Welcome back to Higher Law, our weekly briefing on all things cannabis. I'm Cheryl Miller, reporting for Law.com from Sacramento, where we're looking East this afternoon to see if the U.S. House of Representatives votes on an amendmentto prohibit the U.S. Department of Justice from interfering with all state-sanctioned marijuana programs. Grab your popcorn and turn on C-SPAN.

This week, Congress looked at the troubles marijuana startups are facing trying to get small-business help from the federal government. Plus, the Harborside Health tax fight is expected to resume shortly, but don't expect a full-scale attack on Section 280E.

Thanks for reading. Please send me your scoops, litigation wins and C-SPAN greatest hits picks at [email protected]. Or you can call me at 916-448-2935. Follow me on Twitter @capitalaccounts.

 

Congress Weighs Help for Pot Small-Businesses

A New York congresswoman said Wednesday she's working on legislation to open some of the U.S. Small Business Administration's programs to marijuana startups in states where the industry is legal.

Democrat Nydia Velázquez (at left), chair of the U.S. House Committee on Small Business, said the agency's inability to help cannabis startups because of marijuana's illegal status at the federal level is "hindering the ability for entrepreneurs … to fully engage in this new industry."

"The SBA can play a critical role in affording affordable access to capital and [business] counseling services" in the state-legal cannabis sector, Velázquez told those gathered for her committee's hearing on the issue.

Lawmakers from legalized states have been pressing the Small Business Administration to change policies barring marijuana-related companies from receiving loans, loan guarantees and other support services already available to traditional businesses.

Shanita Penny, president of the Minority Cannabis Business Association's board of directors, told the committee that the lack of access to SBA-backed funds and assistance is hurting social equity licensees facing six-figure startup and permitting costs.

"Without access to capital, they are vulnerable to predatory lending and business practices," Penny said. "These businesses need SBA support and resources to start and grow their businesses, not business partners and investors that take advantage of equity programs to enter the market early or tokenize their partners for market share."

Velázquez did not say when she plans to introduce her legislation.

 

Harborside Health Will Fire Up New Tax Fight

The Harborside Health tax fight is heading to the Ninth Circuit soon, but don't expect an all-out war on Section 280E of the Internal Revenue Code.

The Oakland-based dispensary chain, you'll recall, challenged the IRS's finding that Harborside took business deductions on its tax returns between 2007 and 2012 that are unavailable to marijuana businesses, even those of the state-licensed variety. A U.S. Tax Court judge late last year sided with the IRS.

The case has yet to be closed at the trial court level as the parties finish some final calculations. But when the court's ultimate decision is filed, Harborside, which went public on the Canadian Stock Exchange earlier this month, is ready to appeal.

Greenspoon Marder partner James Mann, who is preparing Harborside's Ninth Circuit arguments, said the case will not center on 280E but rather 2015 guidancefrom the IRS that severely curtails the costs of goods sold that cannabis resellers can calculate for tax purposes.

"We are not saying 280E is illegitimate or unconstitutional," Mann said in a recent interview. "This is a more narrow argument. As such, it would not be a panacea for the industry."

Mann is a former deputy assistant attorney general of the U.S. Department of Justice tax division. A win in the Ninth Circuit, he said, would not be "a magic bullet" but it could help ease the tax burden that's "hurting members trying to do the right thing."

Look for the appeal to be filed later this summer.

 

 

|

Who Got the Work

• K&L Gates has been retained by a California consortium of companies to lobby federal officials on drug, food, taxes and a range of other cannabis-related issues. The Costa-Mesa based Global Alliance for Cannabis Commerce comprises DNA Genetics, Alternative Herbal Health Services, 420 Central, Urbn Leaf and Central Coast Agriculture, according to lobbying disclosure filings.

Global Alliance in April retained McGuireWoods for federal lobbying services but has since hired one of the firm's lobbyists, Randal Meyer, former general counsel to U.S. Sen. Rand Paul, as its executive director. Meyer confirmed to Law.com that his organization no longer works with McGuireWoods.

• Cannabis news and dispensary locator Leafly has hired its first general counsel, Yoko Miyashita. Before joining Leafly in May, Miyashita served as senior vice president and general counsel at Getty Images. She has also worked as an associate at Perkins Coie. My colleague Dan Clark has more here.

 

In the Weeds…

>> Legalized pot is dead for the year in New York. Really. We mean it this time. After numerous fits, starts and stops, sponsors of a legalization bill conceded Wednesday that they could not reach a deal with Gov. Andrew Cuomo (above) and wavering lawmakers by the end of session. "We came very close to crossing the finish line, but we ran out of time," Sen. Liz Krueger said. [The New York Times] More here at Law.com: In Wake of Marijuana Legalization Bill Failure, NY Lawmakers Eye Decriminalization.

>> A Canadian drug store chain and a blockchain company are partnering on a medical marijuana tracking system. Shoppers Drug Mart and TruTrace Technologies Inc. will use blockchain software to identify the source and genetics of cannabis purchased by patients. TruTrace's CEO said the technology could be used in U.S. stores selling CBD products. [Bloomberg]

>> Massachusetts has fined marijuana store Cultivate $75,000 for violations related to labeling and inventory tracking. The fine was part of a negotiated settlement between the company and the Cannabis Control Commission. During an unannounced visit in January, investigators found 14 batches of marijuana products that lacked required labels identifying THC content, identification numbers and directions for use. [MassLive.com]

>> Ohio's AG is not happy with Cincinnati's move to decriminalize marijuana possession. Dave Yost told television station WCPO that the city council's action was only "symbolic" since state law already bars criminal arrests for possession of less than 100 grams of marijuana. "But it shows a disrespect for the law and an arrogance on the part of legislators in a city that want to wrest away from the state the responsibly for making laws," Yost said on "This Week in Cincinnati." [WCPO]

>> Virginia's AG says his state should legalize marijuana. Mark Herring told reporters at a fundraiser in Richmond that criminal prosecutions for marijuana are costly and disproportionately affect African Americans. Virginia's General Assembly has blocked previous attempts to legalize marijuana possession. [AP]

 

What's Next: The Calendar

June 21 - The United Cannabis Business Association's policy summit takes place in Hollywood. Scheduled speakers include Lori Ajax, the leader of California's Bureau of Cannabis Control; Nicole Elliott, cannabis advisor to California Gov. Gavin Newsom; and California Treasurer Fiona Ma.

June 24-28 - Members of the International Cannabis Bar Association can cast ballots for the organization's board of directors.

June 22-23 - NECANN hosts the Springfield Cannabis Convention in Massachusetts. Scheduled speakers include Olender Feldman attorney Lauren Paxton; CannaRegs CEO and founder Amanda Ostrowitz; and EvansCutler partner Dick Evans.