Business of Cannabis

WHAT 2019 HAS TAUGHT US ABOUT WHAT 2020 WILL LOOK LIKE: PROCEED WITH CAUTION

By Shuki Greer, Esq.

Year 2019 was an up and down year for the cannabis industry. As the year comes to a close, let us take some time to reflect on what transpired during this transitional period for the cannabis industry. Hopefully, a detailed look at what happened may shed some light on what is ahead in 2020. 

First, public opinion on cannabis has continued to rise. For the first time, poll results suggested that more than two-thirds of Americans support legalization. Such a pervasive, bipartisan, agreement for a fundamental change in the law is rare, and is a true reflection of the state of the industry now, and where the industry is headed. 

Riding along with public opinion, Congress saw more movement towards full legalization than in any single year prior. The list of cannabis-related bills that were introduced in Congress this year tops 15, covering topics from banking to immigration. Most noteworthy among those bills are the MORE Act, a comprehensive legalization bill that passed its committee in the House, and the SAFE Banking Act, which passed the full House by a landmark 321-102 bipartisan vote. At the same time that these provide an optimistic outlook for the federal regime, no actual progress has been made in Congress, largely because the Republican-led Senate remains staunchly opposed to reform (google “Mitch marijuana machete” for an idea of Mitch McConnell’s recent activities relating to drug policy reform).

The executive branch has not been without movement either. President Trump does not have the traditional hard-lined anti-cannabis stance that some Republican leaders espouse. He campaigned on a platform of not interfering with states’ ability to manage their own medical and adult-use programs. He has publicly stated his support for the States’ Act, a bill that would essentially codify the same, leaving enforcement up to the states. Under Trump, the FinCEN continued its policy of allowing banks to do business with the cannabis industry, assuming that the Suspicious Activity Report (“SAR”) requirements were being followed. There are also no known examples of DEA or other federal law enforcement actions taken against operators lawfully operating under state law. 

At the same time, the executive branch has made moves against the legalization movement. In 2018, then-AG Sessions rescinded the Cole Memorandum, signaling that the feds were looking into increasing enforcement against cannabis businesses (Thankfully Sessions is no longer a part of the administration, as his views are notoriously more anti-legalization than Trump’s). Just last week, as Trump signed the yearly spending bill into law, he attached a vague statement reserving the right to enforce federal law even in the face of full state-law compliance. Overall the federal government has progressed, albeit slowly, in the right direction. 

Many states had significant progress towards legalization in 2019. Illinois became the 11th state to fully legalize adult-use, while Hawaii, New Mexico, and North Dakota decriminalized. We now stand with 33 states having passed a robust medical program, a full two-thirds of the union. Bills were proposed in more than two dozen states, some to expand existing frameworks, and others to create new ones. Just this week Alabama’s legislature’s commission recommended legalizing for medical purposes, a stark shift from the traditional views thought to be widely-held in the deep south. Overall the trend is clearly moving towards more states joining the legalization team, some quicker than others. 

Though 2018 set a high bar for the hemp/CBD industry in terms of significant reform, Year 2019 arguably topped the significant progress of the 2018 Farm bill. In October, the USDA published its interim final rule, providing much-needed guidance to the hemp community. It created a federal framework for hemp farmers, creating registration, licensing, and testing requirements. It also allowed states to create their own systems, and many of the largest states for hemp farming are doing just that. FinCEN, the same treasury bureau that regulates banking for marijuana businesses, announced in December that banks may do business with the hemp industry without having to adhere to the SAR reporting requirements like those doing business with marijuana.

At the same time, the hemp/CBD industry skyrocketed in 2019. We saw an explosion of CBD products, and the industry is now estimated to be worth $4 billion. Tinctures, edibles, lotions, balms, you name it, someone has put CBD in it and made money this year. There remains so much uncertainty about the legalities of the market, and many have taken advantage of this “Wild West” atmosphere to quickly seize market shares, without guaranteed continuity once enforcement occurs. Year 2019 was not without foreshadowing of enforcement, however. In November, the FDA sent out warning labels to several companies that were selling CBD products. The letters go into detail regarding the various items being sold and analyzed how each company was violating various laws. Although the FDA hasn’t actually seized anyone’s assets or froze any bank accounts, they are clearly watching and thinking about doing it. 

A really interesting piece of news swept the nation this year. At the beginning of November, the NYPD posted a picture of two officers posing with “106 pounds of marijuana that was destined for our city streets”, bragging about its success. Only one problem… it was all legal hemp, with certifying papers and all. The NYPD quickly dropped all the charges, and recently returned the hemp to the owner. This incident also highlights a significant issue with the hemp industry, in that it comes from and has all the outward appearance of marijuana, leading to confusion and enforcement problems. Until law enforcement agencies are properly trained, this type of incident is likely to repeat itself. 

Year 2019 also took its toll on many cannabis companies. Large companies like Eaze and MedMen had to lay off many employees, as the actual returns were less than what their projections anticipated. Many stocks took big hits in 2019, for the same reasons. The projections for the industry have been huge, and are likely accurate, but are also likely skewed because of the nature of the industry. There is still a large “traditional” market in existence, which continues to dwarf the legal one. While some have come out of the shadows, progress remains slow because of the monumental taxes, regulations, and difficulties associated with being a fully-legal operating cannabis company. 

WHAT ABOUT 2020? 

The year 2020 is upon us. The cannabis industry is not going anywhere. It will continue to grow and mature as the year goes on. We aren’t going to see any reversal of the general trend towards legalization. At the federal level, I don’t believe that 2020 will see a single cannabis bill passed and enacted into law, and certainly nothing like full legalization. The country is not ready for it yet, as many of the industry leaders remain staunchly opposed for two reasons. First, there remains distrust and skepticism that is leftover from the reefer madness days. Many politicians still feel that marijuana is a gateway drug to other substances, and until they are convinced otherwise will stay opposed. Second, and more sinister perhaps, legalization denotes trouble for industries like alcohol, tobacco, and pharmaceuticals, all of whom stand to lose significant market shares once cannabis replaces these vices as people’s substance of choice. Lobbyists for these industries continue to work tirelessly to oppose legalization, and members of Congress are still forced to follow. Until these issues change, we must wait for full legalization.

At the state level, change will happen, and rapidly. Already several states seem poised to have recreational programs on the ballot, in states where it is almost certain to pass. These include New Jersey, New York, North Dakota, Minnesota, Vermont, and Pennsylvania, all of whom will pass legalization by years end. More states will join the medical bandwagon, leaving perhaps one or two states with absolutely no cannabis legalization framework. 

Public opinion will continue to positively increase and have more of an impact on the industry. If in 2019 we finally hit 66%, I predict that Year 2020 will have us hit 75%. As the younger generation grows up, and as the older one retires and fades away, the numbers will continue to rise. At the same time, science continues to develop, as new studies are coming out nearly every week showing another beneficial use of the cannabis plant. At the same time, organizations like CED Foundation and The IJCA continue to run awareness campaigns and spread the word, adding to the number of people who are exposed to ideas and understanding of the plant’s many uses. More studies and more awareness, reaching even more people, means more backing for legalization.

Hemp is poised for a huge gain in 2020. With the federal regulations in place, the industry now has definitive guidance on the government’s position. While CBD as medicine remains a tricky subject, certainly hemp’s use as a tobacco alternative, a plastic alternative, textiles, fabric, and other industry uses will skyrocket. I also believe that 2020 will see the FDA, DEA and USDA will work out some of the kinks with using CBD as an active ingredient, providing helpful guidance to an industry running around like a headless chicken. Once that occurs, again, the industry will expand rapidly, as more certainty from the government will allow more companies to enter the market.  

Lastly, I think 2019 brought some valuable lessons to the industry. The way the projections did not turn into reality, and the hits that many businesses had to take, give us some really important lessons. Caution is urged when investing in an industry plagued by burdensome regulations and strong financial incentives not to join the legal market. The “traditional” market remains the elephant in the room. The likelihood of real enforcement crackdown is low, because of limited resources, sheer numbers, and the probability that any enforcement would result in really bad press. Because investors have now been warned, the industry’s growth will slow. We will continue to see startups join the market, but perhaps on a smaller scale. 

I hope that this discrepancy between projections and sales will also be a lesson for our legislatures. They need to come up with solutions that create subsidies for those coming out of the shadows so that states can see the actual revenues they hoped for. They may have to accept several billion in illegal sales as water under the bridge. They may have to lower tax rates to incentivize people to legitimize their operations. They may have to lessen the licensing requirements, making it easier and cheaper for those interested in joining to actually do so. The specific decisions are theirs to make, but they need to get creative about solving this problem.

Overall 2019 was a successful year for the industry. Even the downsizing and financial hits taken will prove to be valuable in the long run. Just like getting out of bed too fast can result in injury, an industry that expands too rapidly can result in harmful consequences. 

Benjamin Caplan, MDWHAT 2019 HAS TAUGHT US ABOUT WHAT 2020 WILL LOOK LIKE: PROCEED WITH CAUTION
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Medical Cannabis for Adults Over 50

In Summary:

As with all elements of the aging process, the human endocannabinoid system loses tone over time. Whether it is a reduction in the numbers of cannabinoid receptors or a slow waning of the machinery used to create the signaling molecules that bind to the receptors or the natural senescence of the system that supports all of these normal signaling processes, the fact remains that adults over 50 are best-suited for external support for the endocannabinoid system.

Indeed, the average age at dispensaries is surprising to most who are not familiar with the modern medical cannabis arena. Baby Boomers, perhaps more than any other age group, tend to dominate the medical cannabis dispensaries. This is no new phenomenon, however. Through the ages, across cultures and around the globe, cannabis has been consumed primarily by older adults. Whether by tribe elders, wise councilmen, spiritual leaders, or the educated elite, cannabis has been an integral part of human aging for as long as we have recorded history.

Here, a review out of Israel followed at 184 patients over 65 (average age was 81.2) beginning cannabis treatment. 63.6% were female. “After six months of treatment, 58.1% were still using cannabis. Of these patients, 33.6% reported adverse events, the most common of which were dizziness (12.1%) and sleepiness and fatigue (11.2%). Of the respondents, 84.8% reported some degree of improvement in their general condition.”

Appropriately, the authors advise caution for older adults related to those adults who may be consuming multiple pharmaceuticals, for potential medication interaction effects, as well as nervous system impairment, and increased cardiovascular risk for those who may quire the concern. Wisely, they recommend that “Medical cannabis should still be considered carefully and individually for each patient after a risk-benefit analysis and followed by frequent monitoring for efficacy and adverse events.”

Dr. Caplan and the #MDTake:

At CED Clinic, we have long seen that the average age of medical patients is over 50. Whether for concerns related to sleep, pain, mental or physical health, it seems as though Baby Boomers have either weathered enough politics to have developed a healthy cynicism for the misinformation campaigns of the 1930s and 1970s, or they have direct or indirect experience with cannabis to have learned of its safety and efficacy. Either way, it is quickly reclaiming its historical place in the care of older adults, although oddly… it seems to be a demographic skipped over by the marketing systems of most establishments in the cannabis arena, at least for now.


suggested dose for elderly and cannabis
direction of action for cannabis treatments
bar of significant improvement with cannabis

View this review (yellow link) or download:

This paper is also stored here:    http://bit.ly/2QbJ6yE     inside the CED Foundation Archive

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Benjamin Caplan, MDMedical Cannabis for Adults Over 50
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The Forgotten History of Hemp in America

Cannabis wasn’t always a taboo topic. Hemp, a variety of the Cannabis Sativa plant, has a rich history in the United States as being a valuable and versatile crop. Hemp was booming as a “cash crop” because not only was it useful in a range of industries, but it was also very easy to grow. The fiber from the plant has many uses, ranging from textiles and clothing to sails for rafts, rope, and paper. In fact, the Declaration of Independence was originally drafted on hemp paper!  Unfortunately, with the passing of the 1937 Marijuana Tax Act that lumped all cannabis in the same group of regulated narcotics and the rise of inexpensive synthetic fibers in the 1950s, hemp’s popularity took a sharp decline. It wasn’t until 2018 the United States removed hemp as a Schedule 1 substance. Now, the plant is surging in popularity again for its many uses, especially the extraction of CBD for states that do not have any medical cannabis sales available.

Read on:

Source: https://www.farmcollector.com/farm-life/strategic-fibers

Benjamin Caplan, MDThe Forgotten History of Hemp in America
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Homegrown Happiness: Growing Cannabis

What: Laws and regulations about growing cannabis in MA

home grown cannabis plants

Cannabis has earned the name “weed” for good reason. While careful allotments of light, humidity, soil, and nutrients affect its health and potency, cannabis is a resilient plant, built to thrive even in the harshest conditions. With its natural flexibility, cannabis growth can be an enjoyable hobby for people who are interested in growing their own medicine, either for the pleasure of attending to a growing plant or the joy of saving from the costs of dispensary products.

There are regulations and firm restrictions in place for how many plants can be grown in a home and any potential impact on visibility to neighbors. In Massachusetts, each adult may grow up to six plants, themselves, and no more than 12 plants per household with more than two adults.  The plants must be grown in a secure, preferably lockable location, and they may not be visible from a public place.

It’s also important to know that just because it is legal for adults to grow cannabis, landlords and private living facility operators like nursing home or assisted living facilities often have the final say on the cultivation of cannabis on their property.

In general, gardening has been associated with reducing stress, depression, and anger. Considering these benefits, and the positive effects that cannabis medicine offers, once the crop is ready to be cured, cultivating one’s own cannabis is quite an attractive option.

Of note: Cannabis consumed from a home grow should still be lab-tested. Cannabis is a plant especially skilled at absorbing micronutrients (and micro-toxins) from its environment. Even when grown in “organic” soils, undesired contaminants can seep into the plants. Lab testing facilities exist and are easily accessible in all states with legal medical cannabis, and typically cost anywhere from $0 to $100 dollars for basic testing of final plant products.

References:

http://www.bostonglobe.com/news/marijuana/2019/12/03/man-charged-for-growing-marijuana-plants-says-thought-could-grow-with-medical-marijuana-card/1j4tpYIWZCvGVuC3v7fT5M/story.html

https://www.mass.gov/info-details/marijuana-in-massachusetts-whats-legal

The forgotten history of hemp growth:

https://www.farmcollector.com/farm-life/strategic-fibers

CED Videos:

https://youtu.be/6-45GAws-Hc

did you know the world's first paper was made of hemp

https://youtu.be/LHA-vUM4D38

early colonial times, hemp was a major american crop
Benjamin Caplan, MDHomegrown Happiness: Growing Cannabis
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CBD sold not quite as advertised

Here’s an argument for the need for accountability in #cannabisindustry. What is sold ought to be closer to what is advertised. Is government regulation the solution? 3rd party transparency? Individual accountability? Court of public opinion?

https://www.leafly.com/news/strains-products/cbd-oil-test-results

What this study found for CBD truth to advertising
tested products that delivered CBD as advertised within a 20% margin
visual of what is advertised vs tested with CBD
Benjamin Caplan, MDCBD sold not quite as advertised
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The US House of Representatives may vote on CANNABIS Legalization this week: Here’s why it doesn’t matter!

By Shuki Greer, Esq.

The House of Representatives, or more accurately the House Judiciary Committee, announced this week that they will be holding a markup for the MORE Act on Wednesday, November 20th. The Marijuana Opportunity Reinvestment and Expungement Act (“MORE Act”) is a comprehensive legislative bill to completely overhaul the cannabis laws of the federal government. The revolutionary bill may be voted on the same day, and if it passes, the focus will shift to the Senate to pass the same.

The MORE Act has several key points. First, and most importantly, it removes cannabis from the Controlled Substance Act. It completely eliminates the criminal laws prohibiting cannabis at the federal level, while leaving room for states to create their own legal framework. Second, it creates a pathway for expungement and resentencing for existing marijuana convictions.

The bill goes further. It authorizes a 5% sales tax on cannabis sales, creating a fund that will be used to ameliorate the negative effects of the War on Drugs, create incentives for small businesses, and to support disadvantaged and marginalized people and communities.

US House of Representatives

Everyone that I’ve spoken to agrees that this bill is long overdue. The negative effects that our nation’s marijuana laws have caused are too numerous to mention. Cannabis’ medicinal and therapeutic uses are undeniable, and it’s about time that Congress does something about it.

But while the introduction of the bill may be cause for celebration, and while it may even have the support to pass the House, we are still far away from this bill becoming law. This is because unlike the Democratic-controlled House, the Senate is run by Mitch McConnell and the Republicans. Mitch famously stated that he won’t support marijuana legalization, even as he pushed for the legalization of hemp. The SAFE Banking Act, a far less controversial bill allowing financial institutions to do business with the legal cannabis industry, has completely stalled under Mitch’s watch. Mitch visited with industry leaders last month, but there is not much optimism that he will bring the SAFE Banking Act bill to a vote in the near future. While that bill remains tabled, it seems extremely unlikely that the MORE Act would ever get any traction.

Unfortunately, we are still a long way away from full federal legalization. While the list of states with medicinal and/or adult-use programs seems to increase from month to month, Washington lags behind. As long as we have presidential candidates calling cannabis a “gateway drug”, and leaders who still call it “Reefer”, cannabis will be federally illegal for years to come.

Benjamin Caplan, MDThe US House of Representatives may vote on CANNABIS Legalization this week: Here’s why it doesn’t matter!
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Are medical patients victims of #vapegate?

A popular (and welcome) take on the vaping situation is coming out to support medical consumers as a type of victim of the circumstances. There is a level of scientific understanding that is a necessary, and still incomplete, part of the discussion. For example, some of the dominant methods of lab testing for cannabis (plate culturing) are based on food safety protocols that are generations old, incorporates a system of understanding that is not the only means of testing or understanding (genetic sequencing, for instance) and, while we have learned a great deal mastering the current testing, we may be missing important safety concerns.

Another critical area of growth at hand is the clinical understanding of the implications of mainstream cannabis consumption. We have some information, but there is always more yet to learn. In order for Cannabis Medicine to catch up with the accomplishments and accolades of modern Medicine, we must overcome generations (and engrained systems) of academic road-blockages. Still more stands in the way of a well-oiled, safe cannabis-consuming culture, and that is reproducibility of clean product and the assurance that a consume is obtaining (and consuming) clean, safe product. These are solved, perhaps with regulatory oversight and technology, either within the public or private sectors.

Forbes photo of medical cannabis as victims of vaping ban

For example, one of the elements of the current medical market that is still in need of close inspection and consideration is the potential contamination of vaporized products related to the construction materials of vapor technology itself. Devices are often made with metal solder which can contain and propel cadmium and/or other metals that are unhealthy for consumption. Similarly, heated plastics and other construction materials may be unsuitable as conduits for consumption by inhalation.

See https://www.cedfoundation.com/2019/09/05/vape-gate-2019-review-of-the-risks-of-vaping/ for a more complete review of some of these elements.

Nevertheless, it is wonderful to see public interest and discussion on this subject, which seems to touch on never common to many. Open-minded discussion, incorporating differing viewpoints will help us all grow to become a healthier and safer, cannabis-consuming culture.

https://www.forbes.com/sites/kevinmurphy/2019/11/14/medical-cannabis-patients-should-not-be-victims-of-vaping-bans/#30f70a783a6f

Benjamin Caplan, MDAre medical patients victims of #vapegate?
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US Tax Court denies deduction request under §280E, but leaves the door open for future challenges

By Shuki Greer, Esq.

Last week, the Tax Court continued the line of cases denying tax deductions under Internal Revenue Code §280E. That section says that any business which is “trafficking in controlled substances” cannot receive many of the traditional deductions that a business may take. Otherwise put, this means that a company must pay taxes on all of its incoming revenue before it subtracts most of its expenses.

This law can be a severe punishment for a cannabis company that may be operating entirely legally under state law. Unfortunately, the federal government still considers them to be “drug-dealers” and holds this punitive tax measure over their heads.

The case before the tax court involved a dispensary that filed taxes and took deductions for its business expenses. The IRS sent them a bill of $1.26 million, plus another 250K in fines. The company filed suit, asking the court to declare that it did not have to pay those bills.

A divided court rejected the company’s three arguments. In addition to the majority opinion, there were two concurring opinions and two dissenting opinions. Of particular interest is the Gustafson dissent, which opens up a new avenue for declaring §280E to be a Constitutional violation. Essentially, Gustafson argues, that the 16th Amendment allows Congress to tax income. Income is defined as “gain”, or net profits, minus costs, to get those profits. So for Congress to then disallow normal business expenses, it means that they are taxing more than actual income, which violates the 16th Amendment.

This argument was only agreed to by one other Judge on the tax court, which ultimately ruled against the dispensary. However, in the future, as the public opinion shifts, the policies behind these prohibitive rules may fall away, and we may not be far away from a court coming to the opposite conclusion. Legal Cannabis companies are working tirelessly to follow the law, and they should be rewarded for doing so. Continuing the regime of these prohibitive financial policies constitutes a “subsidy for the black market.” The way to solve this problem is to shift the financial incentives in favor of operating under a legal framework, and avoiding this severe tax problem is the best way forward.

tax codes picture with calculator and tax document

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Benjamin Caplan, MDUS Tax Court denies deduction request under §280E, but leaves the door open for future challenges
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