As I posted previously, the State of Florida missed the deadline to issue more licenses for medical marijuana treatment centers.

Florida has also encountered serious delays in processing requests for medical marijuana i.d. cards due to the fact that Florida’s Department of Health is requiring patients to send in a paper check to get their card.  As Christian Bax, head of the state’s Office of Medical Marijuana Use (“OMMU”), explained:

checks are something that have to be physically processed, they have to be sorted, they have to be tracked.

Additionally, the printing of the Florida i.d. cards for patients has also encountered delays.  Florida’s Department of Health reports that 50,284 patients are in the Medical Marijuana Patient Registry.  On the other hand, the OMMU has only issued 29,778 i.d. cards.

Mr. Bax recently was called to answer questions by a Florida House of Representatives’ sub-committee related to these delays.  Mr. Bax pointed to ongoing litigation of the laws that implemented Amendment Two and the payment processing issues as reasons for the slow roll out of medical marijuana for patients.

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Dori K. Stibolt is a West Palm Beach, Florida based partner with the law firm of Fox Rothschild LLP.  She focuses her practice on litigation and labor and employment issues.  You can contact Dori at 561-804-4417 or dstibolt@foxrothschild.com.

A hot-button issue for attorneys and business alike is how the implementation of Pennsylvania’s Medical Marijuana Program will affect the workplace. My colleague Josh Horn and I will be serving on a panel to discuss this topic next week!

Cannabis and the law
Copyright: jirkaejc / 123RF Stock Photo

 

The event, “Impact of Legalized Marijuana in the Workplace” will be hosted by the Philadelphia Labor and Employment Relations Association and the Philadelphia Bar Association Employment Law Committee. It will take place on Tuesday, November 14, 2017 at 5:30 PM at The Racquet Club of Philadelphia.

The discussion will outline Pennsylvania’s Medical Marijuana Act and then delve into several employment law issues from both a labor and management perspective. Check out this link for more information, and click here to register and attend the event!

Tax and calculator buttonsToday, the Tax Court issued its opinion in Feinberg v. Commissioner, a case involving an ongoing and hard fought battle between the IRS and a medical marijuana dispensary, Total Health Concepts, LLC.  The IRS examined THC’s 2009 through 2011 tax returns.  As a result of the examination, the IRS adjusted the member taxpayers’ returns to reflect a cost of goods sold allowance in excess of the amount originally claimed on the return by reclassifying expenses that were originally claimed as below-the-line expenses.  However, the IRS also disallowed expenses not reclassified as cost of goods sold.  Accordingly, the IRS computed deficiencies on the member’s individual tax returns.

During earlier phases of this case, the taxpayer argued that the Commissioner did not have jurisdiction to administratively determine whether petitioners committed a federal crime outside of the U.S. tax code, that section 280E as applied by the Commissioner is unconstitutional as it violates petitioners rights against self-incrimination under the Fifth Amendment of the Constitution, and that section 280E exceeds the authority granted to Congress under the Sixteenth Amendment of the Constitution.  The Tax Court denied the taxpayer’s request for summary judgment and compelled them to respond to IRS discovery requests.  The taxpayer’s sought a writ of mandamus, seeking review of the Tax Court’s order compelling them to produce documents.  The Tenth Circuit determined that if the discovery request harmed them, the proper time to address that harm would be after the Tax Court case was fully resolved.  As a result, the taxpayer’s case proceeded to trial.

At trial, the taxpayer did not submit documentation to substantiate the cost of goods sold allowance or the ordinary and necessary business expenses.  Instead, an expert report was submitted to substantiate a cost of goods sold allowance in excess of what the IRS allowed during the examination.  The Tax Court ruled that the expert report was unreliable because it contained statements which failed to refer to underlying source information, failed to include underlying source information which the expert relied upon, and failed to include sufficient information and data to support the report’s conclusions.  As a result, the expert report was inadmissible.

Next, the court looked to evidence which would support a higher cost of goods sold allowance than the allowance determined in the IRS report.  Without documentation, the court concluded that the IRS determination of cost of goods sold would stand.  Further, because there was no substantiation of ordinary and necessary business expenses claimed under Section 162, the court determined that it did not need to address the application of Section 280E (the code section which disallows ordinary and necessary business deductions for businesses trafficking in controlled substances).

What is the lesson here?  This case provides no guidance on the limits that will be applied to cannabis companies in determining cost of goods sold.  Rather, this case tells us that a cannabis company should prepare for an IRS examination the same way any other taxpayer should, by maintaining documentation to support the deductions claimed on the return and by provided that documentation when the IRS requests it.  This is especially true in this case, where the court determined that “there was not enough evidence in the record to make a finding of fact that THC sold medical marijuana.”  Based on this statement, if the taxpayer would have substantiated its below-the-line expenses, they would not have been subject to Section 280E, which would have been a huge win for the taxpayer.

Pennsylvania’s Medical Marijuana Program is in full swing. Since permits were issued this summer, the successful grower/processor and dispensary applicants have been working to become operational, and all accounts point to Spring 2018 as the date when patients will be able to receive and use medical cannabis.

The launch and continuation of the Program bring many legal questions and challenges for businesses, patients, doctors, and lawyers alike. On Wednesday, October 18, 2017, Fox Rothschild’s Josh Horn, Partner in Philadelphia and Co-Chair of the Cannabis Law Practice Group, will be part of a panel of attorneys addressing these issues and forecasting the future of the cannabis industry in Pennsylvania.

Joshua Horn, Partner, Fox Rothschild LLP

Josh Horn

“Nex Steps for Medical Marijuana in PA: Evolving Issues in a Growing Industry” will be hosted by the Pennsylvania Bar Institute on Wednesday October 18, 2017 from Noon – 4:30 PM. Click here for more information or to attend the event!

Pursuant to the law passed earlier this year which implemented Amendment Two (medical marijuana), Florida was required to issue additional licenses for medical marijuana treatment centers (the entities that grow, distribute and sell medical marijuana) to bring the number of licenses up to ten by October 3, 2017.

Florida has missed this deadline due to Hurricane Irma (which caused extensive damage and power outages in South Florida and the Keys) and because of litigation filed recently which alleged that the law was unconstitutional as to the license reserved for a black farmer.

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Dori K. Stibolt is a West Palm Beach, Florida based partner with the law firm of Fox Rothschild LLP.  She focuses her practice on litigation and labor and employment issues.  You can contact Dori at 561-804-4417 or dstibolt@foxrothschild.com.

Bill Bogot, a partner in Fox Rothschild’s Chicago office and Co-Chair of the firm’s Cannabis Practice Group, will moderate a panel entitled, “The Highs and Lows of Marijuana Legalization” as part of the International Association of Gaming Advisors Best Practices Institute. The event will take place on Monday, October 2, 2017 at the Sands Convention Center in Las Vegas, NV.

Skyline of Las Vegas, Nevada
Copyright: rabbit75123 / 123RF 

The panel will confront the intersection between legalized marijuana and the gaming industry, with a particular focus on compliance, employment, licensing, and ethical issues faced by businesses in both industries.

For more details, or to register for the event, head over here.

A lawsuit was recently filed which challenges the constitutionality of part of the Florida law implementing Amendment Two (medical marijuana).  A key part of the law was expanding the number of growing licenses that would be awarded to farmers/operators in the lucrative medical marijuana business.

The law implementing Amendment Two called for an overall increase of 10 licenses by October 3, 2017.  But, the law also provided that one (1) of those licenses go to a black farmer who had been a party to settled lawsuits about discrimination by the federal government against black farmers.  The law also said that the black farmer who receives the medical marijuana license would have to be a member of the Black Farmers and Agriculturalists Association-Florida Chapter.

Columbus Smith, a black farmer from Panama City, Florida filed the lawsuit.  Mr. Smith alleges that the law is so narrowly drawn that only a couple of black farmers could qualify for the license.  The lawsuit contends that the carve-out license is what is known as an unconstitutional “special law.”

The lawsuit said Mr. Smith meets the qualification of being part of the litigation (known as “Pigford I” and “Pigford II”) about discrimination against black farmers.

But, Mr. Smith has not been allowed to join the black farmers association, precluding him from receiving a license.  According to the lawsuit, the association is not accepting new members.

There is no rational basis for limiting the opportunity of black farmers to obtain a medical marijuana license to only the few members of that class of black farmers who are also member of a specific private association.

Mr. Smith’s lawsuit seeks an injunction against the Florida Department of Health’s issuing a license related to the black farmer.

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Dori K. Stibolt is a West Palm Beach, Florida based partner with the law firm of Fox Rothschild LLP.  She focuses her practice on litigation and labor and employment issues.  You can contact Dori at 561-804-4417 or dstibolt@foxrothschild.com.

Venture capital is playing a growing role in the country’s emerging legal cannabis industry. Attorneys Emily J. Yukich and Matthew R. Kittay of Fox Rothschild’s Emerging Companies & Venture Capital Practice will conduct a panel discussion with industry insiders during the American Bar Association Business Law Section’s annual meeting in Chicago.

Cannabis leafThe Angel Venture Capital Subcommittee, which Yukich and Kittay co-chair, will present an in-depth 360-degree examination of venture capital investing in cannabis companies, featuring:

Panelists:

  • Jeremy Unruh, general counsel and director of external communications at PharmaCann, a medical cannabis provider based in Oak Park, Illinois.
  • Charlie Bachtell, founder and CEO of Cresco Labs, LLC, a Chicago-based medical cannabis cultivating and manufacturing company.
  • William Bogot, co-chair of the Cannabis Practice Group at Fox Rothschild LLP.

Date: Thursday, Sept. 14

Time: 10 a.m. to 11 a.m.

Venue: Chicago Ballroom VIII, Ballroom Level, Sheraton Grand, Chicago, Illinois.

Florida continues to make forward progress on implementation of Amendment Two (medical marijuana) with additional licenses and dispensaries being approved or opened around the state.

License News

Three new licenses are being added in Florida.

Dispensary News

The following municipalities in Florida are moving forward with medical marijuana dispensaries:

Those municipalities going with moratoriums are listed below:

Municipalities trying to work around the all or nothing requirement set forth in Florida’s medical marijuana law are listed below.  Some municipalities are rewriting their zoning ordinances for pharmacies since municipalities must regulate and zone medical marijuana dispensaries as they do for pharmacies.

Other News

  • The Florida Board of Medicine is also working on regulations that will guide discipline for doctors that improperly prescribe medical marijuana.
  • In the education world, school boards are working on creating policies for children to take medical marijuana during school hours if prescribed in that fashion.
  • There is a question whether someone taking lawful medical marijuana can also be sold a firearm (since marijuana is still illegal under Federal law)

 


Dori K. Stibolt is a West Palm Beach, Florida based partner with the law firm of Fox Rothschild LLP.  She focuses her practice on litigation and labor and employment issues.  You can contact Dori at 561-804-4417 or dstibolt@foxrothschild.com.

Today, the Philadelphia Inquirer published an excellent piece about local law firms that have embraced the legal cannabis industry, despite some of the risks and uncertainty inherent in the business for both lawyers and entrepreneurs. The article explains how important lawyers are for emerging cannabis businesses, and showcases some of the firms on the forefront of Pennsylvania’s budding industry.

“Lawyers bullish on cannabis despite risk” discusses Fox Rothschild’s cannabis practice and quotes my colleague Josh Horn, Co-Chair of our practice group. To read more, check out the article online or in today’s print edition of the Inquirer.