Week in Review: Cannabis Industry Extinction Events, Lead Contamination, Equity Programs and USDA Hemp Regulation Feedback Session

cannabis cultivation
Photo Credit: NomadiCam – http://www.nomadicam.com

Here’s a quick rundown of state, local and federal actions that we’re following this week.

Cannabis Extinction Events

Is California’s cannabis industry in danger of not one, but two “extinction events” in 2019? – Two weeks ago, the Senate Committee on Business, Professions and Economic Development heard a bill that would extend temporary cannabis licenses in California until December 31, 2019. Supporters of the bill argued that if Senate Bill 67 is not passed, thousands of cultivators, manufacturers, distributors and retailers will go out of business in the coming months. The bill passed the committee on a unanimous 8-0 vote and is now in the Senate Appropriations Committee.

In addition to the expiration of thousands of temporary cannabis licenses, testing of disposable e-cigarette devices, known as “vaporizer cartridges” or “vape carts” have revealed dangerous amounts of lead contamination. This has level of contamination has caused California regulators to reject a higher number of vape cartridges and has left many manufacturers scrambling to find compliant devices.

Equity Programs

On Monday, members of the Minority Cannabis Business Association (MCBA) unveiled a model ordinance package to be used by local and state governments that are seeking to create cannabis equity programs. With cities across the country exploring the creation of an equity program in their own jurisdictions, this ordinance can serve as a resource to help maximize the ability for communities of color that were disproportionately impacted by cannabis prohibition to benefit from the new industry as owners, investors, managers and employees.

On the equity front, the San Diego city council member Chris Ward announced that he plans to propose an equity program later this spring. Ward made the announcement as the council considers loosening city regulations and expanding the number of dispensaries within city limits. If San Diego creates an equity program, they will the 5th city in the state to do so – following Los Angeles, Oakland, Sacramento and San Francisco.

Local Public Interest Banks

California legislators introduce a bill that would allow local governments to create a public bank – Assembly Members Miguel Santiago and David Chiu recently announced a bill that would allow local governments to charter their own public banks. In introducing Assembly Bill 857, the authors of the bill hope that a local public interest bank would better serve the interest of low- and moderate-income households. Last year, former State Treasurer John Chiang floated the idea of creating a state-owned bank to provide basic banking services to the cannabis industry. Under AB 857, could local governments serve the cannabis industry? Would a local jurisdiction that offered banking services attract more economic activity if they offered these services?

USDA Seeks Comment on Hemp Regulations

On Wednesday, March 13, the United States Department of Agriculture hold a stakeholder meeting to receive comments and feedback on the regulations of domestic hemp production. To register for the online webinar, click this link.

If you have any questions regarding the topics discussed above, please contact Ashley Martinez at ashley@ampublicaffairs.com

California Cannabis Banking Bill Shelved for the Year and Other Legislative Highlights from the Appropriations Committee Hearings

Capitol Building.jpg

Today, the Assembly and Senate Appropriations Committees met and decided the fate of hundreds of bills including several that directly impact the cannabis industry. Here’s a run down of the most watched cannabis-related bills in the California State Legislature that were heard in one of today’s hearings:

Key Terms

  • Held in Committee – this means the bill is done for the year.
  • Passed to Assembly/Senate Floor – this means that the bill will be heard and potentially voted on before the full Assembly or Senate membership. I say “potentially voted on” because bills can still be placed on the “inactive file”, sent back to a policy or fiscal committee for review, etc., depending on a variety of reasons.

SB 829 (Weiner)Passed to the Assembly Floor

This bill would exempt qualifying compassion care programs from the cultivation and excise tax enacted by Proposition 64.

SB 930 (Hertzberg) – Held in Committee

This bill would have established a state-chartered banking system to allow financial institutions to offer basic banking services to businesses in the cannabis industry.

SB 1294 (Bradford) – Passed to the Assembly Floor

This bill was recently amended to establish the Cannabis Collaboration and Inclusion Act, which will require the Bureau of Cannabis Control (BCC) to establish an equity program beginning January 1, 2020, and requires the Bureau to provide technical support to state and local equity applicants and licensees.

SB 1409 (Wilk) – Passed to the Assembly Floor

This bill updates current law related to the production and cultivation of industrial hemp, and allows the California Department of Food and Agriculture (CDFA) to establish and implement an agricultural pilot program.

AB 1863 (Jones-Sawyer) – Passed to the Senate Floor

This bill amends California’s personal income tax law to allow taxpayers to deduct ordinary and necessary business expenses related to commercial cannabis activity.

AB 2641 (Wood) – Held in Committee

This would have allowed the BCC to issue a temporary retailer license for cultivators and manufacturers to sell their products directly to consumers at events.

Friendly Reminder: Public Comments on Proposed Statewide Cannabis Regulations Due by August 27.

Information regarding the regulations proposed by the BCC, CDFA, and the Department of Public Health can be found by clicking here on this link.

If you are interested in submitting comments on the proposed statewide regulations and need help, or have questions about any of the bills mentioned above, please contact us at info@thecannabisfile.com or by clicking here.

Would a California State-Chartered Banking System Solve the Industry’s Cash Crisis?

Recently, SB 930 (Hertzberg), was amended to created a state-chartered banking system in California that would allow banks to offer basic services to cannabis businesses.

Photo by Fabian Blank on Unsplash

Under the bill, banks that are not a part of the federal banking network would be allowed to apply for a license through the Department of Business Oversight. This license would allow a bank to 1) create accounts; 2) accept deposits; 3) issue “special purpose” checks; and 4) join in a network with other state licensed banks. Account holders could use the special purpose checks to pay taxes, rent, and vendors, and invest in state and municipal bonds.

For many in the industry, SB 930, comes as a welcomed solution to the cash-crisis that plagues the industry. However, despite it’s promise, the largest obstacle to a long-term functional banking solution remains: the federal government.

In 2013, U.S. Deputy Attorney General James Cole issued guidance, commonly referred to as the “Cole Memo” that said the federal government would not prosecute marijuana businesses where state’s had created a strong regulatory system, and kept the drug away from children, other states, and profits away from drug cartels.

In 2014, the U.S. Treasury issued guidance that said it would not charge banks with a federal crime for offering services to the industry as long as they ensured the businesses were following all state rules and the directives laid out in the Cole Memo.

Colorado and Washington, both early adopters of legal adult-use, used the guidance provided by the Cole Memo to encourage banks to engage with the industry. In doing so, the banks in these states adopted stringent requirements and invested heavily in compliance staff. The result of these actions was twofold: 1) banks turning down more accounts than opened because the businesses were not fully compliant with state law, thus violating the directives of the state law and the Cole Memo; and 2) higher banking costs for the account holder to cover compliance overhead and longer delays in processing basic banking transactions.

With the recent repeal of the Cole Memo and the Trump Administration’s lawsuit against California’s “Sanctuary State” laws, it’s not impossible to assume that the federal government would use every leverage point, including heavy enforcement and large penalties to serve as a strong deterrent for any bank, state-chartered or not from servicing the industry.

For businesses in the industry, it’s almost impossible to predict how a banking system such as the one created by SB 930, would work, and that’s assuming the bill passes the Legislature and is signed by the Governor. However, the experience from many businesses in Colorado and Washington is a timely reminder that if this bill does become law, banks will require that each account holder is in 100% compliance with all laws and regulations for all the businesses in the supply chain. Remember, one unlicensed link in the chain could place your business license in jeopardy.

Now is the perfect time to review your business plan, licenses, and compliance with California’s rules to ensure your business is eligible to participate in the state-chartered banking system should it become law.

Questions? Please contact us here or at info@thecannabisfile.com.