California marijuana business lawyers

May 28, 2023

Los Angeles Cannabis Businesses Must be Audit-Ready

If anyone knows how critical it is to keep good records, it’s California cannabis companies. From metric analytics to regulatory compliance, the marijuana industry depends on data and documentation to ensure their operations are successful. Routine audits are a part of this. IRS audit California marijuana businesses

As our Los Angeles cannabis lawyers know, there are many different types of audits. If you’re proactive, you conduct internal audits – of your policies, your practices, your financial records, your compliance accuracy, etc. There are external audits, which might be requested by the board, investors, etc. for a lot of the same reasons as an internal audit, except with a fresh set of eyes from the outside. And then there’s an IRS audit or compliance audit.

Three years ago, the Department of the Treasury’s Inspector General for Tax Administration indicated that the IRS intended to ramp up its audit of cannabis businesses nationally. That report flatly stated the IRS did not believe most marijuana industry companies were correctly applying IRC 28E, and thus might owe millions in taxes. (This was based on 2016 tax filings.)

Of the subsequent IRS audits that took place in three states (California, Washington, and Colorado), roughly 60 percent of cannabis companies had to adjust their tax returns – which totaled nearly $50 million in unpaid taxes just for 2016.

This year, the IRS has better staffing than in recent years – plus the ability to conduct most audits virtually. Owners of plant touching businesses need to be especially primed and ready for this. Continue reading

December 6, 2022

California Pot Purveyor Pushes Back Against Product Potency Lawsuit

By Cannabis Law Group

The potency of marijuana products has become a point of contention for a California pot purveyor who is facing customer litigation over its pre-rolled joints. California THC potency lawsuit

The two Southern California customers claim that the products they purchased from the company are reported to have a very high level of THC. Tetrahydrocannabinol, of course, is the compound in pot that gives users that feeling of being high. Plaintiffs accuse the defendant cannabis company of false advertising, negligent representation, and unfair competition.

As our Los Angeles marijuana lawyers can explain, the California Department of Cannabis Control expects cannabis companies to label their products with accurate information regarding the THC content within. That can be expressed either in milligrams or as a percentage. Per state cannabis regulations, labeled content is required to be within plus-or-minus 10 percent of the actual amount.

September 10, 2022

California Cannabis Lawsuits and the Illegality Defense

By Cannabis Law Group

Few sectors in recent memory have been poised to grow as exponentially as the cannabis industry. By some estimates, we’ll be seeing $45 billion by 2025. And yet, until federal marijuana law aligns with the reality of state law, the status of marijuana as as a Schedule I narcotic under the Controlled Substances Act stands as a considerable barrier to the enforcement of any business contract involving a cannabis company. Los Angeles cannabis lawyer

As our Los Angeles cannabis business lawyers can explain, the illegality defense has been used (with varying success) to invalidate business contracts that would be strongly enforceable in any other industry.

The illegality defense essentially holds that any contract requiring one party to engage in illegal conduct is not enforceable. It’s been employed by cannabis companies, vendors, distributors, etc. to avoid being held to their prior agreement.

We saw an example of this just last year in Sensoria et al v. Kaweske et al, before the U.S. District Court for the District of Colorado. In this case, a group of plaintiffs wanted to recover their investment from a cannabis company it said engaged in breach of contract, breach of fiduciary duty, civil theft, and fraud. Plaintiffs say the invested hundreds of thousands of dollars in a cannabis enterprise, only for the company to essentially cut them off from communications and ultimately, shut down after opening up a rival firm. Investors not only were deprived of a return on investment – they didn’t receive back their initial investment.

The defense responded with the illegality-based defense as a bar to recovery. The federal court noted that the overarching issue was the cannabis company’s direct involvement in the growing and selling of marijuana – legal under Colorado law, but not under the federal SCA. The court held that the plaintiffs’ failure to explain how relief could be obtained without endorsing or requiring illegal activity or how it would be paid from an asset source independent of marijuana. Continue reading

September 8, 2022

Exploring the Legality of California Cannabis Samples

By Cannabis Law Group

For any industry that deals in consumer packaged goods marketing, product sampling is a go-to tactic. Give consumers a little nibble of your new cookie at the grocery store or a little folder with a sample of your latest perfume – it offers prospective customers the chance to try something new with no cost or risk. It can also be a means to lure prime retailers into providing a product prime shelf space. But as our Los Angeles cannabis lawyers can explain, this practice has always been legally problematic for pot shops. California cannabis samples legality

Some of the legal barriers to California cannabis samples:

Age restrictions
Public consumption bans
Legal licensing and distribution laws

These were exacerbated by the COVID-19 pandemic.

But there is good reason for manufacturers to keep trying because we know that free samples can boost sales of a product by as much as 2,000 percent. More than one-third of customers who sample a product end up buying a full-size version during that same shopping trip. If you offer in-store samples, you have the potential to increase sales by more than 100 percent, even nearly a half a year after the samples were offered.

With this kind of incentive, cannabis company entrepreneurs have had to get creative – starting with CBD.

We should point out that federal law does not allow hemp companies to put CBD into topicals or foods. However, enforcement on this has been incredibly lax. Some companies have taken advantage of that, even going so far as to have brand ambassadors offering up drink samples outside their brick-and-mortar stores. As a result, sales went up. Similar successes were noted for CBD tonics as well. Continue reading

February 9, 2022

Ancillary Cannabis Company Calls California Traffic Stops “Highway Robbery” in Federal Lawsuit

By Cannabis Law Group

Targeted by repeated traffic stops and seizures over the last year by federal and state law enforcement officers in California and other states, an ancillary cannabis company says cops are committing “highway robbery” by seizing millions in cash from armored vehicles transporting funds between dispensaries and financial institutions. The logistics company, Empyreal, has filed a federal lawsuit seeking to recoup losses and end the practice. Our Los Angeles marijuana business lawyers understand an initial request for a restraining order has been denied.

This lawsuit is being closely watched by cannabis company legal advocates as it could have a direct impact on their bottom line and ability to engage in financial transactions.

The plaintiff, with more than 25 years in banking, launched her logistics/armored vehicle business four years ago in Colorado. Since then, it’s expanded to operation in 28 states. Her goal, she told Colorado News Online, was to address some of the challenges that cannabis companies face with financial transactions. Although many states now allow medicinal and even recreational marijuana, THC products are still considered illegal under federal law. That makes federally-backed banks – bound to comply with the U.S. Anti-Money Laundering Act and Bank Secrecy Act – wary of doing business with cannabis companies. For the 700-or-so banks that will accept money from marijuana dispensaries, there is a large compliance list that involves things like background checks, verification of money origins and destinations, and other stringent guidelines. Plaintiff said she only works with banks that are meticulous about meeting all the strict requirements.

Meanwhile, particularly in states where possession of marijuana for any reason is still criminal. Kansas is one of those. State law enforcement officials there report that in the last three years, its officers have seized more than $8 million from all motorists (not just those ferrying marijuana-related funds through the state). That accounts for half of all civil forfeitures, which is a process by which law enforcement agencies can seize money, vehicles, real estate, weapons, and other personal property they suspect may have been involved in criminal activity. It is not necessary for the cops to arrest anyone or secure a conviction in order to seize the money/property. In Kansas, half of all forfeitures were done with no criminal case being filed. All they had to do was demonstrate a connection between the property and a crime – and show a lawful reason for making the stop. (As any attorney will tell you, follow behind any driver long enough and you’ll find some minor traffic infraction that can be used as cause to pull them over.)

The lawsuit alleges that the company’s vehicles have been stopped by law enforcement in Kansas and California a total of five times since last May – twice resulting in cash seizures of more than $1 million, money that was later turned over to the FBI. Continue reading

January 28, 2022

Marijuana Mortgages in California? Yes, They Are a Thing.

By Cannabis Law Group

As legal recreational marijuana businesses continue to put roots in communities throughout California, employees and owners of these companies are increasingly looking to buy homes. But can they qualify? Los Angeles marijuana lawyer

Los Angeles cannabis business lawyers can explain that residential mortgage for marijuana business owners may not be as tricky as commercial loans or rental agreements for marijuana companies. But owners and employees of marijuana companies have struggled to get approved for a mortgage loan because they are not allowed to factor income from the dispensary or other marijuana-related revenue. That all goes back to marijuana’s continued classification as a highly-restricted Schedule I narcotic at the federal level. Residential mortgages are federally-backed loans. That has meant that cannabis owners and their employees must clear numerous hurdles to qualify for a mortgage.

That said, as the industry grows (and the workforce with it), there are some options still on the table for these workers. It’s important for workers to understand home loan restrictions and alternative financing options.

Recently, one wholesale mortgage lender, Encinitas, quietly released the news that it would be accepting borrowers with cannabis-related income applying for home loans. Restrictions for at-home grow operations or farms would still remain in place. The terms are generous, though the interest rate you pay for such a deal is quite high. Continue reading

December 8, 2021

Marijuana Sales Are Legal Everywhere in California… Right? (Not Exactly)

By Cannabis Law Group

California became the first state in the U.S. to approve marijuana for medicinal use back in 1996. It was also among the first to legalize recreational adult use marijuana in 2016. Los Angeles cannabis retail attorney

However, it would be erroneous to assert that marijuana sales are legal everywhere in the state. As our Los Angeles marijuana lawyers can explain, cannabis still remains widely unavailable in some of the largest cities in the Golden State.

Of the state’s 482 cities, only 174 of them allow some type of licensed, cannabis business to operate within their district. In a number of those jurisdictions, the only allowable businesses are those that are not classified as retail locations. That means that a key piece of the supply chain puzzle is missing. Ultimately, this leaves millions of people without immediate access to retail recreational cannabis.

The one exception is delivery. Having a state license from the California Department of Cannabis Control authorizing delivery allows that company to deliver in any jurisdiction in the state – something that has been affirmed in subsequent court rulings challenging this right. However, those companies might still be subject to local jurisdictional requirements. All cannabis company owners and operators should be working with an experienced marijuana business attorney to help ensure their operation rights are protected.

But the benefit of accessible cannabis for all communities goes beyond the shop owners. It benefits the industry as a whole, as well as citizens. Accessible legal cannabis constricts opportunities for those in the black market to gain a foothold.

So what’s the holdup? Continue reading

October 21, 2021

California Cannabis Company Sues State Regulators Over High Taxes, Illicit Market

By Cannabis Law Group

A licensed California cannabis company owner has filed a civil lawsuit against the state’s Department of Cannabis Control alleging that outrageously high taxes on lawful distributors and lack of enforcement against illegal operations has made the industry untenable for those trying to do it by-the-book. cannabis business lawyer Los Angeles

As it stands, the state’s excise tax on cannabis is 15 percent. Municipalities can also set their own rates. Plaintiff, Catalyst Cannabis Company, alleges these tax rates are effectively smothering the legal cannabis industry in California. Operators of pot shops throughout the state are “treated as second class” members of the business community, while they burden an unfair share of taxes and receive little protection against the unfair competition of illegal operators.

In a press release, plaintiff told state media outlets the goal of the litigation was partly to glean information about what state regulators know regarding illegal distributors and partly to compel them to participate in reasonable cannabis industry tax reform that would allow legal operators to survive. As our Los Angeles marijuana business lawyers have been made aware, eking out a profit has become increasingly difficult for California pot shops because of high-taxes and the relentless (and growing) underground market. Legalization of marijuana for recreational use has been a positive in many respects, but it’s also reduced penalties for unlawful marijuana sales, allowing black market cannabis outfits to thrive. Continue reading

March 25, 2020

California Marijuana Companies Under Investigation Amid Federal Prosecution Probe

By Cannabis Law Group

Los Angeles marijuana tax lawyers Prosecutors for the U.S. attorney’s office in the Eastern District of California have launched a grand jury subpoena, calling for records from Californian marijuana based companies, including the parent company of Weedmaps.

Criminal prosecutors for the U.S. attorney ordered records from 30 cannabis companies, including Ghost Management Group LLC, owner of the subsidiary Weedmaps. Through its website, Weedmaps not only provides consumers with lists of nearby cannabis retailers, it also allows consumers to find retail deals, place delivery orders, and rate compare and cannabis stores.

March 9, 2020

How to Tell if Your California Pot Dispensary is Legal or Not

By Cannabis Law Group

For 22 years, medical marijuana was the only kind of legal cannabis sold in California, until the state went on to legalize recreational cannabis in 2018. Within the months immediately following that addition, a number of medical marijuana dispensaries shifted away from leaving pot out on counters for customers to view and smell, to exclusively stocking pre-packed cannabis in already sealed bags. Prices went through the roof, welcome deals for new customers dried up, and hiked taxes raised product prices even more.

Marijuana dispensaries

While other dispensaries carried on with business as they always had done. They kept buds out and available for close-up inspection before being weighed, and a complimentary joint was often handed out to welcome first time purchasers. But if you shop at a dispensary of this kind today, chances are it’s an unregulated, illegal shop. Continue reading