By John Schroyer

A new IRS memo about tax issues tied to cannabis companies could end up costing the marijuana industry millions of dollars annually, reducing already-slim profit margins for scores of businesses.

Last Friday, the IRS sent a memo to a Denver lawyer in response to an inquiry regarding 280E, a section of the U.S. tax code that prohibits deductions for any business activity that involves trafficking in controlled substances.

Tax professionals say the memo appears to close a loophole that many cannabis businesses have been using to at least partially get around 280E, whereby marijuana companies classify certain expenses as cost of goods sold, or COGS, a specific categorization for qualifying costs.

In essence, the IRS outlined its position on that strategy, providing a much narrower definition of what can be classified as COGS than many cannabis companies are currently using.

As a result, tax bills in the industry will be significantly higher – making it that much harder for cannabis companies to post a profit.
California accountant Hank Levy, who works closely with the cannabis industry, warned his clients in an email about the possible implications of the memo. Levy wrote that this is the first time the IRS has made any type of rule regarding 280E since it was first established in 1982, and the “punitive” memo has “turned logic on its head.”

The memo essentially represents an attempt to “harm the marijuana industry through broader application of Section 280E than ever before,” Levy wrote.

Section 280E essentially penalizes MMJ dispensaries and recreational retailers by banning otherwise-ordinary business tax deductions because marijuana is still illegal at the federal level.

But classifying some expenses as COGS has helped businesses lower their tax bills.

California attorney Henry Wykowski, who provides legal services to cannabis companies, offered a hypothetical as an example.

Say a recreational shop in Colorado purchases a bag of cannabis for $1,200 and sells it for $2,000; that would leave a net profit of $800.

But to prep the cannabis for sale, an employee has to trim it, weigh it, package it, and so on. Say that takes $150 worth of materials and time. The shop owner could then write off both the $1,200 and the $150 as cost of goods sold on the shop’s federal taxes, thereby getting a deduction that would typically be prohibited under 280E.

Removing that ability to classify certain costs as COGS, Wykowski said, will cost the industry “millions and millions, without a doubt.”

Under a previous precedent from 2007, the U.S. Tax Court has held that marijuana companies are entitled to COGS, but the memo from the IRS indicates that the agency is taking a stricter view.

The matter is far from settled, however.

“The Tax Court has not ruled on this. This is (the IRS’s) position, and it has yet to be reviewed,” Wykowski said. “The logic that they use is subject to challenge, and the IRS continues to treat cannabis dispensaries than every other type of retail outlet, and they’re just continuing that policy with this memo.”

Wykowski predicted that the policy espoused in the memo will “absolutely” be challenged in court, though it may take a year or more for a ruling to be handed down.

Levy also suggested that the memo could result in a backlog of federal tax audits and appeals, including at the Tax Court level, since he expects thousands of marijuana companies to be audited this year.

John Schroyer can be reached at [email protected]

The U.S. Securities and Exchange Commission has approved a share registration by a company that will engage in the cultivation and sale of marijuana, which could encourage other businesses that deal directly with cannabis to go public.

It marks the first time the SEC has signed off on a share registration by a company that plans to handle marijuana, according to a piece in the Wall Street Journal.

Terra Tech Corp. currently tradeson the over-the-counter market. It primarily provides ancillary services to the cannabis industry but now plans to grow and sell marijuana in several states through its subsidiaries.

The registration will go into effect after 20 days. The SEC chose not to accelerate the registration, which would have made it effective immediately once disclosures were approved, according to the Journal.

Terra Tech had two previous stock registrations accelerated, but at the time the firm didn’t have any marijuana business interests.

An attorney working with Terra Tech said a government examiner cited “policy” as the reason for not accelerating the approval this time around, but the official didn’t elaborate.

The approval follows a move by the SEC in December to grant Terra Tech permission to use $6.8 million to launch dispensaries in Nevada, California and New York.

Connecticut is moving forward with plans to add several new ailments to the list of qualifying conditions for medical marijuana cards, which would give cannabis businesses an expanded customer base.
If all goes according to plan, dispensary owners will eventually be able to sell to registered patients with sickle cell disease, severe psoriasis, psoriatic arthritis and recurring back pain after surgery.

Consumer Protection Commissioner Jonathan Harris announced Monday that he will recommend adding the conditions to the list of ailments that can be treated by cannabis, according to the Hartford Courant. The program already includes 11 qualifying conditions.

Harris will now draft regulations adding the conditions to the list. Following a review process and public comments, the regulations will be sent to a General Assembly committee for a final vote.

Regulatory work to get the new conditions approved for cannabis could take six to nine months, but may take as long as a year, according to the Courant.

A state board of physicians earlier this month recommended Connecticut add the conditions to the program, but it dropped a request to add Tourette’s syndrome to the list.

January 30, 2015

Blair’s dispensary, A Green Alternative, will be the second in the county but the first in the city itself to be licensed by local officials.

The city granted Blair initial approval last October, but a drug prevention specialist appealed the decision. On Thursday, the city’s planning commission unanimously rejected the appeal and gave Blair the go-ahead.

The move could mark a turning point for San Diego, which has struggled for years with illegal MMJ operationswhile trying to set up acomprehensive regulatory system for those eager to work within the confines of the law, such as Blair.

The city will ultimately allow up to four dispensaries in each city council district, for a total of 30. Just under a year ago, the San Diego city council estimated that there were over 100 dispensaries in operation within the city’s borders.

By John Schroyer

A federal judge in northern California has tossed a civil forfeiture case against a San Francisco medical marijuana dispensary, possibly setting a precedent that could give the U.S. government pause before taking similar actions to shut down MMJ companies.

The decision in favor of Shambhala Healing Center marks the first time that a dispensary has won a decisive victory in court over the federal government, according to attorney Henry Wykowski, who represented the defendant in the court battle.

Wykowski said the case amounted to scare tactics used by the local U.S. Attorney’s office in a push to shut down hundreds of California dispensaries.

“Historically, the U.S. Attorney in California and San Francisco… has been very successful at closing down dispensaries by sending letters to the landlords, saying, ‘If you don’t evict this tenant, we’re going to file a forfeiture action against the property, and we’re going to take it,’” Wykowski said. “It was successful because it scared most people.”

Several years ago, the federal government applied pressure to hundreds of MMJ dispensaries around the state, including eight in the Bay Area that were shuttered after U.S. Attorney Melinda Haag threatened to seize properties where dispensaries were operating. In many cases, the threats were enough to get landlords to either evict or close down the businesses.

But several dispensaries fought the moves in court.

Harborside Health Center in Oakland, which Wykowski also represents, was targeted by the U.S. Attorney’s office back in 2012. Not long afterward, Haag filed a separate forfeiture action against nearby Berkeley Patients Group. Both dispensaries took the federal government to court.

Shambhala’s case paralleled the Harborside case. In both instances, Haag’s office tried to strong-arm the landlord into evicting the dispensaries. Shambhala’s is the first forfeiture case to be formally thrown out by a judge, while the Harborside case has been stayed. The Berkeley Patients Group case is ongoing.

Wykowski hopes the Shambhala decision serves as a wakeup call for overzealous federal prosecutors.

“I would really like (the U.S. Attorney’s office) to look at this and say, ‘This really isn’t the best use of our resources, and let’s move on to something that’s more productive for the people,’” Wykowski said.

A call to Haag’s office on Wednesday seeking comment was not immediately returned, so it’s unclear as to whether the decision will be appealed.

It’s also not clear whether the Shambhala case will have a direct effect on either Harborside’s or Berkeley Patients Group’s cases, because the decision hinged on the fact that the dispensary’s landlord paid the federal government $150,000 to settle the forfeiture action.

That settlement was reached after Haag lost the eviction fight, since a judge ruled that Shambhala’s lease was legal and couldn’t be overturned. Then on Monday, Judge Susan Illston ruled that because of the $150,000 payment, the forfeiture claim by the U.S. Attorney was a moot point, and Shambhala’s lease couldn’t be added to the forfeiture claim. So she dismissed Haag’s complaint.

But in the Harborside and Berkeley cases, the government has avoided any overtures of similar settlements.

“In neither of those cases has the government made any offer to settle with the landlords. As a matter of fact, the government has declined to attend a settlement conference with respect to both of those cases,” Wykowski said.

Which means that Haag could decide to keep pursuing Harborside, Berkeley Patients Group and other dispensaries with the same kind of tactics.

But for now, Shambhala co-founder Al Shawa is reveling in his company’s victory.

“Justice prevailed,” Shawa said. “It’s not about money. It’s about doing the right thing for our community and our patients.”

Shawa said he would encourage other dispensaries to fight the feds the same way Shambhala did, and not to simply cave to pressure from officials like Haag.

“If they think they’re right, if they haven’t done anything to break the law…they should stand up and make their voice heard,” Shawa said.

John Schroyer can be reached at [email protected]

Cannabis concentrates producers in California can relax – their businesses are safe.

A three-judge appellate court has ruled unanimously that cannabis concentrates, including dabs, are legally qualified as medical marijuana, according to the Sacramento Bee.

The legal status of concentrates came up in court after an MMJ patient was arrested last year and charged with violating his probation because a sheriff’s deputy found cannabis concentrates in his apartment.

The judges threw out a lower court’s decision that concentrates aren’t included in the legal definition of medical marijuana under state law. The lower court erred, the judges found, in not allowing the defendant in the case to invoke California’s Compassionate Use Act in his own defense.

In the original law that California voters passed in 1996, the definition of marijuana included “the resin extracted from any part of the plant.”

As many of you already know, the current Attorney General, Eric Holder, has recently announced his retirement.  President Obama has nominated a former prosecutor, Loretta Lynch to replace Holder.  The article below outlines Lynch’s history regarding marijuana.

Attorney General Nominee a Question Mark on Cannabis

President Barack Obama has nominated longtime prosecutor Loretta Lynch to succeed Eric Holder as U.S. attorney general in a move that could have big implications for the marijuana industry.

The biggest question for cannabis professionals: Will Lynch follow Holder’s lead on marijuana or chart her own course?

Holder’s policies on the marijuana industry were uneven, but in recent times he took a more lenient approach. One of his crowning achievements, as far as cannabis professionals are concerned, was when he cleared the way last year for recreational marijuana businesses in Colorado and Washington State. Under Holder’s watch, the DOJ also worked to ease the banking situation for cannabis companies.

Lynch doesn’t have much history on marijuana-related matters, though she has “aggressively prosecuted narcotics offenders in Brooklyn,” where she was U.S. attorney, according to CNN legal analyst Jeffrey Toobin.

Lynch also was involved in a well-known marijuana case that involved a well-to-do suburban mother who apparently ran a 1,000-plant marijuana grow operation worth $3 million in Queens. The woman eventually pled guilty to several drug charges and was fined $1 million, according to ABC.

Still, these cases did not involve businesses operating in areas where medical or recreational cannabis was legal.

Lynch still must receive confirmation from the Senate.

James Cole, one of the top ranking officers at the Justice department who has been largely in charge of Medical Marijuana prosecution in CA is preparing to retire.  The author of the “Cole Memo” was instrumental in limiting the number of medical marijuana arrests by federal agencies.  As he prepares to retire, Cole has stated that although he believes the DEA should limit its actions against medical marijuana in states where it is legal, it is important for those states to have a strong regulatory system and the Federal Government may be forced to return to California should we not improve our state regulations regulations.

By Noelle Crombie | [email protected] 

http://www.oregonlive.com/marijuana/index.ssf/2014/10/marijuana_legalization_univers.html

October 16, 2014 at 12:02 PM

States with medical marijuana laws saw decreases in suicide rates, particularly among young men, as well as a drop in drunken driving, also among young men, a University of Oregon economics professor told Portland business leaders Thursday.

Economist Ben Hansen discussed the potential implications for Oregon if voters approve legal recreational marijuana in the November election. Hansen, whose work focuses on the economics of risky behavior, spoke at the Oregon Economic Forum, sponsored by the University of Oregon and held at the Portland Art Museum.

Hansen offered a largely positive take on legalization, saying medical marijuana states on average did not see spikes in crime and or teen pot use. He said research suggests some people in medical marijuana states substitute pot for riskier substances like alcohol and that choice may be a factor in declines in drunken driving and suicide.

Researchers looked at the first five years after medical marijuana was introduced in 17 states and found an average 5 percent drop in suicide rates. Among men 20 to 29 years old, rates fell by an average of 11 percent.

On teen use, Hansen said four different studies drew similar conclusions: youth consumption generally did not climb in states with medical marijuana laws.

“If anything, there was a decrease,” he said.

Hansen, in his own work, researched traffic fatalities in Oregon and 16 other states with medical marijuana laws and found an average 8 percent drop within the first five years of the laws’ implementation. The number of drunken driving fatalities dropped by 13 to 15 percent. The decreases were largest among young men, he said.

He offered a couple of possible factors driving the data: Federal studies found that while stoned and drunken drivers are physically impaired and make poor decisions, stoned drivers tend to be risk-averse, generally driving slower and leaving more distance between their cars and others. Drunken drivers, meanwhile, tend to take more risks behind the wheel. (Hansen made clear he does not condone either.)

Another possibility: People who smoke pot tend to consume it in private homes, “whereas people consume alcohol in bars,” said Hansen.

“It could be that we are taking people off the roads who would be dangerous drivers,” Hansen said, who added he was “a little bit surprised” by the findings.

Hansen’s research found that states with medical marijuana laws also saw declines in heavy drinking and a 5 percent decline overall in beer sales. He noted that revenue from legal marijuana sales might be offset by declines in alcohol revenue.

Hansen addressed the potential tax revenue for Oregon and the challenge of setting a price for legal marijuana that keeps it competitive with a robust black market and the state’s medical marijuana industry. One study financed by legalization advocates estimated that Oregon could take in $38 million in the first year of legal recreational sales, a figure Hansen called optimistic.

Ultimately, said Hansen, legalizing marijuana saves society the expense of jailing offenders. Under legalization, it’s the pot consumers who pay the government with every purchase. Think of it, he said, as a way of “instituting fines on a really large scale and calling them taxes.”

And in case you’re wondering, Hansen isn’t, as he put it, a “pot head professor.” He’s Mormon, he said.

“I don’t have a stake in the matter as far as alcohol vs. marijuana,” he said after his talk concluded. “Both of those are things that my wife would get mad at me if I touched either.”

— Noelle Crombie

Pot tied to fewer brain injury deaths: study

CREDIT: REUTERS/

BY ANNE HARDING

NEW YORK Mon Oct 13, 2014 2:06pm EDT

(Reuters Health) – People who use marijuana may be more likely to survive a serious head injury than people who don’t, a new study suggests.

At one hospital, the death rate after traumatic brain injury was lower among people who tested positive for tetrahydrocannabinol (THC, the active ingredient in marijuana) than among people who tested negative for it, researchers found.

“This data fits with previous data showing that (THC) may be neuroprotective,” Dr. David Plurad, one of the study’s authors, said in a phone interview.

Experiments in animals have found that THC may protect the brain after injury, Plurad and his colleagues write in The American Surgeon. Little is known about the specific effects of THC on brain injury in humans, however.

For the new study, the researchers reviewed data on 446 adults treated at Harbor-UCLA Medical Center in Torrance, California for traumatic brain injuries. All had been tested for THC.

Overall, approximately one in five patients tested positive for THC and one in 10 patients died after their injury.

About 2.4 percent of people who tested positive for THC died, compared to about 11.5 percent of those with negative THC tests.

People who tested positive for THC were about 80 percent less likely to die, compared to people with negative THC tests, researchers found after they adjusted the numbers to account for age, gender, injury severity and type.

Previous studies have also suggested that alcohol may protect the brain in traumatic brain injuries, Plurad said. Those studies did not account for the presence of THC, however.

“We included the presence of alcohol in our statistical analysis, and it didn’t turn out to be as protective as the presence of the marijuana,” he said, adding that future studies examining the effects of alcohol on traumatic brain injury should account for the presence of THC.

One concern with the study, according to Plurad, is that the test for THC could not distinguish occasional from regular users. A person could test positive after having used marijuana days or even weeks before.

Given that marijuana is inexpensive and may have some medical benefits, its therapeutic effects are worth investigating further, he added.

“There’s not going to be one answer, is marijuana good for you, is marijuana bad for you,” he added. “Like most things in life, and particularly medicine, it’s going to be somewhere in between.”

SOURCE: bit.ly/ZTIx0G The American Surgeon, online October 1, 2014.

Ben’s note:   The US government has already patented compounds in pot as neuroprotectants — even as it maintains that the drug is as dangerous as heroin with “no medical benefit”.