Starting with the 2014 Farm Bill, and continuing with the 2018 Farm Bill, we have seen a dramatic shift in the landscape governing hemp. Prior to 5 years ago, hemp production was entirely illegal, as the Federal government handled industrial hemp the same as it handled high-THC marijuana. It was an established Schedule 1 controlled substance, entirely illegal to grow, harvest, or possess.
As awareness has grown, and the true benefits of the hemp plant have become more widely understood, the federal government has passed legislation to decriminalize hemp. However, although it is no longer considered a controlled substance, the questions about the process and regulatory requirements abound. This is because all plants grown in the United States are highly regulated by the United States Department of Agriculture, or the USDA, which has a complex framework of licensing, reporting, and general requirements for every specific product grown in the country.
Last week, the USDA published the draft of its regulations
for the hemp industry. Since the 2018 farm bill, we have been living in the
“wild west” for hemp. As promised, the USDA released its rules in time for
farmers to get legal and licensed for the 2020 season. However, this
long-awaited release has been met with mixed results.
Many lawmakers and industry leaders are happy that the
federal government has finally put out regulations for hemp. First, they see
this as a dramatic shift from the era of prohibition, alone a cause for
celebration. Others see the certainty that we are going to have regulations put in place means that the industry will start to
grow and develop at a much faster pace. It is certainly true that the future is extremely
bright for hemp. But other farmers and individuals have expressed concerns with
some of the regulation’s details.
The “0.3% THC” limit, which delineates the difference
between legal “hemp” and illegal “marijuana”, may be too stringent for some
growers. They report that a mature hemp plant will have a THC content that will
vary from day to day, including some spikes over the 0.3% limit. The new
regulations require strict testing to be done prior to harvest, and if the
resulting THC content is too high, the entire crop must be destroyed. This may
cause farmers to harvest before true maturity, leading to a decrease in the
potency or effectiveness of the CBD derived from such a harvest.
The regulations also allow the states to develop their own plans
and submit them for approval. Some are concerned that some states may try to
infringe on the interstate commerce occurring there, which could cause all
kinds of problems and complications for the industry. Still others are worried that
the method for disposing of “hot crops” requires just a little too much DEA
involvement, which could also cause disruption or have a chilling effect on
It is clear that these regulations are a good step in the right direction. It’s also clear that this is just the beginning, and there is still plenty of room for improvement. The USDA announced a 60-day window for submitting public comments, and then they will consider any suggestions, and then publish a final rule in the future. I encourage you to read the regulations or a summary of them. I encourage you to think about how you would be affected by these rules, and what suggestions you may have. Speak to an expert about how you can do your part to improve the landscape of the industry for the future.
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.
To explore related information, click the keywords below:
Benjamin Caplan, MDUS Tax Court denies deduction request under §280E, but leaves the door open for future challenges
Here is a nice summary of information for US medical cannabis patients with respect to traveling while on a cannabis regimen (what to think about, including plane/trains/automobiles, helpful tips, which states have reciprocity, and/or access to medical cannabis options, etc)
Crossing the Line: Care of a Pediatric Patient with Intractable Seizures and Severe Neuropathic Pain in Absence of Access to Medical Marijuana
A recent case report discussing a six-year-old patient suffering from a seizure disorder has exposed the difficulty is receiving treatment across state lines. The patient was prescribed medical marijuana that alleviated the severity and duration of her seizures but was weaned off of that medication when traveling to Nebraska for a therapeutic surgery, due to the legal status in the state. This case study exposes the difficulty of treating patients across the country due to the legal variability of cannabis across states.
Author’s summary reflections:
“The current state-specific approach to medical marijuana notably burdens patients, families, and health care systems with a fragmented approach to symptom management based on local context. The stigmatization or legal implications of medical marijuana in certain settings may lead well-meaning providers to avoid asking about use or to struggle with appropriate response. Provider response to parents reporting medical marijuana use in Schedule I settings notably varies from direct inquiry, feigned ignorance, or informed ignoring. Ideally, providers would compassionately and competently inquire about pharmaceutical and nonpharmaceutical interventions (to include medical marijuana use) as part of comprehensive palliative care symptom assessments.”
Vets in CA can now discuss the use of cannabis for patients and their pets legally and soon, prescribe cannabis medication. Although there is still more much research to be done, adults can already legally buy products, so involving professional vets can help keep pets safe http://bit.ly/33dmbIK
Benjamin Caplan, MDCalifornia veterinarians & Cannabis