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A federal bill to allow cannabis companies access to banks could lower Illinois revenue projections …

A federal measure that would allow marijuana business access to banks could mean a boom in investment, but it could put a dent in Illinois’ budding cannabis revenue projections. For years, the business of medical and recreational cannabis has been “cash-only” due to federal banking laws forbidding access to banks.

Source: A federal bill to allow cannabis companies access to banks could lower Illinois revenue projections …

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Dozens of California politicians are working for the pot industry

As California’s attorney general from 1999 to 2007, Bill Lockyer was on the inside as the state wrestled with a developing marijuana industry. But these days he’s watching the transformation from the outside, as co-founder of a licensed pot distributor in Lynwood.

Source: Dozens of California politicians are working for the pot industry

As California’s attorney general from 1999 to 2007, Bill Lockyer was on the inside as the state wrestled with a developing marijuana industry. But these days he’s watching the transformation from the outside, as co-founder of a licensed pot distributor in Lynwood.

Lockyer, whose four-decade public career included a stint as the powerful leader of the state Senate, is among a growing number of former government leaders, bureaucrats and regulators who have joined or established financial ties with the multibillion-dollar marijuana industry in the last few years.

More than two dozen government officials in California have made the leap. Most, like Lockyer, jumped in after voters in 2016 approved Proposition 64, which legalized growing, distributing and selling cannabis for recreational use.

Lockyer said he was drawn by his fascination with seeing a new industry spring up.

“What has been interesting to me — an academic interest — is watching a whole new business sector evolve, from an illicit market to a legal system, and how people do it and the companies that get created. It’s rare that you ever get to see that,” Lockyer said.

Other top California politicians who have entered business relationships with the cannabis industry include former Los Angeles Mayor Antonio Villaraigosa; former Rep. Dana Rohrabacher (R-Costa Mesa), who transitioned to the pot industry after losing a reelection bid last year; and former San Fernando Valley Assemblyman Felipe Fuentes, a Democrat whose lobbying firm has a cannabis client that he says is handled by his partner.

On the national level, former House Speaker John Boehner (R-Ohio), former Senate Majority Leader Tom Daschle (D-S.D.) and former Rep. Joe Crowley (D-N.Y.) are among those who now make their money off the legal marijuana trade.

Five former aides to Gov. Jerry Brown, who left office in January, have also gone to work for cannabis businesses or lobbying firms that assist such ventures. In addition, web giant Weedmaps hired a lobbying firm formed by two former advisors to Gov. Gavin Newsom.

And former senior officials at the state Bureau of Cannabis Control, the state Department of Food and Agriculture’s pot cultivation licensing office, the state Department of Justice’s drug enforcement unit and three former senior legislative aides are also advising pot firms, including one former official who helped write the state’s cannabis regulations.

“There is an opportunity to make a lot of money,” said Lindsay Robinson, executive director of the California Cannabis Industry Assn. “It’s dynamic and exciting.”

California has the world’s largest market of legal cannabis sales, which is expected to reach a record $3.1 billion this year, growing to $7.2 billion in 2024, according to a study released last month by sales-tracking firms Arcview Market Research and BDS Analytics.

Cannabis firms that need help navigating bureaucracy stand to gain valuable knowledge from enlisting government veterans, said Lockyer, who retired from politics when his term as state treasurer ended in 2015 and is a founder of C4 Distro, a state-licensed distribution firm.

“As a general matter, business and government transmit on different wavelengths, and so there is some value in having somebody be able to translate to each side,” Lockyer said. “If there is somebody who understands business and government, there is some value they can bring to the business operation.”

In addition to high taxes and complicated regulations, chief among the problems the new legal industry faces is a struggle to compete against a pervasive black market.

“Everybody is complaining,” Lockyer said of the legal industry. “A very common complaint is how much illegal activity there is.” The problem, according to the state’s former top cop, is the level of enforcement. “It doesn’t exist,” he said.

But the move of so many government insiders to the pot industry is worrying to Scott Chipman, Southern California chairman of Citizens Against Legalizing Marijuana, which opposed Proposition 64.

“The pot industry hiring ex-officials is particularly egregious because of the harm this industry does to kids, young adults, families, communities and the country in general,” he said.

Chipman said government officials should be barred for 10 years from lobbying on behalf of cannabis clients.

A bill by Assemblywoman Melissa Melendez (R-Lake Elsinore) that would have extended the ban on former lawmakers lobbying the Legislature — from one year to five years — recently died in the Legislature.

“No one should be naive enough to think that industries like the cannabis industry are not closely watching to see which legislators are inclined to support bills that favor their particular industry, and which legislators seem to have the most influence,” Melendez said. “This is all helpful information when trying to court future lobbyists to strengthen your political power.”

Rey Lopez-Calderon, executive director of government watchdog organization California Common Cause, also supports a stronger revolving-door policy and said the exodus of government officials to the pot industry was predicted.

“It’s lucrative,” he said. “You have a new industry, and it obviously has a high reward potential, and these folks have influence.”

Rohrabacher became a shareholder and member of the advisory board of Budtrader.com, an online cannabis social media site, after a congressional career in which he had long advocated for cannabis legalization, according to Brad McLaughlin, the company’s chief executive.

Rohrabacher said at the time that with his “knowledge of the system and my contacts, we will not rest until every American has the freedom to decide if medical or even recreational cannabis is right for them.”

Industry firms that have hired government insiders as lobbyists include Weedmaps, which helps cannabis consumers find pot shops and delivery services through its website. Until recently, the company refused state demands to stop listing unlicensed cannabis sellers. Last month, it announced it would stop listing such firms.

Shortly after Newsom’s election, Weedmaps hired a lobbying firm headed by Kevin Schmidt, who for five years was policy director for Newsom when he served as lieutenant governor. Jason Kinney, a key advisor on Newsom’s gubernatorial transition team, also works for the firm.

Kinney said in February that he planned to focus on non-cannabis clients. When asked recently whether he is working on behalf of clients in the legal marijuana industry, Kinney said by email that the company “fully and publicly discloses all lobbying clients and activities on their behalf.”

Another big industry player that has hired political insiders is Eaze Solutions, an online platform that arranges marijuana deliveries.

In January, it hired Elizabeth Ashford as senior director of corporate communications. Ashford served as chief of staff for Kamala Harris when she was state attorney general, and in key roles with Brown and former Gov. Arnold Schwarzenegger.

One of the lobbying firms hired by Eaze is Sacramento Advocates Inc., whose lobbyists include two former high-level aides to Brown, including Gareth Elliott, who is a partner. Eaze also hired a former aide to state Sen. Steven Bradford (D-Gardena), the author of major cannabis legislation, to be its government relations manager.

California’s legal market has struggled to get off the ground, with most cities and counties banning pot shops while the licensed firms complain of high taxes and thick government red tape. Politicians and government insiders who now work for the industry say they can use their knowledge to help make the system work.

“I think everyone would agree there is still much work to be done,” said Dean Grafilo, who served under Brown as director of the California Department of Consumer Affairs, which includes the Bureau of Cannabis Control, before he moved this year to the lobbying firm Capitol Advocacy. The firm’s clients include Surterra Holdings, whose subsidiaries make and distribute medical cannabis products, including oils, tinctures, vape pens and lotions.

Max Mikalonis was a top advisor to Assemblyman Rob Bonta (D-Alameda) and helped write new laws to regulate the marijuana market before he became a lobbyist with K Street Consulting, where he said he focuses exclusively on helping cannabis business clients.

“Both K Street and myself provide both legislative and regulatory advocacy and just plain advice to our clients on different topics,” he said, adding that he lobbied this year on behalf of cannabis client Event Horizon Technologies for a bill that would allow firms to provide trade samples.

Former regulators and state enforcement officers have also made the leap into the industry.

Joe Devlin was the chief of cannabis policy and enforcement for the city of Sacramento, where he created a system for licensing pot businesses while shutting down illegal operators. These days, Devlin has traded his suit and tie for shorts and flip-flops as he helps a start-up cannabis company navigate the maze of government bureaucracy to obtain permits to grow, distribute and sell the drug.

Devlin now works for Ikänik Farms, which is building a portfolio of cannabis retail dispensaries and cultivation facilities. He didn’t get a pay raise, he said, but the new job appealed to his entrepreneurial side.

Experts in government are critical to a burgeoning industry dealing with complex regulations, Devlin said.

“There is a need for people in the cannabis industry who understand how government works, and who understand regulation and understand compliance,” he said. “There has never been a policy topic that I have been part of that was even remotely this complicated.”

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Will Detroit have marijuana bars? Local attorney believes so

DETROIT – They’re called social consumption bars, also known as marijuana bars. It’s a place where you can go and consume marijuana. A local law firm says the concept is simple. The firm wants to have places where people can go smoke marijuana, and it says Detroit is a great launching pad for that. “I think the city of Detroit is going to be progressive, as they always have been,” said Barton Morris Jr., with Cannabis Legal Group.

Source: Will Detroit have marijuana bars? Local attorney believes so

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Cannabis Industry’s 401(k) Dreams Dashed by Tax Code, Legal Fears

Helping employees save for the future is an unrealistic goal for cannabis companies hamstrung by tax law provisions and retirement industry fears that reach back to the federal government’s “war on drugs.” Large 401(k) retirement plan providers are afraid to get involved with an industry engaging in activities still illegal under federal law, and a decades-old ban on most federal tax deductions can make providing plans expensive for the companies, tax and retirement professionals say. “Cannabis companies want to provide a 401(k) benefit,” said Jewell Lim Esposito, a partner at FisherBroyles in Reston, Va., who specializes in cannabis, tax, compensation, and benefits. “Once the Fidelity-like company finds out the cannabis company is a cannabis company, they reject them.” It doesn’t help that many human resources and payroll software providers take a similar tack, said Dan Walter, a managing consultant at FutureSense LLC, a consulting and professional services firm that serves the industry. “There’s a stigma to it,” he said. “You have to build your own machine, so to speak.” Closing the Gap Enterprising vendors are working to fill the benefits void—although they are wary of sharing too many details.

Source: Cannabis Industry’s 401(k) Dreams Dashed by Tax Code, Legal Fears

Helping employees save for the future is an unrealistic goal for cannabis companies hamstrung by tax law provisions and retirement industry fears that reach back to the federal government’s “war on drugs.”

Large 401(k) retirement plan providers are afraid to get involved with an industry engaging in activities still illegal under federal lawand a decades-old ban on most federal tax deductions can make providing plans expensive for the companies, tax and retirement professionals say.

“Cannabis companies want to provide a 401(k) benefit,” said Jewell Lim Esposito, a partner at FisherBroyles in Reston, Va., who specializes in cannabis, tax, compensation, and benefits. “Once the Fidelity-like company finds out the cannabis company is a cannabis company, they reject them.”

It doesn’t help that many human resources and payroll software providers take a similar tack, said Dan Walter, a managing consultant at FutureSense LLC, a consulting and professional services firm that serves the industry.

“There’s a stigma to it,” he said. “You have to build your own machine, so to speak.”

Closing the Gap

Enterprising vendors are working to fill the benefits void—although they are wary of sharing too many details.

Oregon-based Valentine Ventures, which declined to speak about the “Cannabis 401(k)” it markets online, addresses the legality of corporate tax breaks via a series of frequently asked questions on its website.

“There is nothing that prohibits a cannabis company from having a 401(k) plan. The only hard part is finding the service providers willing to work with the industry — which we have already done for you,” Valentine’s advisers write.

Charles Alovisetti, a partner at cannabis-friendly law firm Vicente Sederberg LLP, said he has seen instances of cannabis companies establishing 401(k)s via a non-license-holding subsidiary—states can require permits for different business functions like a cultivator or retailer—in order to work with mainstream retirement plan providers. The arrangements tend to implode once the administrator figures out what’s really going on.

“Anyone who is touching funds coming from a cannabis company is technically guilty of money laundering,” he said. “So it’s a real challenge.”

Practitioners applauded the House passage Sept. 25 of a cannabis-friendly bill (H.R. 1595) designed to inoculate depository institutions such as commercial banks and credit unions interested in dealing with state-legal enterprises. But they noted those changes do nothing to shield retirement plan administrators from government scrutiny.

Treading Carefully

Hurdles created by the Controlled Substances Act and the tax code strip cannabis companies of the ability to build toward the future—effectively penalizing them for growth, industry advocates say.

Tax code Section 280E, added in the 1980s, bars state-legal cannabis businesses from taking ordinary business deductions—including for 401(k) matching—andcan drive their effective tax rates above 70%.

Section 280E works differently for producers and retailers, however, because the businesses are still permitted to reduce the amount of income subject to tax by the cost of their inventory. That can include the cost of the people making anddistributing the product, and in turn, those employees’ benefits. Companies that do nothing but sell products they buy wholesale will for the most part be out of luck.

Katye Maxson-Landis, founder of cannabis-friendly Moxy Accounting firm in Portland, Ore., bemoaned that decades of inaction have forced companies to operate under a “Prohibition position.”

“Nine times out of 10, businesses are trying to stay alive. Tax positions be damned,” she said.

Esposito said a good accountant should be able to separate out the employee costs. Other tax professionals advise extreme caution in tracking what counts and doesn’t count as an inventory cost, because disputes over these categorizations have landed some companies in Tax Court and left them with large sums in back taxes.

“You need to be careful to make sure you are capitalizing those expenses correctly,” said Justin Hobson, counsel at Lane Powell in Portland and co-chair of the firm’s cannabis team. Some cannabis companies have structured their businesses so that the employment and human resources elements are placed in a separate entity, he said.

However, such companies have to tread carefully to avoid the appearance of abusive tax-structuring, as the Tax Court opinion in Alternative Health Care Advocates v. Commissioner showed.

Alternative Health set up a separate entity to provide itself with human resources and employment services. The Tax Court ruled the entity was still subject to the ban on deductions because it only served Alternative Health, and it decided the company owed a penalty.

Separate entity or not, what—and who—is part of the cost of inventory, often called cost of goods sold, isn’t always entirely clear.

“It’s not the same as buying a carton of dolls and moving it to the front of the story. There is no uniform field guidance,” said James Mann, a partner at Greenspoon Marder, who’s representing Harborside Inc. in an appeal of a Tax Court decisiondisputing that company’s cost of goods sold calculations.

“280E is so inconsistent with the rest of the code. It’s so discordant as cannabis is becoming a big business,” Mann said.

Growing Pains

As businesses grow and diversify, some more production-focused entities may be able to deduct contributions to their employee benefits plans, and other, more retail-focused entities may not be able to—even when they’re owned by the same parent company.

The 2018 farm bill legalized hemp—which can be used to make CBD, a non-psychoactive compound containing less than 0.3% THC, which is the psychoactive part of marijuana—in narrow circumstances. So if a large cannabis conglomerate has both federally legal hemp subsidiaries and marijuana subsidiaries whose activities are still banned under federal law, those two types of subsidiaries may be viewed differently by mainstream retirement plans.

But providing a plan to one entity and not the other could be a recipe for an Employee Retirement Income Security Act violation, tax and retirement professionals said.

Running afoul of ERISA’s nondiscrimination rules by offering employer-sponsored benefits only to select employees would likely jeopardize the tax-qualified status of the entire 401(k) program, putting every account holder’s retirement savings at risk.

“As companies grow, self-managing a 401(k) becomes super complex,” said Walter, adding that the bigger and more diverse a cannabis company gets, the more difficult it tends to be for it to provide a retirement plan to its employees.

“Most of these companies are growing through M&A and not organically,” Walter said. “The problem with that is it changes the profile of the company.”

Peter Hurley, principal at PCH Financial Consulting LLC in Denver, estimated that 70% to 80% of cannabis companies aren’t making much money. They’re just holding on in the hopes of being snapped up by a bigger fish.

Exploiting business tax breaks would be a stretch for many clients, Hurley said, particularly those that can’t even pay staff without spooking banks fearful of getting embroiled in a trafficking scandal.

“Never mind 401(k)s or sick leave,” he said. “They’re worried about, ‘How do we protect them so they can get a loan so they buy a home, so they can buy a car, so they can have a bank account?’”

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As Napa considers cannabis cultivation, the experiences of other counties may be helpful

What would legal commercial cultivation of cannabis look like in Napa Valley? Last week, the Board of Supervisors said they would conduct community outreach meetings starting next year before deciding if the county should allow cannabis cultivation.

Source: As Napa considers cannabis cultivation, the experiences of other counties may be helpful

What would legal commercial cultivation of cannabis look like in Napa Valley?

Last week, the Board of Supervisors said they would conduct community outreach meetings starting next year before deciding if the county should allow cannabiscultivation. Supervisors said they would proceed cautiously given concerns about how a future cannabis industry could coexist alongside Napa’s wine industry.

“There is no other place in the state of California where we can point to a county (wine/cannabis) ordinance that works,” Supervisor Diane Dillon said. “Being asked to invent the one that will is quite the challenge.”

Commercial cultivation is legal in the unincorporated areas of 23 of California’s 58 counties, including Sonoma County, which has its own premium wine reputation to protect. It’s also legal in neighboring Lake and Yolo counties, and in Santa Barbara County, which has a burgeoning wine industry.

In Santa Barbara, which has granted the most temporary growing permits in the state, interaction between the wine and cannabis industries has not been entirely peaceful: the county has faced concerns over odor, the appearance of cultivation-related infrastructure, and even legal disputes, including a lawsuit filed by acannabis grower involving pesticide drift from a neighboring vineyard.

Stephanie Honig of Honig Vineyard & Winery, a co-founder of the Napa Valley Cannabis Association (NVCA), said Napa can learn from other regions that have legalized commercial cultivation.

“We really care about protecting Napa’s brand – (commercial cannabis cultivation) won’t hurt that brand, it’ll enhance it,” Honig said. “Lake County has been successful. People keep using Santa Barbara as a warning, but we don’t want to be like Santa Barbara either.”

In Sonoma County, only a handful of permits have been approved since commercial cultivation was made legal in 2017, and many of those approvals have been appealed by neighbors, causing further delay. Consequently, there’s been limited opportunity for interaction – either positive or negative – between the county’s cannabis and wine industries.

Proponents of commercial cultivation have formed the Sonoma County Growers Alliance, which holds monthly mixers to discuss the state of the county’s industry. At this month’s meeting on Wednesday, attendees expressed frustration with the application process, and some wondered aloud if the resistance from Sonoma’s other industries, wine included, were intentionally helping to slow the pace.

In neighboring Lake County, the conversation has been a different one: cannabiscultivation has been a way to collect badly-needed tax revenue, according to Bobby Dutcher, a Lake County real estate broker and vineyard owner. He added that cannabis growing existed in Lake County well before it was legalized.

Rob Fitzsimmons, an assistant planner with Lake County, said the county currently has around 38 fully approved grows and 11 early activated grows. Lake County allows for 12 new permit applications a month – it’s been hitting capacity every month – and currently has a wait list that is almost 70 applications long, he said.

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Dutcher, who is a proponent of cultivation, described the legal cannabis industry today as dealing with “growing pains.”

“There’s still a little bit of distrust in the industry from the winery side – there’s still a fear of odor taint from having an outdoor (cannabis) operation nearby,” said Dutcher, who believes that fear will lessen over time. He has one client who is growing both grapes and cannabis on the same property, he added.

It’s a matter of difference in county culture, according to NVCA board member Alicia Rose, whose cannabis company, HerbaBuena, previously sourced its product from both Mendocino and Sonoma counties.

“Mendocino County has great wineries, but (wine) is not an entrenched piece of the culture there like it is in Napa and Sonoma,” said Rose, who previously worked in marketing for the wine industry. “There are more cannabis growers than grape growers; it’s a completely different conversation.”

In August, Napa County proponents of cannabis cultivation collected the necessary amount of signatures to put the issue on the March 3 ballot as Measure J. A week later, its creators withdrew Measure J in what they said was “a show of good faith.”

In Napa, opponents of commercial cultivation have voiced a number of concerns, many of which echo the issues Santa Barbara has been challenged to address since legalizing cultivation. They include odor, the impact of cannabis fields on Napa’s viewshed, and interaction with other agriculture. Impact on the Napa Valley appellation has also been at the forefront of the discussion.

In August, the county came out with a 9111 report – a study that analyzed the potential impacts of commercial cultivation in Napa on a range of topics like finances, land use and agriculture.

“A lot of what was illuminated in the 9111 report troubled many in our membership and our leadership – and whether it’s an initiative that has been withdrawn, an ordinance or a future initiative, we just don’t see how some of those (concerns) can be mitigated,” said Rex Stults, director of industry relations for the Napa Valley Vintners.

He reiterated concerns over odor and viewshed disruption, as well as any crime that commercial cultivation might draw into Napa.

Erik Sklar, co-founder of the NVCA, said any future ordinance permitting commercial cultivation would have to address “any real concerns” – including how much distance must be left between commercial cultivation and neighbors, and the allotted size of grows.

“We’re in a great situation – we can learn from what’s gone on elsewhere,” Sklar said. “The reality is that some places have gotten it more right than others.”

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Here are the top bankers raising money … raking in millions in the global cannabis market

Cannabis companies have been going public, merging, and acquiring competitors in a race for a competitive edge as cannabis legalization continues to sweep the globe.

According to a report from the cannabis accounting and advisory firm MGO|Ello, there were 300 strategic acquisitions worth $8.4 billion in the cannabis space in 2018, up from just $54 million in 2013. All that jockeying within the industry has led to a boom for investment bankers, who help companies raise money, go public, and pursue M&A.

Under its former CEO, Bruce Linton, Canopy Growth was perhaps the most active of publicly-traded cannabis companies, as it landed a $4 billion investment from the beer giant Constellation Brandsand orchestrated the first Canada-to-US cannabis acquisition with its complex deal to acquire Acreage Holdings.

Read moreMeet the bigshot lawyers who are turning weed into a $194 billion industry

US cannabis company Curaleaf is hot on its heels, having closed two near-billion-dollar acquisitions in the past six months. Because most cannabis startups can’t access traditional venture capital, many raced to go public through a process known as a reverse merger last year on the Canadian Securities Exchange to fund their growth — providing a windfall for the bankers who orchestrated these deals.

Most of the fees from these and similar deals are flowing to boutique and midsize Canadian investment banks (cannabis is federally legal in Canada) that took the initial risk of working in an industry with a hazy regulatory structure in the US. Federal illegality has frozen the biggest US banks from competing on these deals, and most still remain on the sidelines.

Canaccord Genuity, a midsize Canadian investment bank headquartered in Toronto and Vancouver, has grabbed the largest share of fees from the cannabis industry, according to data from Dealogic. As of September 23, Canaccord has netted $122 million in fees from cannabis deals across equity capital markets, M&A, debt capital markets, and loans, amounting to an 18% share of all fees generated from cannabis deals.

Read more: The top 12 venture-capital firms making deals in the booming cannabis industry

While the top-tier US banks are mostly sitting on the sidelines for now, some, like Goldman Sachs, have advised existing clients on cannabis deals.

In an effort to figure out who’s making money on these deals, Business Insider put together a list of the top dealmakers in the cannabis industry, based on Dealogic data. We then conducted additional reporting to identify the top cannabis bankers at those firms.

This chart is up-to-date as of September 23. It shows the top ten banks working on cannabis deals and an estimate of how much money they’ve made in cannabis since 2015, primarily from deals and stock offerings.

Shayanne Gal/Business Insider

Source: Here are the top bankers raising money, putting together deals, and raking in millions in the global …

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Encentus backs out of cannabis banking in Oklahoma

Those guidelines basically turn bank staff into auditors, Hallman said. She said cannabis banking accounts can never have a penny not accounted for at any given time, and reporting is incredibly arduous. “It takes a lot of time and software to really be able to keep up with it like we need to,” Hallman said, “and at least right now we’re not in the position that we can pour those kinds of dollars into software (and staff).” Hallman said she is sorry that even after charging fees, the cost burden of continuing to serve cannabis-connected clients necessitated Encentus’ departure from the industry. “It’s just we cannot financially continue to do it.

Source: Encentus backs out of cannabis banking in Oklahoma