Tribes and Cannabis: Federalism is Messy

Luke EwingCannabis Law, CultureLeave a Comment

tribes

Today’s “legal” cannabis industry grew out of the cracks in our federalist system (a system where other states or governments operate in addition to the federal government). In the US, we have state government powers and federal government powers. Sometimes they overlap; sometimes they conflict. Cannabis is only legal because the federal government has chosen not to enforce its own laws which require complete prohibition of the substance. Under this funky regime, nearly every state has legalized the plant in one form or another; even US territories are legalizing. Medical marijuana is now legal in every territory except American Samoa; the Northern Mariana Islands even legalized recreational marijuana last year.

So what about the other class of U.S. jurisdictions? Can tribes legalize marijuana on their lands? This month, a Republican congressman from Alaska submitted a bill that would protect tribes who legalize cannabis from being discriminated against when being considered for federal funding. As a fan of complex regulatory regimes, I have been curious about how this situation would actually play out on tribal lands. So, I did some research, and guess what…

…It’s super complicated! Because Indian Law* is also super complicated!

At my law school, we were offered eight credit hours on Indian Law, and if you asked the professors, they’d tell you that those still aren’t enough to really understand the subject.  Regardless, here’s a high level breakdown of the layers of complication and jurisdiction that make the opportunity for cannabis on tribal lands so complicated.

Tribes in the US
Current state of tribe reservations + where Simplifya is available

Very Generalized Indian Law*

*I know the term ‘Indian’ is controversial, but that is the term used in legal contexts, so I will use it here, albeit sparingly.

Generally, federal law applies on tribal lands because tribes are treated somewhat like independent nations, but the land is “held in trust” by the United States government. Depending on which state the tribal lands are located, state criminal law also applies, thanks to Public Law 280 (PL-280). However, even in states that have PL-280 jurisdiction, some tribes remain exempt. Additionally, tribal lands have their own version of the Cole memo, known as the Wilkinson memo. It adopts the eight policy goals from Cole (e.g. keeping cannabis away from minors, organized crime, and interstate commerce) that the DOJ wanted states to enforce in order to keep the federal government from intervening, but it also adds the caveat that the feds will consult with tribal leaders before deciding to intervene. But Jeff Sessions repealed those memos, right? Again, sort of. Although the memos are no longer dictating which policies every US attorney must consider, Sessions, in his own memo, said each attorney should use their own judgment to balance enforcement priorities. In response, many attorneys said, “okay, if I can choose my own policies, I’m just going to choose the policies outlined in the Cole memo.”  

While every tribe is still governed under federal law, depending on the attorney, they might choose not to enforce cannabis laws against tribes who maintain a well-regulated market within their territory. State criminal law only applies within “PL-280” states (CA, MN, NE, OR, WI, AK, NV, ID, IA, WA, SD, MT, ND, AZ, UT) unless you’re within one of the many intrastate exceptions to the law. (Some intra-state exceptions are for specific tribes, regions, or legal subject matter.)

But that’s not all; there’s yet another layer to further complicate things. Because PL-280 only gives the states criminal jurisdiction over reservations, the only state marijuana law that can legally be enforced is a law that makes it a crime to deal with marijuana. So tribes in PL-280 states are exempt from any regulations or taxes that legalized states have put in place, but not exempt from a full-on ban. This also has the strange logical result that tribes inside non-PL-280 states that prohibit cannabis could legalize marijuana within tribal boundaries.

Tribes in Illegal States

Regardless, a tribe that chooses to legalize within a non-legal state should still be wary of the federal government stepping in. Even without the feds, the state could just choose to harass people at the borders of their jurisdiction. South Dakota took this route when the Santee-Sioux tried to legalize marijuana use at a resort on their reservation. South Dakota had an especially weird situation because although they are a PL-280 state, their jurisdiction only applies on highways that run through the reservation. The attorney general convinced the tribe to abandon their plans by threatening to arrest “busloads” of people for “possession by ingestion” the moment they reenter the state’s jurisdiction. They also threatened to take the tribe’s crops by force, which probably would be very illegal, but the tribe elected to burn it all before law enforcement got involved.

In Wisconsin, the Menominee Tribe voted to legalize. But implementation has stalled after the DEA raided one of their hemp crops. The Menominee are also in a PL-280 state, but are specifically exempted from Wisconsin’s jurisdiction, so they should arguably have the power to legalize.

Tribes in Legal States

In legal states, the situation is a little less contentious; many tribes in California and Washington have legalized cannabis. In general, those tribes have agreed to implement the state regulations in exchange for a compact allowing tribal cannabis to leave the reservation. In Colorado, none of the Ute tribal governments have expressed interest in the industry, and the Southern Utes actively enforce a ban on cannabis in their territory.

Should You Open a Cannabis Business on Tribal Land?

Even with the threat of possible state or federal enforcement on one side of the equation, the potential benefits of freedom from state tax and regulation lie on the other side. Additionally, if the tribe organizes as a corporation, they are exempt from paying federal income tax. The 280E Internal Revenue Code tax issue has been a huge thorn in the side of the industry, and tribal entities could potentially avoid it. One final complication under Indian Law is that these tribal advantages only apply to tribal members and tribe-owned businesses. So if you want to enjoy the edge that comes with tribal sovereignty, you’d better work closely with the tribe.

There are a lot of hurdles to overcome, but the advantages to tribal licensing and regulatory systems could really give a cannabis business an edge. You can also trust that when a tribe decides to go this route, Simplifya will be close behind, breaking down the complex regulatory content to help keep your business compliant. Being a tribal cannabis business can be complicated, but there are sizable advantages if you – and they – can navigate the complex jurisdictional hurdles.

The FDA’s stance on hemp CBD

Michael WilliamsonCannabis LawLeave a Comment

Hemp CBD

The cannabis industry heralded the approval of recent legislation that legalized the growing of hemp and the marketing of products derived from it.

Actually, to say industry proponents heralded hemp’s return to legality is likely an understatement. Based on the deluge of press releases that came pouring into my inbox after the bill became a law, there was almost downright giddiness from many cannabis business interests, especially among those who view the law as paving the way for expanding sales of a whole range of products infused with cannabidiol (CBD).

CBD is a component found naturally in all cannabis plants that does not produce a high when ingested. Many companies are selling CBD oils and tinctures, as well as products infused with CBD, including food and drink items, and there’s growing interest in the compound’s health and wellness benefits. The New York Times recently ran an article underscoring the surging popularity of the compound, with a headline proclaiming “CBD is Everywhere.”

CBD plant

Like all other cannabis products, CBD had been illegal ever since the federal cannabis prohibition took effect. However, with signage of the Agricultural Improvement Act of 2018 (commonly referred to as the Farm Bill), the production and marketing of hemp with THC levels lower than 0.3% once again became legal. This change should theoretically pave a pathway for selling CBD products.

But Wait!

Notice that pesky “theoretically” thrown into the last sentence? The signing of the Farm Bill also means federal agencies, such as the Food and Drug Administration (FDA), are now involved. And take it from me, a former healthcare reporter and consultant who dealt with the agency on a near daily basis for years, matters get complicated when the FDA takes a stance.

FDA Commissioner Scott Gottlieb, M.D. issued a lengthy statement shortly after the Farm Bill’s approval that attempted to explain the agency’s stance on CBD. In short, I take the statement as a warning to the burgeoning CBD industry.

But don’t just take my word for it. For example, Gottlieb wrote, “In particular, we continue to be concerned at the number of drug claims being made about products not approved by the FDA that claim to contain CBD or other cannabis-derived compounds.” In addition, Gottlieb said that it remains illegal to introduce food containing added CBD into interstate commerce or to sell CBD products, as, or in dietary supplements, regardless of whether the manufacturer derived the product from hemp.

Confused Yet?

Cannabis farm

Perhaps it’s best to look for some silver linings when trying to understand the FDA’s stance. While Gottlieb’s statement isn’t exactly promising to the industry, he did leave the door open for the FDA to allow products infused with CBD derived from legal hemp to enter the market.

Makers of food products containing CBD derived from legal hemp could push the FDA to allow the compound to be regulated as a dietary supplement. Additionally, there are currently, federal restrictions in place forbidding products containing CBD derived from legal hemp into interstate commerce. In his statement, Gottlieb indicated the FDA is open to finding a pathway where such products could be sold across state lines.

In addition, the FDA indicated that it is open to approving pharmaceutical products containing CBD as an active ingredient if there is rigorous clinical trial data to substantiate the therapeutic claims made by the drug maker, Gottlieb said.

Bottomline: Do not lose hope! The FDA’s cautious reaction to the potential for legal CBD sales is completely normal for an agency that takes its public health mission very seriously. Continue to organize with like minded businesses that want to engage with the FDA and lawmakers to ensure rational changes are made to laws so safe CBD products have a place on the market.

Cannabis Legalization & The Presidential Campaign: How They Overlap

Katelin EdwardsCultureLeave a Comment

marijuana legalization

The 2020 presidential campaign will be a competitive one, with President Donald Trump running for re-election and 535 other candidates (as of February 19, 2019) running against him. Major issues that candidates will be running on include the economy, immigration policy, healthcare, climate change … the usual. But as I read through endless articles about the 2020 presidential race, one particular campaign issue keeps popping up: cannabis legalization.

Is cannabis legalization going to be the top issue candidates run on? Will it be what a candidate needs to win the primary and even the general election? No, probably not. But in a primary race where candidates are fighting to set themselves apart, advocating for cannabis legalization may be an option for doing so.

With polls showing that two out of three Americans support cannabis legalization, it is a no-brainer to run on this issue. The 2018 midterm elections proved this to be true, when a record number of gubernatorial candidates embraced the issue. The data gathered in the 2018 midterms will help us predict what we can expect to see from presidential candidates in 2020. Aside from polls and data from 2018, we can also look at candidates’ voting records regarding cannabis legislation.

Let’s take a look at some of the more prominent candidates’ current stances on cannabis legalization, including their bill sponsorships.

Sen. Cory Booker (D-NJ)

  • From a cannabis-friendly state;
  • Sponsored the Marijuana Justice Act of 2017, which proposed to remove marijuana from being included as a Schedule I substance, eliminate criminal penalties for those handling marijuana, expunge convictions for marijuana use or possession, amongst other progressive elements;
  • Championed the CARERS Act of 2015, which would deschedule marijuana, protect states that have legalized medical marijuana from federal intervention, legalize industrial hemp, and promote the research of cannabis; and  
  • Decried the war on drugs from as far back as 2012, when he was mayor of Newark.

Sen. Bernie Sanders (I-VT)


Sen. Elizabeth Warren (D-MA)

  • From a cannabis-friendly state;
  • Sponsored the STATES Act, a bipartisan bill, released on June 7, 2017, that would recognize a state’s right to legalize cannabis and protect states with legal cannabis from federal intervention;
  • Co-sponsored the Marijuana Justice Act of 2017; and
  • Co-sponsored numerous other pieces of cannabis reform legislation, such as bills aimed at providing cannabis businesses access to banking.

Sen. Kamala Harris (D-CA)

  • From a cannabis-friendly state;
  • On her personal cannabis use, stated: “Half my family is from Jamaica; are you kidding me? And I did inhale.”
  • Co-sponsored the Marijuana Justice Act of 2017

Sen. Kristen Gillibrand (D-NY)


And let’s not forget, President Donald Trump   

  • Signed the 2018 Farm Bill, which legalized industrial hemp;
  • Issued a signing statement on the medical marijuana provision of the most recent federal spending bill – seeking to strip the Department of Justice of funds used to interfere in the implementation of state medical marijuana laws – making clear that he will reserve the right to ignore the provision; and
  • Made a “solid commitment” to fix marijuana regulation according to then-Rep. Dana Rohrabacher (R-CA).

Although President Trump’s cannabis agenda is unclear, it is clear that the most prominent of the current Democratic candidates are pro-pot as of now.

Cannabis is evolving into a mainstream political issue. If presidential candidates choose not to vocalize their opinions on it, whether they are Democrats or Republicans, it is highly likely they will be pressed about it in the interviews, political rallies, and debates to come.

In the 1970s, 1980s and 1990s, presidential candidates ran on the platform of a “war on drugs,” with cannabis being one of the main targets of this “war.” Now, only a couple of administrations later, presidential candidates are not only open to legalization, but are making cannabis reform a focal point of their campaigns.

Regulators send message that compliance matters

Taylor Hart-BowlanCannabis Law, ComplianceLeave a Comment

cannabis regulations

Knock Knock! Who’s There? Your Licensing Authority.

State agencies across the country are revving up cannabis law enforcement efforts, and the number of businesses now bearing the hefty cost of non-compliance is growing as a result.

In Different States

In just the last month, administrative agencies in Massachusetts, California, and Colorado have all cracked down on cannabis companies. Violations ranged from storing cannabis-infused beverage products in an employee refrigerator to operating without a state license.

cannabis business

In January, the Massachusetts Cannabis Control Commission conducted two unannounced inspections of a single dispensary in the same week. After discovering a bevy of issues that posed “an immediate or serious threat to public health, safety, or welfare” — such as inadequate sanitation controls and products that did not meet pesticide standards — the agency ordered the business shuttered until further notice.

Around the same time in California, the Bureau of Cannabis Control aided in the shutdown of two Los Angeles dispensaries operating without state licenses. Search warrants served on the two retailers resulted in the seizure of more than $250,000 worth of cannabis and cannabis products alone.  

cannabis business

In Oregon, the Oregon Liquor Control Commission ordered two processors to either pay fines or serve suspensions; one must either pay a $2,310 fine or serve a 14-day license suspension for two violations, and the other must choose between a $7,620 fine or a 44-day suspension as a result of three offenses. The Commission also revoked the licenses of two testing labs for allowing employees to take samples of cannabis home, failing to document the transfer in the inventory tracking system, destroying evidence, and encouraging employees to lie to investigators.

Finally, on January 25th, three owners of the now-closed Colorado grower and dispensary chain Sweet Leaf were each sentenced to one year in prison for their involvement in a highly publicized multi-million dollar “looping” sales scheme, which involved taking advantage of a controversial ambiguity in the state’s retail daily purchase limits.

Regulators Are Cracking Down

Clearly, regulators are paying attention — and they’re sending a message to businesses that compliance matters in the process.

cannabis business

Notably, many cannabis-legal states have also enacted regulations that allow them to penalize a cannabis business for non-compliance that stems from another business. For example, although retailers generally don’t (and often are forbidden to) package and label edible products for retail sale, a retailer can nevertheless still be fined by its licensing agency for selling products that were improperly labeled when they received them from the manufacturer or distributor.

With agency enforcement on the rise in a number of states, the importance of compliance measures is arguably at an all-time high as well. Nearly all agencies can cite violations on a “per-instance” basis, too, which means that one small infringement can easily add up to thousands of dollars, even if the infraction itself is minor. For instance, if a business’s delivery sales receipt template doesn’t include a required component — such as the time the driver left the facility — an agency may fine the business individually for literally every single delivery sale that occurred using the non-compliant template. Ouch.

So, if you’re involved in a cannabis business and have not made compliance a priority, now is a good time to ask yourself a single, important question:

If your licensing agency comes knocking, how prepared are you?

2019 Cannabis Industry Developments: Tracking Cannabis Bills Part 1

Bill GunnisonCannabis LawLeave a Comment

cannabis compliance

Welcome to Bill’s first legislative roundup of 2019!

The 2019 legislative session is only a few weeks old, but plenty of cannabis bills are already on our radar. In the first legislative roundup of 2019, we’ll look at the most significant cannabis bills that have been introduced (so far) in Colorado, California, Oregon, Maryland, Pennsylvania, and Massachusetts:

COLORADO

HB19-1090 – Publicly Licensed Marijuana Companies

Summary: The current regulatory structure for the cannabis industry in Colorado creates substantial barriers for out-of-state investment and prohibits publicly traded companies from holding a license. This bill would remove those barriers and restrictions, potentially opening the floodgates for investment in Colorado’s cannabis industry. The bill would repeal provisions that require passive investors to go through an initial background check, would repeal provisions that limit out-of-state owners to 15 natural persons, and would repeal the provision that prohibits publicly traded companies from holding a marijuana license.

Introduced: 01/14/2019

Status: In Committee Process

Upcoming: Hearing in the House Finance Committee on 02/25/2019 @ 1:30p

CALIFORNIA

AB 286 – Reduce Excise Tax Rate, Suspend Cultivation Tax

Summary: To inject some life into the legal cannabis market in California and to combat the black market, lawmakers are considering a bill that would cut taxes on consumers and cultivators for three years. The goal is to reduce the disparity in prices between legal cannabis sources and black market sources to encourage consumers to purchase from the legal market. The bill would reduce the excise tax imposed on retail purchases of cannabis from 15% to 11% and would eliminate the cultivation tax of $9.25 per ounce of flower ($2.75 per ounce of cannabis leaf; $1.29 per ounce of fresh cannabis plant) until June 1, 2022.

Introduced: 01/28/2019

Status: In Committee Process

Upcoming: No hearing scheduled


AB 37 – Deducting Business Expenses (IRC Sec. 280E Relief)

Summary: This bill would allow cannabis businesses to deduct ordinary and necessary business expenses like rent, salaries, employee benefits, utilities, and advertising from income subject to state income tax. These types of expenses are currently disallowed under IRC Section 280E and cannot be deducted from income subject to federal income tax. The bill would take effect immediately on passage and would apply to tax year 2019 and beyond.

Introduced: 12/03/2018

Status: In Committee Process

Upcoming: No hearing scheduled


SB 51 – Cannabis Limited Charter Banks and Credit Unions

Summary: In an effort to reduce the cannabis industry’s reliance on cash, Sen. Hertzberg (D-Los Angeles) introduced a cannabis bill to bring banking services to California’s cannabis industry. The bill provides for the licensure and regulation of cannabis limited charter banks and credit unions. These banks and credit unions would be able to issue special purpose checks to account holders that would be valid for specified purposes like paying state and local taxes, paying rent, and paying contractors.

Introduced: 12/04/2018

Status: In Committee Process

Upcoming: No hearing scheduled

OREGON

SB 582 – Interstate Transfer of Marijuana Products

Summary: To combat the state’s massive oversupply of marijuana, Sen. Proznanski (D-Eugene) and Rep. Helm (D-Beaverton) introduced a bill that would allow Oregon marijuana businesses to export products across state lines to other legal cannabis states around Oregon (Washington, California, and Nevada). The bill would prohibit Oregon marijuana businesses from exporting to another state unless the Governor has entered into an agreement with that other state “for the purpose of cross-jurisdictional coordination and enforcement of marijuana-related businesses”. If this bill is passed, Oregon will become the first state to allow marijuana exports across state lines.

Introduced: 01/14/2019

Status: In the Committee Process. Senate Judiciary Committee held hearing on 02/07/2019.

Upcoming: No hearing scheduled


SB 365 – Local Governance of Marijuana Producers

Summary: This cannabis bill would protect marijuana producers located in cities or counties that adopt bans on marijuana production. It would allow premises used for marijuana production to continue to be used for marijuana production as long as they were licensed prior to the city or county prohibition.

Introduced: 01/14/2019

Status: In Committee Process

Upcoming: No hearing scheduled


SB 585 – Responsible Cannabis Retailer Program

Summary: This bill would direct the Oregon Liquor Control Commission to establish a Responsible Cannabis Retailer Program to assist marijuana retailers in maintaining compliance with cannabis laws and rules. It would prohibit the commission from imposing discipline on marijuana retailers that participate in the program.

Introduced: 01/14/2019

Status: In Committee Process

Upcoming: No hearing scheduled


SB 639 (HB 2233) – Consumption Lounges, Delivery to Hotels, Grow Facility Tours

Summary: This cannabis bill would allow the Oregon Liquor Control Commission to regulate and license marijuana consumption lounges but would allow cities and counties to opt-out. It would allow retailers to deliver marijuana items to hotels- but not to dorms- and would allow marijuana producers and marijuana processors to offer tours of their licensed premises to members of the public who are 21 years of age or older. Producers and processors would be allowed to contract with retailers to sell marijuana items during tours.

Introduced: 01/22/2019

Status: In Committee Process

Upcoming: No hearing scheduled


HB 2909 – Marijuana Deliveries to Adjacent Cities, Counties

Summary: Currently, a marijuana retailer can only deliver to consumers located within the city or unincorporated areas of a county in which the retailer is licensed. This cannabis bill would allow marijuana retailers to deliver to consumers located in adjacent cities and counties, provided those cities or counties have adopted an ordinance allowing for such deliveries.

Introduced: 02/07/2019

Status: Awaiting Referral to Committee

Upcoming: No hearing scheduled

MARYLAND

HB 17 (SB 857) – Repeal Ban on Edibles

Summary: Medical cannabis patients in Maryland who would prefer to medicate with edibles like brownies and chocolate bars might be in luck. HB 17 (cross-filed with SB-857) would repeal Maryland’s ban on “food containing medical cannabis”. Edibles could soon be available to patients in the Old Line State.

Introduced: 11/20/2018

Status: In Committee Process. House Health and Government Operations Committee held hearing on 01/29/2019.

Upcoming: No hearing scheduled


HB 568 (SB 9) – Deducting Business Expenses (IRC Sec. 280E Relief)

Summary: This bill would allow medical cannabis businesses to deduct ordinary and necessary business expenses like rent, salaries, employee benefits, utilities, and advertising from income subject to state income tax. These types of expenses are currently disallowed under IRC Section 280E and cannot be deducted from income subject to federal income tax. The bill would take effect July 1, 2019, and would apply to tax year 2019 and beyond.

Introduced: 02/04/2019

Status: In the Committee Process

Upcoming: House Ways and Means Committee Hearing on 02/20/2019 @ 1pm


HB 0632 – Constitutional Amendment to Legalize and Regulate Recreational Cannabis

Summary: This cannabis bill would amend the Maryland Constitution to legalize recreational cannabis. If it is approved by the legislature, it will be placed on the state ballot and Maryland voters will decide on the issue in November. If voters approve the measure, adults (at least 21 years old) in the Old Line State would be allowed to use cannabis, possess up to an ounce, cultivate up to six plants, and the state would be required to establish a regulation and taxation system for recreational cannabis.

Introduced: 02/06/2019

Status: In the Committee Process

Upcoming: House Judiciary Committee Hearing on 03/05/2019 @ 1pm


HB 0656 (SB 0771) – Legalize and Regulate Recreational Cannabis

Summary: This bill would also legalize recreational cannabis but, unlike HB 0632, would not require voter approval. The cannabis bill would establish a Cannabis Regulation Division that would be responsible for licensing and regulating retail cannabis stores, on-site consumption establishments, cultivation facilities, product manufacturing facilities, testing facilities, and transporters.

Introduced: 02/06/2019

Status: In the Committee Process

Upcoming: House Judiciary Committee Hearing on 03/05/2019 @ 1pm

PENNSYLVANIA

HB 50 – Legalize and Regulate Recreational Cannabis

Summary: This bill would legalize recreational cannabis in Pennsylvania. It would amend the state’s Medical Marijuana Act to require the Department of Health to license and regulate recreational growers/processors and dispensaries. The bill would allow the Department to issue up to 50 grower/processor permits and up to 100 dispensary permits (3 locations allowed per permit) to serve the adult-use market.

Introduced: 02/06/2019

Status: In the Committee Process

Upcoming: No hearing scheduled

MASSACHUSETTS

HD 843 – Increase Legal Age to Purchase Cannabis from 21 to 25

Summary: This bill would require consumers to be at least 25 years old to purchase cannabis for recreational use.

Introduced: 01/15/2019


HD 3351 – Transparency in Approval of Marijuana Facilities in Cities and Towns

Summary: This cannabis bill would establish continuity in the local approval process for marijuana facilities. It would require all cities and towns to adhere to the same process for approving Host Community Agreements with marijuana facilities.

Introduced: 01/18/2019


SD 2142 – Local Approval of Social Consumption

Summary: Currently, the only way a city or town can authorize on-site consumption at a marijuana facility is through a local ballot measure. This bill would authorize a city or town to bypass the ballot measure process and authorize on-site consumption through ordinance or by-law.

Introduced: 01/18/2019


HD 2526 – Deducting Business Expenses (IRC Section 280E Relief)

Summary: This bill would allow cannabis businesses to deduct ordinary and necessary business expenses like rent, salaries, employee benefits, utilities, and advertising from income subject to state income tax. These types of expenses are currently disallowed under IRC Section 280E and cannot be deducted from income subject to federal income tax.

Introduced: 01/17/2019