Two recent District Court cases, High Desert Relief, Inc. v. United States of America and Alpenglow Botanicals, LLC et. al. v. United States of America have raised a novel issue in the IRS’s audits of cannabis businesses. Both of these suits were petitions to quash IRS summonses. A taxpayer who is under a civil audit from the IRS can petition a District Court to “quash”, or cancel, a summons issued to a third party for information relating to the IRS’s audit of that taxpayer. This type of suit is notoriously difficult for taxpayers.
All brands should strive to be unique. However, it is particularly important that businesses in competitive industries, like the cannabis industry, adopt brands that are highly distinctive and unique. Why? In competitive industries, consumers are bombarded by choices. When consumers walk into a store and are faced with numerous, similar brands, they have a hard time distinguishing between them. Consumers may have had a positive experience with a brand, but they can’t quite remember whether it was ACME 1 brand or ACME 2 brand. The need to be distinctive extends both to the brand name, as well as to its packaging. If ACME 1 and ACME 2 both have green and black packaging, it may be impossible for consumers to correctly identify the brand they had a positive experience with. Even worse, if a consumer had a negative experience with a brand that sounds and looks similar to another brand and its packaging, the consumer may avoid both brands, either because they can’t tell them apart, or they assume they are related in some manner.
To ensure cannabis brands benefit from consumer loyalty, and do not suffer negative branding consequences caused by inferior competitor products, it is imperative that cannabis brands strive to be distinct.
Raising money into any business can be stressful and time consuming, and requires compliance with a multitude of state and federal laws. Understanding the investment landscape and being prepared can make the process smoother and quicker.
- Details Matter. From the type of entity you’ve formed to run your cannabis business to your capitalization structure, your business plan, and the agreements between the founders and the company, details matter to investors and play a role in the decision of whether to invest in a company. Having a business structure that facilitates investment and clean documentation are important first steps in attracting outside capital.
Justice Department has options to crack down, but may galvanize the push for even wider legalization
In statements that were perhaps inevitable but nonetheless surprising to the cannabis industry, White House Press Secretary Sean Spicer on February 23, 2017, provided the first official comments on how the Trump administration may address recreational marijuana.
Responding to a question from an Arkansas reporter regarding medical marijuana, Spicer indicated that the Trump administration sees “a big difference” between medical and recreational marijuana, stating that federal law needs to be followed “when it comes to recreational marijuana and other drugs of that nature.”
Spicer also indicated that enforcement decisions will primarily be a Department of Justice (“DOJ”) matter, stating that enforcement is “a question for the Department of Justice,” but that he believed there would be “greater enforcement of [federal law], because again, there’s a big difference between medical use, which Congress has, through an appropriations rider in 2014, made very clear what their intent was on how the Department of Justice would handle that issue,” which, Spicer stated, is “very different from the recreational use, which is something the Department of Justice will be further looking into.”
Although Spicer’s statements should probably not be considered as the Trump administration’s definitive policy statement on recreational marijuana use, they do raise a variety of concerns for cannabis businesses.
On Thursday, November 3, Garvey Schubert Barer’s Cannabis Industry Group will be presenting Cannabis 2016: Transitioning from Infancy to Maturity, a half-day educational program geared toward helping companies thrive amid the industry’s fluid business environment. As the cannabis industry has been undergoing a rapid maturation, nascent enterprises are quickly evolving into sophisticated businesses. This session will provide best practices and guidance to help manage business and operational issues to ensure the long-term growth and success of industry members.
Vela, a cannabis retail shop, and an educational and community-building hub is hosting a series of free events in September and October that include speakers David Mendoza, Senior Policy Advisor for the City of Seattle Office of the Mayor, Pete Holmes, Seattle City Attorney, and Rick Garza, Director of the Washington State Liquor and Cannabis Board to discuss legislative solutions to support the legal market, and the current status and challenges of the marketplace. Come join fellow patrons and partners to learn, discuss and share tips.
In a long-awaited decision released this morning, the United States Drug Enforcement Administration announced that it has denied two petitions to reschedule marijuana under the Controlled Substances Act (the “CSA”). The DEA concluded that marijuana should remain a Schedule I controlled substance because it does not meet the criteria for currently accepted medical use in treatment in the United States; there is a lack of accepted safety for use of marijuana under medical supervision and it has a high potential for abuse. The DEA’s decision relies on a scientific and medical evaluation and scheduling recommendation from the United States Department of Health and Human Services (“HHS”), based on studies conducted by the United States Food and Drug Administration and National Institute on Drug Abuse (“NIDA”).
Seattle, Washington, where I practice, is one of the most popular tourist destinations in the U.S. Its natural beauty and cosmopolitan vibe are two of its biggest attractions. But increasingly, Cannabis Tourism has been a draw. That’s because Washington State, like Colorado, Oregon and Alaska, has legalized cannabis – also known as marijuana, for sale and personal use in the state.
But people who are not U.S. citizens need to understand that these state laws do not protect them from extreme danger. The federal government still considers cannabis to be a “controlled substance,” and the purchase, possession and/or use of cannabis is still a federal crime that could result in denied admission, deportation, and/or being barred from return – even if state law says it is perfectly legal.
The Metropolitan King County Council voted on July 25th to end the moratorium on accepting or issuing permits for marijuana growers, processors, and retailers in unincorporated areas of the county. Additionally, per the council’s news release, legislation was approved which:
- Limits growing, production, and processing facilities in the rural areas to zones with lots of 10 acres or larger.
- Because Vashon has its own land-use restrictions, it is exempt from the rural limits.
- Approves studies on potential retail and processing in specific locations.
- Requires the County Executive to identify 10 new retail stores in neighborhood business zones.
- Requires separation between retailers (1,000 feet) in areas where multiple shops already exist.
Washington law regulates the buffer zone requirements for licensed marijuana premises and their proximity to locations of sensitive use, namely, elementary or secondary schools; playgrounds; recreational centers or facilities; child care centers; public parks; public transit centers; libraries; or game arcades admitting minors. RCW 69.50.331(8). Washington state law though does not regulate the distance of licensed marijuana premises from one another. Therefore, the now-required 1,000 foot between retail stores is more restrictive than mandated at the state level. For an interesting read regarding the discretion of cities, counties, and towns to control such distance requirements, please see our previous blog post.
Interestingly, in The Seattle Times' coverage story, it was reported that “the state has allocated 22 additional retail stores to the unincorporated areas. The state has issued 23 producer, or farming, licenses in unincorporated King County. In contrast, 22 have been licensed in Seattle and eight in other King County cities.”
Ada Danelo is a Summer Associate at GSB's Seattle office.
The University of Washington School of Law’s Cannabis Law and Policy Project hosted its first annual conference on Washington state marijuana policy on June 14, 2016.
Rick Garza, Director of the Washington State Liquor and Cannabis Board (LCB), and Seattle City Attorney Pete Holmes kicked off the Conference by discussing the following current policies and industry trends:
- Use of pesticides on cannabis products. Garza described the regulatory issues that the LCB faces, and noted that one of the LCB’s new challenges is to ensure that cannabis products are safe and properly tested for pesticides. To address this, the LCB plans to work with the EPA and the Department of Agriculture.
- Increasing market limits. By the LCB’s estimate, the market is sufficiently served by the 48 cannabis stores currently in Seattle, but Garza noted that the LCB plans to increase the market ban if they see demand. Holmes, on the other hand, commented that of the 48 stores allocated, only 31 are open, and that “we need substantially more,” adding that legal delivery services may be another way to meet that demand. The City Attorney also wants to ensure that applicants who are “sitting on” a license either use or lose it, which Holmes wants to work with the LCB to enforce.
- Increase in tourism benefits hospitality and tourism industry. Holmes noted the significant increase in tourism to Seattle since legalization and how much it benefits hotels, restaurants, and the tourism industry generally. According to the City Attorney, the increase in tourism has created a need for marijuana lounges, since state law prohibits public consumption of cannabis.
The afternoon sessions featured cannabis producers, processors and retailers explaining the intricacies of their compliance with both state and federal law. Ian Eisenberg, owner of Uncle Ike’s Pot Shop, made a pitch for legalization, which he and the other retailers on the panel agreed limits underage access to cannabis – since legal stores turn away customers under 21.
Attorneys from various law firms also spoke about issues ranging from pesticide regulation and tax compliance to diversity in the marijuana industry. Andy Aley, Owner at GSB and Co-Chair of its Cannabis Industry Group, discussed the impediments to sales and marketing for marijuana producers and processors, noting that “it takes about six weeks to get a bud tender to even sample product,” and that “we need smart policy changes that allow the industry to mature and become more akin to the craft beer industry.”
Since its founding in 1966, Garvey Schubert Barer has counseled clients across a broad range of industry sectors. Our attorneys have deep bench experience and significant expertise in both complex legal and business matters. We value innovation and entrepreneurship, and closely monitor industry trends. It is with these values in mind that our firm established the cannabis industry group. Read More ›