a virtually all-cash basis, leading to many financial and safety concerns.
As a potential solution, in May 2017 Senator Jeff Merkely (D-OR) and Ed Perlmutter (D-CO) introduced the “Secure and Fair Enforcement (SAFE) Banking Act”, which proposed certain protections for banks against criminal and civil liabilities for serving legitimate cannabis companies that operate in compliance with applicable state law. The Safe Banking Act was not only intended to legitimize an up-and-coming industry, but also aimed to establish banking … Keep reading
Last week the firm moderated a discussion of banking and lending in the cannabis industry. The event was well attended and most importantly provided practical insights concerning the financing of cannabis businesses (medicinal and recreational) and detailed review of just how regulated and scrutinized operations are when it comes to business financing or daily financial transactions. The bottom line appeared to be that in order to obtain financing or to evolve from a cash business, an organization needs to be squeaky clean.
One question that arises regularly is whether medicinal cannabis firms are subject to HIPAA, the federal Health Insurance Portability and Accountability Act of 1996, which is the primary set of laws and regulations applicable to the privacy and security of patient information. It makes sense intuitively that if a dispensary fulfills a prescription or request for a CBD product then the information associated with the patient, the order, and payment should all be considered “protected health information” or “PHI” under HIPAA.
Does HIPAA Apply to Medicinal Cannabis?
Typically, a medicinal cannabis dispensary or related business would not be subject to HIPAA. However, circling back to the discussion of banking and lending, any organization in the … Keep reading
Tomorrow night, Cannabis Business Advisory Group Co-Chairs Frank Segall and Scott Moskol will speak on a panel hosted by TMA New England. Details about the event and a registration link can be found below.
With the cannabis space projected to grow at a significant pace over the coming years, the panel will explore how banking has evolved to accommodate the needs of a vibrant and energetic industry. Topics will include the technology solutions that have become available to help marijuana-related businesses deal with the lack of traditional commercial banking services, how the Commonwealth accommodates the needs of the local industry, and the legal and regulatory framework surrounding cannabis investing/financing, and how it may change in the weeks, months, or years ahead.
A networking reception will immediately follow.
Jordan Allen, Principal and CEO, Reich Bros Finance
Scott H. Moskol, Partner, Co-Chair Cannabis Business Advisory Practice, Burns & Levinson
Karen Munkacy, M.D., Founder, President and CEO, Garden Remedies
Tina M. Sbrega, President & CEO, GFA Federal Credit Union
Frank A. Segall, Chair Business Law & Finance, Co-Chair Cannabis Business Advisory Practice, Burns & Levinson
January 31, 2019
Boston Marriott Long Wharf
Harborview … Keep reading
It’s a new year, but why not live in the past just long enough to talk briefly about that last couple of Section 280E cases that trickled in at the end of 2018? Today, I’m reviewing the two Harborside cases.
Weighing in at 60-plus pages, and paraphrasing Shakespeare, it’s a wonder that we didn’t learn much more from the first Harborside opinion. Harborside is a medical marijuana dispensary located in California whose 2007 through 2012 tax years were audited, with the IRS issuing deficiency notices covering all six years. The deficiency notices disallowed the company’s Section 162 expense deductions pursuant to Section 280E, and made adjustments to costs of goods sold. Of importance to one of Harborside’s arguments in the case, the business had also been the subject of a civil-forfeiture action filed in 2012, stemming from what the federal law continues to view as its illegal drug-trafficking activities. That action was subsequently dismissed with prejudice in 2016.
In its petition, Harborside asked the Tax Court to decide whether:
- res judicata precludes the Commissioner from applying Section 280E where the prior civil-forfeiture action was dismissed with prejudice;
- Harborside’s business “consists of” trafficking in a controlled substance under
… Keep reading