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Brief History of Cannabis

Cannabis Banking

Once upon a time in the U.S. cannabis was not legal or illegal, it was somewhat under the radar, until in 1911 Massachusetts became the first state to prohibit its use.  Several other states enacted similar bans until finally in 1937 the Federal Government enacted the Marihuana Tax Act which imposed a tax on the sale of hemp.  It was a roundabout way to regulate the drug but it may have been a lobbying effort by the likes of Andrew Mellon and Randolf Hearst to limit the size of the hemp industry, which was in direct competition as a natural fiber producer with their own production of paper using timber.

It wasn’t until 1970, though, that the Controlled Substances Act was enacted listing marijuana a Schedule I drug.

The definition of a Schedule I drug:

  1. The drug or other substance has a high potential for abuse.
  2. The drug or other substance has no currently accepted medical use in treatment in the United States.
  3. There is a lack of accepted safety for use of the drug or other substance under medical supervision.

Almost immediately there was public pushback with several states moving to decriminalize marijuana.  In 1996 California became the first state to legalize cannabis for medical use.

That was an important moment in cannabis time.  With legalization for medical use comes production and sale which means legitimate cannabis businesses opening.

But what do you do if you are a business that is not allowed to open a bank account?  Well, you have to manage in cash.  Or find a bank that is willing to work with your business which is not so easy.  See our article on banking for cannabis industry on our website here. 

With an ever increasing acceptance of the legalization of marijuana, a recent Pew Research Center poll put approval of legal use of the substance at 62% of Americans, the question Congress is now attempting to tackle is how to facilitate industry growth.

Without a banking relationship a business can’t do things like take credit card payments from their customers, take out a loan, or pay their vendors using electronic methods.  In lieu of banking, cannabis businesses have been operating in cash, which can be dicey, and without a way to invest cash into a financial product, it has been a de facto ceiling on growth.

What the proposed SAFE Banking Act of 2019 would do is to give financial institutions and ancillary businesses that work with cannabis companies more security in conducting those banking relationships.  For instance, currently the Financial Crimes Enforcement Network (FinCEN) under the Department of Treasury which is tasked with preventing money laundering by criminals and terrorists can shut down a bank account of a customer simply if it suspects the funds in the account were derived by the cannabis industry.  And more importantly, it can deny a banking institution its FDIC coverage and/or levy a fine.  What’s more, FinCEN can go after employees of cannabis companies, denying them access to financial products like home loans and credit cards; it can target ancillary companies like insurance companies, landlords, and accounting firms that work with cannabis with closure of their bank accounts, etc.  All this leverage has been, since the events of 9/11, one of the Federal government’s big guns against terrorist organizations and organized crime, following the money, as you will, to get to the criminals.

Under Obama

But what of State’s rights and their ability to govern and make their own laws?  Well, this is certainly a tenet of our democracy, but it has put cannabis businesses and the banks that want to work with them in a sticky wicket.  As States began legalizing the use of marijuana, it became clear that there had to be a way for the Federal government not to step on State toes and allow them their own laws.  So, in 2013 U.S. Deputy Attorney General James M. Cole issued guidance (Cole Memo) on how the U.S. Attorney General’s office would/would not prosecute cannabis companies in States where use, cultivation, and distribution had been made legal.  A year later FinCEN issued guidance to banking and other financial institutions on how to conduct themselves in their relationship with the cannabis industry. (See our article on banking for the cannabis industry here for more information) 

So, all settled, right?  Not so much. 

What makes it SAFE

Congress decided that with an ever increasing number of States jumping on board, and the need to allow the industry to grow – thus provide tax revenues not only to the States but to the Federal government – they introduced the SAFE Banking Act which lays out further parameters how banking and other financial institutions and ancillary businesses can work with legitimate cannabis businesses without fear of their accounts be shut down, seized, or themselves being fined or prosecuted simply for working with the industry.

Where We Are Now

The House passed the SAFE Banking Act in September 2019.  Now the Senate needs to pass a compatible bill before it can go to the President’s desk for either signing or veto.  Even if the Senate passes their bill there is no guarantee that the President will be inclined to sign it into law.  Public opinion not withstanding, many in Washington don’t approve of legalization and/or believe that the Federal government should ways trump State’s rights.

To wit, the Trump administration rescinded the Cole Memo and there is fear that they may also rescind the FinCEN guidance as well throwing the industry back years.  The fear is that if this happens the U.S. Attorney General’s office will begin prosecutions of legitimate cannabis businesses in States where it is legal.

There have also been murmurings that the GOP in Congress is interested in opening a debate on rescheduling cannabis which is not a bad thing in itself (after all legalizing medical use gives the lie to criteria B in Schedule I), but it would probably mean putting off any vote in the Senate on the SAFE Banking Act, a vote that has yet to be scheduled as of this writing. 

In addition, critics believe that because of the reporting requirements of the Act and the obligation banks and financial institutions would find themselves under may make administrative costs untenable, costs that would certainly be passed along to the cannabis industry – already heavily weighed down by local licensing requirements and costs, and heavy local, state, and federal tax burdens – essentially making legitimate banking too expensive.

So, on the face of it the SAFE Banking Act is a step in the right direction for the industry.  But the unknowns point to a neither positive nor negative outcome, at this point, leaving the industry, financially speaking, just as it was before SAFE.

280E: UNDERSTANDING AND OVERCOMING TAX IMPLICATIONS

Cannabis Accounting; the Legal Way

In simple terms, cannabis businesses are only allowed to deduct expenses that are part of the “costs of goods sold.” Though one could argue that cannabis deliveries have a cost to selling their goods (i.e. purchasing delivery vehicles or building an eCommerce shop), neither of those expenses are tax-deductible. It’s weird, we know. The following is a list of items that are considered costs of goods sold under IRS Regulation 1.47-11(c) IMPLICATIONS •Ongoing maintenance of machinery and equipment •Labor costs and employee benefits •Insurance costs •Supplies •Utility costs •Property and sales tax

It seems that most of the costs of goods sold are taken on by cultivators. So where exactly does that leave retailers? The following is a list of expenses that are not tax-deductible. •Marketing and sales expenses •Advertising •State income taxes •General administrative costs not directly tied to the production of goods •Transportation from the company

1. Isolate any cannabis activities to one company. Have the owners of the company set up an affiliate that does not touch any cannabis product. Most importanly, have that business provide property and services needed by your cannabis business at a reasonable markup. List of possible services: 1. Renting and repair of machinery/equipment 2. Renting facilities 3. Insurance 4. Utilities 5. Furnishing materials 2. Have a separate entity handle any non-cannabis related activities/sales as to not consider their activities as  “trafficking” of any schedule 1 substance. 3. Establish an LLC. Owners can deduct 20% of their income under section 199A.

OVERCOMING 280E These three options are merely band-aid solutions that aim to fix a larger problem: the tax code itself. Pushing for legislative change is the correct way to go about lowering tax rates. These options may temporarily allow you to cut your losses but always confirm with a CPA and legal counsel before taking any action.

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

Cannabis Distributors: Information on Collecting and Paying the Cultivation Tax

As a licensed cannabis distributor (excluding transport-only distributors), you are required to collect the cultivation tax from cultivators, manufacturers, or other distributors based on the weight and category of the cannabis. The distributor who conducts the final quality assurance review after the cannabis or cannabis product passes the required testing is the distributor responsible for reporting and paying the cultivation tax to the California Department of Tax and Fee Administration (CDTFA). The cultivation tax must be reported during the reporting period in which the cannabis or cannabis product passes the required testing and quality assurance review, which is when the cannabis or cannabis product enters the commercial market.

In instances where there are multiple distributors and/or manufacturers involved, the associated cultivation tax collected will follow the cannabis or cannabis product and must be passed to the next licensee in the transaction until the cannabis or cannabis product reaches the distributor conducting the final quality assurance review. Each party to the transaction, from the original sale from the cultivator, to the final sale or transfer to the distributor, is relieved of its liability for the cultivation tax by receiving a proper receipt for payment of the cultivation tax from the next party in the transaction.

This email is intended to give you an overview of some of the requirements for cannabis distributors and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us at www.cdtfa.ca.gov/contact.htm.

Microbusinesses or Cannabis Businesses with Multiple Licenses: How to Calculate the Cannabis Excise Tax on Nonarm’s Length Transactions

Microbusinesses or Cannabis Businesses with Multiple Licenses: How to Calculate the Cannabis Excise Tax on Nonarm’s Length Transactions

Distributors or microbusinesses authorized to operate as distributors are required to calculate and collect the 15 percent cannabis excise tax from cannabis retailers on the sale or transfer of cannabis or cannabis products (cannabis) based on the average market price of the cannabis. In a nonarm’s length transaction, generally when a cannabis retailer is also the distributor, the average market price of the cannabis is equal to the gross receipts, and the 15 percent cannabis excise tax is applied to the gross receipts of the retail sale of the cannabis.

What is included in gross receipts?

Gross receipts include all charges related to the sale of cannabis, such as labor, services, and certain transportation charges. For example, as a retailer, when you deliver cannabis to your customers using your own vehicles and there is no explicit written agreement prior to the delivery that passes title to the purchaser before delivery, the charge for that delivery is included in the gross receipts subject to the cannabis excise tax. Additionally, if you add a separate amount to your customers’ invoices or receipts to cover a cannabis business tax required by your city, that amount is included in the gross receipts subject to the cannabis excise tax.

Example

You are a licensed microbusiness authorized to cultivate, distribute, and make retail sales of cannabis. You sell cannabis flowers to your retail customers for $35.00 per eighth of an ounce and charge $5.00 for delivery. You have an 8.5 percent sales tax rate and a 10 percent business tax. In this nonarm’s length transaction, the average market price is your gross receipts from the retail sale of the cannabis flowers.

Excise tax calculation:

Selling price of cannabis $35.00
Cannabis business tax $3.50
Delivery $5.00
Subtotal ($35.00 + $3.50 + $5.00) $43.50
Excise tax ($43.50 x 15%) $6.53

Sales tax calculation:

Subtotal ($43.50 + $6.53) $50.03
Sales tax ($50.03 x 8.5%) $4.25
Total due ($50.03 + $4.25) $54.28

The distribution part of your business is responsible for reporting and paying the cannabis excise tax of $6.53 ($43.50 × 15%) to the CDTFA on your cannabis tax return along with the cultivation tax that is due on the cannabis flowers that entered the commercial market. The cannabis retail part of your business is responsible for reporting and paying the sales tax of $4.25 ($50.03 x 8.5%) to the CDTFA on your sales and use tax return.

This email is intended to give you an overview of how the cannabis excise tax is calculated in a nonarm’s length transaction and does not address all requirements for the cannabis industry. We encourage you to read our online Tax Guide for Cannabis Businesses, or contact us at www.cdtfa.ca.gov/contact.htm.

New Emergency Regulation for Cannabis Distributors and Retailers Requires California Cannabis Track-and-Trace

New Emergency Regulation for Cannabis Distributors and Retailers Requires California Cannabis Track-and-Trace

The California Department of Tax and Fee Administration (CDTFA) recently adopted emergency Regulation 3702, California Cannabis Track‑and‑Trace, which requires distributors and retailers to enter the wholesale cost and the retail selling price of cannabis or cannabis products into the California Cannabis Track-and-Trace (CCTT) system. The emergency Regulation 3702 is now in effect.

The Medicinal and Adult-Use Cannabis Regulations and Safety Act and regulations adopted by the Bureau of Cannabis Control (BCC) require all commercial cannabis activity be recorded in the CCTT system. Distributors and retailers that obtain an annual license with the BCC must begin recording commercial cannabis activity in the CCTT system. In addition to the existing requirements, each licensee must now enter the following information related to the cannabis excise tax.

Cannabis Distributors
A distributor is required to enter into the CCTT system the retailer’s wholesale cost of the cannabis or cannabis products that is sold or transferred to a retailer in an arm’s length transaction.

In an arm’s length transaction, the distributor is required to calculate the average market price of the cannabis or cannabis products, which is the retailer’s wholesale cost plus a mark-up established by the CDTFA. The wholesale cost used to calculate the average market price is the amount entered into the CCTT system.

Cannabis Retailers
A cannabis retailer is required to enter into the CCTT system:

  • The wholesale cost of the cannabis or cannabis products. The wholesale cost is the amount paid by the retailer for the cannabis or cannabis products in an arm’s length transaction and is the amount used to calculate the average market price.
  • The retail selling price of the cannabis or cannabis products when the product is sold at retail.

For More Information
This Special Notice is intended to give you an overview of some of the requirements for cannabis distributors and retailers and does not address all requirements for the Cannabis Industry. We encourage you to read our online Tax Guide for Cannabis Businesses at www.cdtfa.ca.gov/industry/cannabis.htm.

CalCannabis Cultivation Licensing (CalCannabis), a division of the California Department of Food and Agriculture administers the CCTT system. For more information visit CalCannabis at www.cdfa.ca.gov/is/mccp/ or call 1‑833‑CALGROW (1‑833‑225‑4769) with your specific questions regarding the CCTT system.

If you have additional questions regarding the excise or sales tax requirements, please call our Customer Service Center at 1‑800‑400‑7115 (TTY:711) Monday through Friday, 8:00 a.m. to 5:00 p.m. (Pacific time), except state holidays.

 

Legalized Hemp & CBD Oil

While President Donald Trump marked the Agriculture Improvement Act of 2018 legitimizing hemp out of the blue since 1970, the enactment doesn’t sanction all types of cannabidiol (CBD), a non-inebriating part of both hemp and pot.

The Farm Bill, which was marked Dec. 20, 2018, and produces results Jan. 1, 2019, will open a conduit of new research and generation of hemp-based items, hemp industry specialists anticipated.

The law expels hemp from its prior status as a controlled substance. Rather than oversight by the U.S. Equity Department and its Drug Enforcement Agency (DEA), the U.S. Nourishment and Drug Administration (FDA) will manage the plant.

For reasonable purposes, hemp will be dealt with like some other horticultural item. The law permits the exchange of hemp-inferred items crosswise over state lines for business and different purposes and allows the deal, transport, assembling and ownership of hemp-determined items — with a few limitations.

Be that as it may, the FDA keeps on directing items containing cannabis-inferred mixes. Under the new law, the cannabis plant characterized as hemp can’t contain more than 0.3 percent THC, which implies it won’t get purchasers high.

FDA will Scrutinize Health Claims

Soon after the bill was marked, FDA Commissioner Dr. Scott Gottlieb issued an announcement affirming the office’s oversight of hemp and aim to look for pathways to legitimize the closeout of CBD in nourishments and different items. Gottlieb likewise pledged to nearly examine items that could present wellbeing dangers to buyers and guaranteed to issue alerts and take requirement activities if vital.

Gottlieb said he is worried about unconfirmed wellbeing claims made about items including CBD and different cannabis intensifies that have not been affirmed by the FDA, for example, guaranteeing helpful advantages. He said that items that guarantee to fix, treat, or forestall infections, including malignant growth or Alzheimer’s illness, must experience broad medication endorsement forms.

Gottlieb said it’s as yet illicit to bring CBD or THC into sustenance items planned for interstate trade or to showcase CBD or THC items in dietary enhancements without FDA endorsement. Yet, he brought up that in June 2018, the FDA endorsed a medication, Epidiolex, containing CBD to treat seizures in two types of uncommon epilepsy.

Hempseed Generally Recognized as Safe

He noticed that some hemp-related items don’t contain CBD or THC, and won’t pull in the equivalent administrative investigation. Gottlieb said the organization has assessed three Generally Recognized as Safe (GRAS) sees distinguishing hulled hempseeds, hempseed protein and hempseed oil as protected. Those items can be lawfully advertised in human nourishments without further sustenance added substance endorsements, as long as makers agree to ordinary FDA necessities and don’t issue unconfirmed wellbeing or treatment claims.

Hemp can be utilized to create in excess of 25,000 unique items and to make existing items more grounded and more sustainable.The three noteworthy segments of the plant are the fiber, grain, and CBD segment. Hemp fiber preparing will offer the best assembling potential, bringing up that European vehicle makers have depended on hemp for a considerable length of time to make various vehicle parts.

Hemp is an economical yield requiring no pesticides or synthetic information sources, is dry season tolerant, and can be developed in various atmospheres.

Cannabis and hemp makers were elated by the legitimization of hemp, however perceived the lawful obstructions confronting CBD items.

For quite a long time American business people have gone to Canada to research and deliver hemp items on the grounds that the plant was adequately restricted in the U.S.

Presently there will be increasingly American institutional cash supporting American organizations that will profit by the Farm Bill opening ways to developing hemp-related organi

California Cannabis Changes to Cannabis Regulations

State Cannabis Licensing Authorities Announce Changes to Proposed Cannabis Regulations

Author: Bureau of Cannabis Control
Published: Oct 19, 2018
Sacramento, California

 SACRAMENTO – California’s three state cannabis licensing authorities today announced changes to the proposed cannabis regulations published to the California Regulatory Notice Register on July 13, 2018. These proposed changes mark the next step in the formal rulemaking process toward adopting non-emergency regulations and the beginning of a 15-day public comment period related to the proposed changes.

The changes to each licensing authority’s proposed non-emergency regulations and rulemaking documents have been posted to California’s Cannabis Portal and may be viewed at the following link: https://cannabis.ca.gov/cannabis-regulations/

“We received valuable feedback from industry stakeholders and the public over the duration of the 45-day comment period,” said Bureau of Cannabis Control Chief Lori Ajax. “These changes we’ve proposed further clarify the requirements for cannabis businesses while protecting overall public health and safety.”

PUBLIC COMMENT: There will be a 15-day public comment period on the proposed changes, which starts today and concludes Monday, November 5, 2018, at 5 p.m. Please note that only public comments addressing the newly proposed changes will be considered.

The three licensing authorities will review each timely comment received and will respond to all comments in documents filed during the final stages of the rulemaking process. Comments may be submitted in writing to each licensing authority through email or physical mail. No public comments will be accepted by phone.


The current emergency regulations, adopted by the Bureau of Cannabis Control, California Department of Public Health and California Department of Food and Agriculture in December 2017 and readopted in June 2018, were originally issued through the emergency rulemaking process to meet the legislative mandate to open California’s regulated cannabis market on January 1, 2018. These emergency regulations will remain in effect until the non-emergency rulemaking process is complete.

On June 27, 2017, the legislature passed and Governor Brown signed into law the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) which provided one regulatory framework for both medicinal and adult-use commercial cannabis activity within the state. The state cannabis authorities adopted emergency regulations in December 2017 for initial implementation of the provisions of MAUCRSA and are now using the regular rulemaking process to adopt permanent regulations.

Matthew Price should have listened to his accountants

Matthew Price should have listened to his accountants.

The medical marijuana dispensary owner-operator in Oregon was sentenced to seven months in prison last month, in what appears to be the first federal sentencing of a legal cannabis business owner for tax crimes. Price, a co-owner of Cannabliss dispensaries, pleaded guilty to willfully failing to file income tax returns in connection with his cannabis stores, and did not file individual tax returns from 2011 to 2014 for income received from the dispensaries’ operations — despite the advice of a number of CPAs who advised him during those years.

“As with any business, marijuana business owners must operate in strict compliance with the local, state and federal tax laws,” said Rachel Gillette, a partner and chair of Greenspoon Marder’s cannabis practice. For cannabis businesses, tax compliance is part of operating in a state-legal marketplace, and includes understanding IRC Section 280E and how it affects these companies and owners of flow-through marijuana entities. “A tax issue can cause big problems for marijuana businesses and business owners, as most states require license holders to be ‘tax-compliant’ in order to maintain the license,” Gillette said.

Code Section 280E prohibits the deduction of otherwise ordinary businesses expenses from gross income associated with the trafficking of Schedule I or Schedule II substances as defined by the Controlled Substances Act.

Specifically, the statute states: “No 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.” (Internal Revenue Code Section 280E)

Cannabis retailers, therefore, are denied the deductions or credits normally available to businesses, since cannabis falls under the definition of a Schedule I substance – and therefore they should pay tax on their gross income.

The cannabis sector faces intense scrutiny from the IRS, as marijuana businesses are audited at greater rates than other businesses, according to Gillette. The IRS is aggressively applying the 1982 Tax Code provision Section 280E. Because many business owners and even tax accountants do not know how Sec. 280E applies, it often causes tax deficiencies for businesses and business owners, even with their best efforts.

Price was a member of the Oregon Liquor Control Commission’s Recreational Marijuana Technical Advisory Retail Subcommittee in 2015 and helped to advise the OLCC in adopting rules for the regulation of the industry.

“The prosecution serves as a reminder for people in the marijuana industry that they will be subject to heightened scrutiny by tax and regulatory authorities, and because of this they really need to be in strict compliance with local and federal tax filings and payments,” said Gillette.

The reason for the greater risk of audit is not because of the nature of the industry but because it is typified by a significant lack of banking, according to Gillette.

“Cannabis businesses are cash-intensive,” she said. “Many of them don’t have bank accounts. Banks are not keen on offering accounts to businesses that are not in compliance with federal law, even though it is legal in a particular state.”

“So cannabis businesses are underbanked,” she said. “In Colorado, only a handful will allow a marijuana business to open an account. There’s not nearly enough for all the licensed businesses to have an account, so many operate solely in cash. When that happens, there is likely to be additional audits.”

“If you’re a CPA and are helping a marijuana business be compliant, that’s OK,” she said. “But your clients should be reminded that they will be subject to increased scrutiny and they must focus on strict compliance with the law, including the tax law.”
Article source: Accounting Today

Cannabis: state and local equity programs

With so many ups-and-downs, the cannabis industry in California is looking like it will face several more obstacles before settling down. There are several bills in the California Senate that have significant impact on how the industry will run.

SB-1294 Social Equity Program – Enrolled 10/07/2018

The State will have a year to draft a Social Equity Program that other cities can implement. The “model equity ordinance” would work as a blue-print for cities who would like to implement such a program. The state will also create a fund to provide “technical assistance” defined as “providing training and education sessions regarding state cannabis licensing processes and requirement to equity applicants or equity licensees that are coordinated with the local equity program.”

 

An act to add Chapter 23 (commencing with Section 26240) to Division 10 of the Business and Professions Code, relating to professions and vocations.



LEGISLATIVE COUNSEL’S DIGEST

SB 1294, Bradford. Cannabis: state and local equity programs.
The Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), an initiative measure approved as Proposition 64 at the November 8, 2016, statewide general election, authorizes a person who obtains a state license under AUMA to engage in commercial adult-use cannabis activity pursuant to that license and applicable local ordinances. The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), among other things, consolidates the licensure and regulation of commercial medicinal and adult-use cannabis activities.
This bill would enact the California Cannabis Equity Act of 2018. The bill would authorize the Bureau of Cannabis Control, upon request by a local jurisdiction, to provide technical assistance, as defined, to a local equity program that helps local equity applicants or local equity licensees. The bill would, upon appropriation of funds by the Legislature, authorize an eligible local jurisdiction to submit an application to the bureau for a grant to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program. The bill would require the bureau to review an application, and to grant funding to an eligible local jurisdiction, based on specified factors. The bill would require an eligible local jurisdiction that receives grant funds pursuant to these provisions to use the grant funds to assist local equity licensees in that local jurisdiction to gain entry to, and to successfully operate in, the state’s regulated cannabis marketplace. The bill would require an eligible local jurisdiction that receives grant funds pursuant to these provisions to, on or before a specified date, submit an annual report to the bureau that contains specified information on the use of the grant funds and specified demographic data.
This bill would require, on or before July 1, 2019, the bureau to, among other things, publish approved local equity ordinances and model equity ordinances created by advocacy groups and experts, as specified, and to submit a report to the Legislature regarding the progress of local equity programs that receive funding pursuant to these provisions.
The Control, Regulate and Tax Adult Use of Marijuana Act, an initiative measure, authorizes the Legislature to amend the act to further the purposes and intent of the act with a 2/3 vote of the membership of both houses of the Legislature, except as provided.
This bill would declare that its provisions further the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act.

DIGEST KEY

Vote: 2/3   Appropriation: no   Fiscal Committee: yes   Local Program: no  


BILL TEXT

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1.

This act shall be known and may be cited as the California Cannabis Equity Act of 2018.

SEC. 2.

The Legislature finds and declares the following:

(a) In 2016, California voters approved Proposition 64, the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA). In its statement of purpose and intent, AUMA calls for regulating cannabis in a way that “reduce[s] barriers to entry into the legal, regulated market.”
(b) Cannabis prohibition had a devastating impact on communities across California and across the United States. Persons convicted of a cannabis offense and their families suffer the long-term consequences of prohibition. These individuals have a more difficult time entering the newly created adult-use cannabis industry due, in part, to a lack of access to capital, business space, technical support, and regulatory compliance assistance.
(c) During the era of cannabis prohibition in California, the burdens of arrests, convictions, and long-term collateral consequences arising from a conviction fell disproportionately on Black and Latinx people, even though people of all races used and sold cannabis at nearly identical rates. The California Department of Justice data shows that from 2006 to 2015, inclusive, Black Californians were two times more likely to be arrested for cannabis misdemeanors and five times more likely to be arrested for cannabis felonies than White Californians. During the same period, Latinx Californians were 35 percent more likely to be arrested for cannabis crimes than White Californians. The collateral consequences associated with cannabis law violations, coupled with generational poverty and a lack of access to resources, make it extraordinarily difficult for persons with convictions to enter the newly regulated industry.
(d) Offering technical support, regulatory compliance assistance, and assistance with securing the capital necessary to begin a business will further the stated intent of the AUMA by reducing barriers to licensure and employment in the regulated industry.
(e) Offering these supports will also aid the state in its goal of eliminating or reducing the illicit cannabis market by bringing more people into the legal marketplace.
(f) It is the intent of the Legislature in enacting this act to ensure that persons most harmed by cannabis criminalization and poverty be offered assistance to enter the multibillion dollar cannabis industry as entrepreneurs or as employees with high quality, well-paying jobs.
(g) It is the intent of the Legislature in enacting this act that the cannabis industry be representative of the state’s population, and that barriers to entering the industry are reduced through support to localities that have created local equity programs in their jurisdictions.
(h) The Legislature finds and declares that this act furthers the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act, enacted as Proposition 64 of 2016.

SEC. 3.

Chapter 23 (commencing with Section 26240) is added to Division 10 of the Business and Professions Code, to read:

CHAPTER  23. The California Cannabis Equity Act
26240.

For purposes of this chapter, the following definitions apply:

(a) “Eligible local jurisdiction” means a local jurisdiction that has adopted or operates a local equity program.
(b) “Local equity applicant” means an applicant who has submitted, or will submit, an application to a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries of that jurisdiction and who meets the requirements of that jurisdiction’s local equity program.
(c) “Local equity licensee” means a person who has obtained a license from a local jurisdiction to engage in commercial cannabis activity within the jurisdictional boundaries of that jurisdiction and who meets the requirements of that jurisdiction’s local equity program.
(d) “Local equity program” means a program adopted or operated by a local jurisdiction that focuses on inclusion and support of individuals and communities in California’s cannabis industry who are linked to populations or neighborhoods that were negatively or disproportionately impacted by cannabis criminalization. Local equity programs may include, but are not limited to, the following types of services:
(1) Small business support services offering technical assistance to those persons from economically disadvantaged communities that experience high rates of poverty or communities most harmed by cannabis prohibition, determined by historically high rates of arrests or convictions for cannabis law violations.
(2) Tiered fees or fee waivers for cannabis-related permits and licenses.
(3) Assistance in paying state regulatory and licensing fees.
(4) Assistance securing business locations prior to or during the application process.
(5) Assistance securing capital investments.
(6) Assistance with regulatory compliance.
(7) Assistance in recruitment, training, and retention of a qualified and diverse workforce, including transitional workers.
(e) “Transitional worker” means a person who, at the time of starting employment at the business premises, resides in a ZIP Code or census track area with higher than average unemployment, crime, or child death rates, and faces at least one of the following barriers to employment: (1) is homeless; (2) is a custodial single parent; (3) is receiving public assistance; (4) lacks a GED or high school diploma; (5) has a criminal record or other involvement with the criminal justice system; (6) suffers from chronic unemployment; (7) is emancipated from the foster care system; (8) is a veteran; or (9) is over 65 years of age and is financially compromised.
26242.

(a) The bureau may, upon request by a local jurisdiction, provide technical assistance to a local equity program that helps local equity applicants or local equity licensees. When determining whether to provide technical assistance, the bureau shall make individual determinations based on the reasonableness of the request and available resources.

(b) “Technical assistance” includes providing training and educational sessions regarding state cannabis licensing processes and requirements to equity applicants or equity licensees that are coordinated with the local equity program.
26244.

(a) (1) Upon appropriation of funds by the Legislature, an eligible local jurisdiction may, in the form and manner prescribed by the bureau, submit an application to the bureau for a grant to assist local equity applicants and local equity licensees through that local jurisdiction’s equity program.

(2) The bureau shall review an application based on the following factors:
(A) Whether the local jurisdiction is an eligible local jurisdiction.
(B) Whether the local jurisdiction has adopted or operates a local equity program.
(C) Whether the local jurisdiction has identified a local equity applicant or a local equity licensee that the local jurisdiction could assist, as defined in subdivision (b), through use of the grant funding.
(D) Whether the local jurisdiction has demonstrated the ability to provide, or created a plan to provide, the services identified in subdivision (b).
(E) The number of existing and potential local equity applicants and local equity licensees in the local jurisdiction.
(F) Any additional relevant and reasonable criteria the bureau deems necessary.
(3) The bureau shall grant funding to an eligible local jurisdiction based on its review of the factors in paragraph (2). If applications for funding are greater than the amount appropriated for this grant program, the bureau shall prorate the funding as necessary.
(b) An eligible local jurisdiction that receives a grant pursuant to subdivision (a) shall use grant funds to assist local equity applicants and local equity licensees in that local jurisdiction to gain entry to, and to successfully operate in, the state’s regulated cannabis marketplace. For purposes of this subdivision, “assist” includes, but is not limited to, any of the following methods:
(1) To provide a loan or a grant to a local equity applicant or local equity licensee to assist the applicant or licensee with startup and ongoing costs. For purposes of this paragraph, “startup and ongoing costs” include, but are not limited to, rent, leases, local and state application and licensing fees, regulatory adherence, testing of cannabis, equipment, capital improvements, and training and retention of a qualified and diverse workforce.
(2) To support local equity program efforts to provide sources of capital to local equity applicants and local equity licensees.
(3) To provide direct technical assistance to local equity applicants and local equity licensees.
(4) To assist in the administration of local equity programs.
(c) An eligible local jurisdiction that receives a grant pursuant to subdivision (a) shall, on or before January 1 of the year following receipt of the grant and annually thereafter for each year that grant funds are expended, submit an annual report to the bureau that includes all of the following information:
(1) How the local jurisdiction disbursed grant funds.
(2) How the local jurisdiction identified local equity applicants or local equity licensees, including how the local jurisdiction determines who qualifies as a local equity applicant or local equity licensee.
(3) The number of local equity applicants and local equity licensees that were served by the grant funds.
(4) Demographic data on equity applicants, equity licensees, and other applicants and licensees in the jurisdiction, including, but not limited to, race, ethnicity, gender, sexual orientation, income level, prior convictions, and veteran status. This information will be consolidated and reported without the individual’s identifying information.
(d) An eligible local jurisdiction that receives a grant pursuant to this section shall use no more than 10 percent of the state grant for administration, including employing staff or hiring consultants to administer grants and the program.
26246.

To facilitate greater equity in business ownership and employment in the cannabis market, the bureau shall do all of the following:

(a) Serve as a point of contact for local equity programs.
(b) On or before July 1, 2019, publish approved local equity ordinances and model local equity ordinances created by advocacy groups and experts to the bureau’s Internet Web site. Advocacy groups and experts may include, but are not limited to, minority business owners and entrepreneurs, organizations with expertise in addressing barriers to employment and licensure for low-income communities or persons with prior arrests or convictions, and unions representing cannabis workers.
(c) To the extent feasible, coordinate with the relevant local jurisdictions to carry out the responsibilities described in this section.
26248.

(a) On or before July 1, 2020, the bureau shall submit a report to the Legislature regarding the progress of local equity programs that have received funding pursuant to Section 26244.

(b) The report shall include, but is not limited to, the following information:
(1) The cities, counties, and cities and counties that have enacted local equity programs.
(2) The number of local equity applicants and general applicants applying for and receiving licenses in the jurisdictions that received grants.
(3) Information collected pursuant to subdivision (c) of Section 26244.
(c) The bureau shall post the report required by this section on its Internet Web site.
(d) The report required by this section shall be submitted in compliance with Section 9795 of the Government Code, and shall apply notwithstanding Section 10231.5 of the Government Code.
26250.

The provisions of this chapter are severable. If any provision of this chapter or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 4.

The Legislature finds and declares that this act furthers the purposes and intent of the Control, Regulate and Tax Adult Use of Marijuana Act.

Commercial cannabis activity: Licensed Distributors

With so many ups-and-downs, the cannabis industry in California is looking like it will face several more obstacles before settling down. There are several bills in the California Senate that have significant impact on how the industry will run.

SB-1459 Provisional Licenses – Enrolled 10/07/2018

First and foremost, there has been a panic over the permanent state licenses considering that the largest markets (LA, SF, SD) have yet to issue local approval or have only issued temporary approval, if at all. SB-1459 allows the state to issue provisional licenses instead of temporary or permanent licenses. Essentially, the state is conceding that it will most likely not be until 2020 that proper permanent licenses are in full swing.

An act to amend Section 26110 of the Business and Professions Code, relating to cannabis, and declaring the urgency thereof, to take effect immediately.



LEGISLATIVE COUNSEL’S DIGEST

SB 311, Pan. Commercial cannabis activity: licensed distributors.
Existing law, the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), provides for the licensure and regulation of commercial cannabis activity. Existing law requires a licensed distributor to arrange for a testing laboratory to obtain a representative sample of each cannabis batch at the distributor’s premises for testing and, upon issuance of a certificate of analysis by a licensed testing laboratory, conduct a quality assurance review before distribution to ensure the labeling and packaging conform to the legal requirements. Existing law authorizes cannabis and cannabis products fit for sale to be transported only from the distributor’s premises to the premises of a licensed retailer, microbusiness, or nonprofit.
This bill would require that transportation to be for the purpose of retail sale. The bill would also authorize a licensed distributor to transport cannabis or cannabis products that are fit for sale to the premises of another licensed distributor for further distribution.
This bill would declare that it is to take effect immediately as an urgency statute.

DIGEST KEY

Vote: 2/3   Appropriation: no   Fiscal Committee: no   Local Program: no  


BILL TEXT

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1.

Section 26110 of the Business and Professions Code is amended to read:

26110.

(a) Cannabis batches are subject to quality assurance and testing prior to sale at a retailer, microbusiness, or nonprofit licensed under Section 26070.5, except for immature cannabis plants and seeds, as provided for in this division.

(b) A licensee that holds a valid distributor license may act as the distributor for the licensee’s cannabis and cannabis products.
(c) The distributor shall store, as determined by the bureau, the cannabis batches on the premises of the distributor before testing and continuously until either of the following occurs:
(1) The cannabis batch passes the testing requirements pursuant to this division and is transported to a licensed retailer or to another licensed distributor.
(2) The cannabis batch fails the testing requirements pursuant to this division and is destroyed or transported to a manufacturer for remediation as allowed by the bureau or the State Department of Public Health.
(d) The distributor shall arrange for a testing laboratory to obtain a representative sample of each cannabis batch at the distributor’s licensed premises. After obtaining the sample, the testing laboratory representative shall maintain custody of the sample and transport it to the testing laboratory.
(e) Upon issuance of a certificate of analysis by the testing laboratory that the cannabis batch has passed the testing requirements pursuant to this division, the distributor shall conduct a quality assurance review before distribution to ensure the labeling and packaging of the cannabis and cannabis products conform to the requirements of this division.
(f) (1) There shall be a quality assurance compliance monitor who is an employee or contractor of the bureau and who shall not hold a license in any category or own or have an ownership interest in a licensee or the premises of a licensee.
(2) The quality assurance compliance monitor shall conduct random quality assurance reviews at a distributor’s licensed premises before distribution to ensure the labeling and packaging of the cannabis and cannabis products conform to the requirements of this division.
(3) The quality assurance compliance monitor shall have access to all records and test results required of a licensee by law in order to conduct quality assurance analysis and to confirm test results. All records of inspection and verification by the quality assurance compliance monitor shall be provided to the bureau. Failure to comply shall be noted by the quality assurance compliance monitor for further investigation. Violations shall be reported to the bureau. The quality assurance compliance monitor shall also verify the tax payments collected and paid under Sections 34011 and 34012 of the Revenue and Taxation Code are accurate. The monitor shall also have access to the inputs and assumptions in the track and trace system and shall be able to verify their accuracy and that they are commensurate with the tax payments.
(g) After testing, all cannabis and cannabis products fit for sale may be transported only from the distributor’s premises to the premises of another licensed distributor for further distribution, or to a licensed retailer, microbusiness, or nonprofit for retail sale.
(h) A licensee is not required to sell cannabis or cannabis products to a distributor and may directly contract for sale with a licensee authorized to sell cannabis and cannabis products to purchasers.
(i) A distributor performing services pursuant to this section may collect a fee from the licensee for the services provided. The fee may include, but is not limited to, the costs incurred for laboratory testing. A distributor may also collect applicable state or local taxes and fees.
(j) This section does not prohibit a licensee from performing testing on the licensee’s premises for the purposes of quality assurance of the product in conjunction with reasonable business operations. The testing conducted on the licensee’s premises by the licensee does not meet the testing requirements pursuant to this division.

SEC. 2.

This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:

In order to promote the reliable and safe distribution of cannabis at the earliest time possible, it is necessary for this act to take effect immediately.
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