What We Learned at the “Innovation in the Cannabis Industry” Conference

December 19, 2016 | Geoff Marshall

By Edward Dodge for Merry Jane

Dr. Jahan Marcu of Americans for Safe Access stressed that industry participants need to be cautious as they move forward and constantly make sure of their compliance with all applicable regulations. An unfriendly administration could generate raids by the Health Department and OSHA (Occupational Safety and Health Administration) and minor violations could results in fines and sanctions. Operators should expect to be inspected.

 

 

Greenhouse Ventures, a cannabis industry business incubator from Philadelphia, Pa., hosted a timely conference in its hometown on Dec. 9. Pennsylvania will likely be the next state to open a medical marijuana market and at the “Innovation in the Cannabis Industry” conference panelists discussed the latest events in the industry and the outlook under the coming Trump administration.

The mood at the event was overwhelmingly positive. The general feeling is that, while the cannabis industry faces many uncertainties and hurdles in the coming year, the opportunities are huge and this is an industry whose time has come.

Lawyer Jim Thorburn, a leading expert on cannabis law, spoke about one of the greatest challenges facing the industry, the 280E tax law that forbids marijuana businesses from deducting common business expenses even though they are selling cannabis legally within their state. Due to 280E, firms that sell marijuana have federal tax rates that reach 70 percent or more and can eliminate all profits. Currently there are several cases in court that challenge the tax code, but no decisions yet.

Another challenge for the cannabis industry is the lack of clarity on banking regulations. Without a signal from the administration it is likely that major banks will continue to stay away from the cannabis industry as long as it remains illegal at the federal level. In Congress there is bipartisan support for changing laws over 280E and banking rules, but there has been trouble getting the bills out of committee.

Many of the conference speakers returned to the topic of President-elect Trump’s nomination of Senator Jeff Sessions for Attorney General. Sessions is an outspoken opponent of marijuana legalization and would have broad authority as AG to crack down on the industry if he chooses to. Senator Sessions has not made any public statements on marijuana since he was nominated and is too early to tell what steps he may take.

The Justice Department under President Obama and current AG Lynch have operated within the context of the Cole Memo, which carved out a compromise between federal prohibition and states that voted to legalize medical and recreational marijuana. Under the Cole Memo, the feds basically took a hands-off approach to prosecuting marijuana businesses that operate within state regulations. Marijuana remains illegal at the federal level, but federal government simply chooses not to prosecute. The fear around a potential AG Sessions is that he could rescind the Cole Memo and resume prosecutions based on the laws currently on the books.

President-elect Trump said during the campaign that medical marijuana should be a states’ rights issue and Sessions is also a states’ rights advocate generally. Conventional wisdom among the conference speakers is that Trump is likely not to challenge states that have approved medical marijuana since he will need their support in the future. But it is also likely that relief on 280E and banking regulations will not emerge. Sessions could easily continue to make life uncomfortable for the legal cannabis industry without risking political backlash by simply not offering any relief to the current laws. It will also remain the DOJ’s prerogative, even within the framework of the Cole Memo, for the feds to bust any operator not in compliance with state laws.

Dr. Jahan Marcu of Americans for Safe Access stressed that industry participants need to be cautious as they move forward and constantly make sure of their compliance with all applicable regulations. An unfriendly administration could generate raids by the Health Department and OSHA (Occupational Safety and Health Administration) and minor violations could results in fines and sanctions. Operators should expect to be inspected.

There is a lot of positive news as well. There has been great progress in Pennsylvania on a number of fronts. The state should be the next one to move forward with medical marijuana and is in the final stages now of drafting regulations and license applications. The applications are expected to be released soon and licenses granted in the coming year.

Thomas Jefferson University in Philadelphia announced the opening of the Center for Medical Cannabis Education and Research and has collaborated with the Lewis Katz School of Medicine at Temple University, also in Philadelphia, on medical cannabis research. Formal medical marijuana research has been extremely limited in the U.S. in the past and these new programs represent the growing maturation and acceptance of the industry, particularly on the East Coast.

Tyler Dautrich, of conference hosts Greenhouse Ventures, said that he is “truly excited, and nervous,” for medical cannabis in the state. “Pennsylvania has the opportunity to be the medical research hub for the industry and play a strong hand in technology commercialization,” he said. “However, the strict regulations, rollout delays, and the threat of potential pushback at the federal level could prevent these once-in-a-lifetime opportunities from coming to fruition.”

Evan Nison, who is on the Board of Directors at NORML, said that the industry is in transition and needs more professionalization. Everyone involved in the cannabis industry represents it and it is important that they be positive and professional.

The cannabis industry should also continue to focus legal efforts on the states, especially since the Republican Party and incoming administration are big supporters of states’ rights and can be challenged on this front. The industry’s progress has mostly occurred at the state level and much more remains to be done. Voter-led initiatives continue to generate momentum and state legislatures have become more open to pro-cannabis bills.

One of the panels focused on the synergies emerging in data collection and research. There is a great deal of medical cannabis research happening now and it is growing all the time, and not just in the U.S. but all over the world. Israel has been a leader in medical research, some of which has been funded by the U.S. National Institute on Drug Abuse, and published in American journals.

New Frontier’s Giadha DeCarcer spoke about the demand for data from sophisticated investors who want to know about ROIs and risk. She said that there is high demand for demand for data on financial aspects, medical results, patient pools, patents, and more.

“Flying the plane while putting it together,” is how Pamela Johnston from Electrum Partners likened the regulatory environment around the industry. Everyone involved needs to embrace the challenges and expect speed bumps.

Jeffrey Friedland, investor and author of Marijuana: The World’s Most Misunderstood Plant, gave the keynote address and said to wait and see what moves the Trump administration makes. We don’t know what future regulations will be but we do know that an unfriendly bureaucracy will result in low or no profits for many companies. The 280E tax code and banking regulations alone are causing a great deal of stress for many firms and there is no indication there will be relief anytime soon. Everyone in the industry needs to stay positive and professional, keep their overhead down, and play the long game. Legalization will happen eventually but it could be a bumpy ride.



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