WeedWeek edition / October 21, 2019

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WELLCOME IMAGES The taxman isn't here to make friends

A former IRS tax attorney warned of a coming "tsunami" of audits related to industry-hated tax rule 280E. Speaking to MJBiz, the attorney said changes in IRS policy could cost larger cannabis companies millions in unpaid taxes and penalties.

Nick Richards, whose clients now include cannabis companies, said he's heard from his former colleagues at the IRS that unsuccessful court challenges to 280E by Harborside and Alternative Healthcare Advocates expanded the scope of 280E in a "big, big, big way"

  • "According to Richards, the IRS now considers unlicensed companies that work with plant-touching businesses as subject to 280E if they profited from marijuana sales – including the likes of management companies, landlords, leasing firms, etc., but clarity does not exist yet."
  • The other issue, he says, is the IRS is ramping up enforcement of the anti-laundering Bank Secrecy Act which requires the filing of Form 8300 with all cash payments over $10,000. If it plays hardball, the IRS could go back years into a company's past and levy a fine of $25,000 per missing form.
  • Richards anticipates the number of these audits expanding, especially in Colorado and California, in coming years.
  • The IRS declined to comment on Richards' guidance.

It's a complicated issue. Read the whole thing.

This week on the podcast
Table Service & Tokes at Lowell Cafe



The four men indicted for campaign finance violations in Nevada include two associates of Rudy Giuliani and Ukraine-born Andrey Kukushkin, an officer in a Sacramento dispensary owned by the city's "de facto pot king," Garib Karapetyan. Karapetyan controls eight Sacramento dispensaries, far more than anyone else in the city.

The Sacramento Bee also reports that months before the October indictment, the FBI had been investigating whether local cannabis business have bribed public officials for favorable treatment. No connection between the Sacramento investigation and the Nevada indictment has been established.

  • The indictment involves an alleged scheme to use dispensaries to funnel campaign donations to Republicans.
  • The two Giuliani associates also sought to invest in Florida cannabis licenses.
    Miami Herald
  • Sacramento's mayor has called for an investigation into how Karapetyan accumulated so many licenses, perhaps against the spirit of city laws.

Following the indictment as well as concerns over testing standards and a departed regulator accused of getting too cozy with license applicants, Nevada is cracking down on the industry. A new task force performed surprise inspections at testing labs this week and the state announced an indefinite freeze on the sale and transfer of business licenses.
Las Vegas Review-Journal

The federal indictment says the four men "took steps to hide" the identity of an investor in their Nevada cannabis business. Last week, I had a scoop which raises questions about similar practices in Colorado. Colorado authorities have repeatedly refused to discuss the issue and are on track to loosen cannabis investing rules in November.

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The cannabis market seems to have absorbed the brunt of the vaping crisis. But the New York Times has a not for the squeamish report on the near-death of a 22-year old college student, a heavy user of illicit THC vapes. It begins:

Gregory Rodriguez thought he had the flu when he went to the emergency room on Sept. 18, feeling feverish, nauseated and short of breath.

He woke up four days later in a different hospital, with a tube down his throat connecting him to a ventilator, and two more tubes in his neck and groin, running his blood through a device that pumped in oxygen and took out carbon dioxide. The machines were doing the job of his lungs, which had stopped working.

"I was basically on the verge of death," he said.

Also in the Gray Lady:

  • CBD is mostly not a scam, but Mt. Sinai addiction researcher Yasmin Hurd adds, “It has a potential medicinal value, but when we are putting it into mascara and putting it into tampons, for God’s sake, to me, that’s a scam.”
  • A common testing method can't determine the difference between CBD and THC, with serious consequences for some.

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He's not thrilled about global warming either

National legalization in Canada turned one this week. So far the experiment has delivered mixed results for companies and consumers, but is also a source of pride for many Canadians.

In a MacLean's article called "How not to legalize weed," Kate Robertson calls legalization an "utter disappointment," with the illegal market outperforming the legal in virtually every aspect of customer satisfaction.

🍁Jesse has lots more at WeedWeek Canada.



This week in California business news:

🌴WeedWeek California has more!

Quick Hit

  1. Flowhub, a dispensary software platform, raised $23M from investors including Poseidone.ventures and Evolv Ventures.



The Democratic governors of New York, New Jersey, Connecticut and Pennsylvania met to coordinate REC legalization. Together they represent a market of roughly 30M adults.
Philly Inquirer

  • “It is complicated, it is controversial, and it is consequential,” New York Gov. Andrew Cuomo, who hosted the event said. “If you don’t do it right you can do harm, and the whole purpose here is to do good.”
  • In a statement Cuomo said the states agreed to a series of principles for tax structure, safety and contamination and advertising restrictions.
  • Banking was also on the agenda.

Years into the legalization experiment, Politico says the conflicts between state and federal laws aren't getting any more manageable.



Mexico's Senate will reportedly vote to legalize REC in coming days, a major step towards full legalization in a country where violent drug cartels have long had outsized influence. Mexico's leftist President Andres Manuel Lopez Obrador has indicated he supports legalization.

  • If the bill passes the senate it would move to the lower chamber where Obrador's MORENA party also holds a majority.
  • There have been calls in the party for a state-run monopoly on the REC market though others want more private sector involvement.

Quick Hit

  1. France appears ready to commit to a 3,000 person, two-year MED experiment.



CannabCo Pharmaceutical, a Canadian company awaiting a production license, says it has a technology which nearly eliminates the odor from cannabis. It envisions the product being useful for people living in apartment buildings and other close quarters.
Yahoo Finance

On Twitter at least one wag suggested Canada's licensed producers have perfected the technology already.