Califonia: Cannabis Propositions, Tax, CA’s Equity Program, Hoban Law Group & RICO Jury Verdict

Selective focus on Yes or No voting choices for a proposition on a United States voting ballot

Now that we are on the eve of the elections, California is faced with a vast array of cannabis propositions.  Last count, there were at least 82 cannabis-related ballot measures to go before CA voters.  Cannabis companies are paying particular attention to those that will significantly hurt their business bottom line as opposed to propelling it to do better.  For example, in San Francisco, a City run by #taxaddicts, famous for levying egregious, undue and burdensome taxes on the small businesses, Proposition D (for disgraceful) is on the ballot to tax cannabis companies even more.  What is truly shocking is that these additional taxes will go to fix all the other City issues wherein they have consistently wasted tax dollars.  Let’s do a deep dive into Prop D for I am actually dumbfounded by it.  The official support statement lists five different programs the proposed tax would support, including “compassion programs for low-income patients” and “equity programs for business owners harmed by over-policing.”  But, if you look at the fine print, the proposition states that the money will be deposited into the city’s “General Fund”, which can be used on a variety of city expenses from employee salaries to facilities maintenance.  The increasing speed at which this City is relishing their own personal “growth” industry, cannabis taxes, will only increase the black market and further squeeze local businesses.  Prop. D for undignified money grab, would raise taxes on MJ businesses with gross receipts of $500,000 or more and would place a gross receipts tax on internet retailers with San Francisco customers.

Under a Supreme Court case, SF believes it may also tax out-of-state companies selling goods here. The city controller predicts proceeds of $2 million to $4 million, growing to $16 million in three years.  It would be fascinating to see detailed accounting from the City on how they actually spent the cannabis tax revenues.   San Francisco as well as many other Cities within CA see legalization as their personal gold rush and as a communities savior for prior fiscal mismanagement, sometimes gross negligence and to shore up past wasteful expenditures.  Over taxing Cannabis business will not be a panacea to fix City woes. Prop D, for Disgraceful, should be voted down. Our officials need to be held accountable. Vote early, vote often.

To better understand the cost of your cannabis, it breaks down as follows: legally sold cannabis is taxed at a 15 percent rate. That’s the excise tax. Recreational users get hit with an additional state sales tax of 8 to 10 percent. They say “medical” patients do not pay that tax, however, to be a “medical” patient, it takes several forms to Sacramento, and a pint or two of blood before one is an official “medical” patient with special documentation.  Then the trickle down theory dictates that local jurisdictions be able to take their bite of the apple.  Local tax rates can run from 5 to 15 percent. Oakland’s is 9.25%, Berkeley and Richmond are 5%.  If you add it up, consumers may pay close to 40%+ in taxes. You wonder why the black market is flourishing. Let me digress and state that it is high time to stop the tax addicts from perceiving the industry as their dikes in the levee for their past failures to responsibly run their City budgets.  Locally, meaning within the State of CA, the majority of the cannabis related ballot measures are asking voters to approve marijuana business taxes.  Ellen Komp, deputy director of California NORML, says that it’s a good thing in that it is “often the first step to opening businesses up.”  It has been surmised that this election is as important as Prop 64 due to the extraordinary number of ballot measures within the State on Cannabis.

Many measures on the ballot will chip away at local bans put up by communities trying to keep their communities cannabis free.  Statewide, there are over 80 ballot measures, some of which will hasten a local government’s push to open up or expedite licensing.  According to Canna Regs, just 180 of California’s 540 local governments have passed MJ business licensing laws.  Oakland, bucking the trend and following the lead set by Berkeley which lowered its cannabis tax rate earlier this year to remain competitive, has a measure (V) which would give city officials the power to lower MJ taxes instead of raising them. Nationally, Michigan and North Dakota will decide statewide measures on the legalization of adult-use cannabis.  Utah and Missouri will consider medical marijuana legalization initiatives. Utah has a measure if passed, would allow patients with certain conditions to access cannabis. As to Missouri, the Show-Me State, will also get to weigh in on medical marijuana this fall, but it’s certainly the most complicated campaign of the four states.

Fresh off the discussion of taxes, would be a discussion on CA’s equity program.  On September 27, Governor Jerry Brown signed the California Cannabis Equity Act allocating a whopping $10 million in initial funding for the act. The equity program is supposed to assist those starting a cannabis business who may have a criminal record or have been disproportionately affected by our country’s failed War on Drugs.  The Act allows local jurisdictions, who have established their own cannabis equity programs, to apply for funding in the form of grants. The money can be used for business loans, capital improvements or licensing fee waivers.  Oakland and San Francisco both have equity programs. The equity programs are about social, racial and economic justice. However, the equity programs should be held to the same standards akin to how the “Show Me State” (Missouri) got it’s name which came from a Congressman who basically said show me, don’t tell me . (“I come from a state that raises corn and cotton, cockleburs and Democrats, and frothy eloquence neither convinces nor satisfies me. I’m from Missouri, and you have got to show me.”)

Some equity programs promote more in words than by action. Though some are touting the equity program’s success, a local Bay Area writer has described Oakland’s equity program as follows: “Oakland’s pot equity program withering on the vine.”  The program was crafted so Oaklanders, those with marijuana-related offenses, could get a piece of the pie in new legal cannabis industry. The cannabis ordinances required the city to give at least half of all available cannabis permits to equity applicants. In Oakland, it has been said they have sold the people, over 616 applicants, a field of dreams.  Oakland’s failure may be attributable to under-staffing in the city manager’s office, the flawed partnerships Oakland forced general and equity applicants to form, and the lack of supportive resources provided by the city to equity applicants. The nail is all but in Oakland’s equity coffin.   As stated by Matt Hummel, a member of Oakland’s Cannabis Regulatory Commission, “it makes me angry to think that across America people are calling out the Oakland model when the Oakland model isn’t what they think it is.”  RIP

Finally, a shout out to a very good friend of mine, Steve Schain with Hoban Law group out of Philadelphia for his landmark RICO jury verdict for cannabis cultivator and against adjacent landowner. This week, a Colorado federal jury sided with a cannabis cultivation business owner and against his neighbor on a Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §1964(c) (“RICO”) suit claiming that facility’s smells and sounds damaged their property in Phillis Windy Hope Reilly and Michael P. Reilly v. 6480 Pickney LLC et al., District of Colorado 1:15-cv-00349 (October 31, 2018). The Windy plaintiff was a Colorado property owner whom filed a RICO suit against adjacent marijuana-odor-emitting cultivation facility alleging that smell diminished value, and interfered with their property use and enjoyment. Although the trial court initially dismissed the RICO claim due to failure to demonstrate “a plausible injury” to property proximately caused by grower’s activities, the Tenth Circuit Court of Appeals reversed holding that plaintiff could prevail by demonstrating that emitted-odor interfered with property’s use or diminished its market value, or that stigma associated with nexus-to-a-Marijuana-Related-Business diminished property’s value.

At trial plaintiffs claimed that the grow inundated their property with cannabis scent, incessant air conditioner noise and truck traffics which, their expert testified, diminished property’s  potential value.  The cultivator argued that his agricultural business is on agriculturally zoned land, plaintiff’s expert’s report was based on “animal feedlot or landfill smells impact” which are distinguishable from a grow facility, and plaintiff’s land value has increased since his facility went in.  This week’s jury verdict is the first in a RICO suit against a legal cannabis business and at least two other Marijuana Related Businesses’ “adjacent property nuisance” RICO cases are pending: New Vision Hotels Two, LLC v. Medical Marijuana of the Rockies, LLC, Et Al., District of Colorado Civil Action No:15-cv-00350; and Crimson Galeria Limited Partnership Et Al. v. Healthy Pharms, Inc. Et Al.., District of Massachusetts Civil Action 1:17-cv-11696.  Again, a hearty congratulations to Steve Schain, Esq. Hoban Law Group, a really good person and a an extraordinary attorney.  Mazol Tov!

 

Tailored Benefits is an employee benefits company that has had cannabis clients for over eleven years. Jeffrey Rosen, Tailored Benefit’s founder, practiced law for ten (10) years in San Francisco, Silicon Valley & Taipei, Taiwan. He has run an employee benefits company for over twenty years. Tailored Benefits’ has evolved over the past several decades to play an integral part in the cannabis industry and specifically Employee Benefits. With the surge in demand for cannabis employees, Tailored Benefits’ specific cannabis employee benefit solutions is how you can set yourself apart, attract and retain valuable employees.

If you need more information on how to insure your cannabis business, Tailored Benefits is here to guide you and keep you informed on local and federal policies.

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