Welcome back to Higher Law, our weekly briefing on all things cannabis. I'm Cheryl Miller, reporting for Law.com from Sacramento.

This week we're looking at: Perkins Coie's work on a challenge to 280E • A legal fight over a medical marijuana license worth tens of millions of dollars • Weedmaps' new West Coast government affairs hire • The bankruptcy blockade for "essential" marijuana workers

Thanks as always for reading. Send your tips, thoughts and story ideas to me at [email protected]. You can call me, too, at 916.448.2935. Follow me on Twitter @capitalaccounts.

 

Docket Watch: Perkins Coie Pens Amicus Briefs Backing Harborside's 280E Fight

Last week we wrote about iconic dispensary Harborside filing its opening brief in the appeal of the 280E tax case Patients Mutual Assistance Collective Corp. v. Commissioner to the U.S. Court of Appeals for the Ninth Circuit. This week the amicus briefs started arriving.

>> "The [IRS] Commissioner uses § 280E to tax an entire legal industry—one that generates billions of dollars in tax revenue, along with myriad other benefits—on income never realized," Perkins Coie attorneys Charles Sipos, Lauren Staniar, Tre Holloway, and Barak Cohen wrote on behalf of the National Cannabis Industry Association.

"This punitive, widely applicable scheme is entirely out-of-step with how the Sixteenth Amendment framers viewed Congress's limited power to tax income," the attorneys wrote. "It cannot stand."

>> Also siding with Harborside are the Marijuana Interest Group and Cannabis Trade Federation Action, which argue that the ban on dispensaries taking typical business deductions has subjected their state-legal members to continuous IRS scrutiny.

"The IRS's lack of published guidance, coupled with a resistance to the application of otherwise acceptable inventory methods, including methods recognized under generally accepted accounting principles, has led not only to this litigation but also to thousands of audits and resulting controversies with industry taxpayers, including amici's members, creating tremendous costs beyond the tax cost," wrote Hall, Estill, Hardwick, Gable, Golden & Nelson partner Jennifer Benda.

The IRS is due to respond by June 24.

>> Harborside's attorneys at Greenspoon Marder argue that 280E violates the Sixteenth Amendment because it taxes dispensary revenue that isn't income. They also say the tax court erred in concluding that Harborside miscalculated its costs of goods sold, leaving it with a multi-million-dollar bill for underpayments between 2007 and 2012.

We noted last week that the Sixteenth Amendment violation argument was a new one, as Greenspoon's James Mann said last year that the appeal would not broadside 280E. He responded via email last week that the new argument reflects U.S. Tax Court Judge David Gustafson's partial dissent in Northern California Small Business Assistants Inc. v. Commissioner.

"Congress does not have the prerogative to disallow deductions to such an extent that the resulting tax fails to be a tax on 'income,'" Gustafson wrote.

Mann said he found the reasoning "quite persuasive."

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Who Got the Work

• Lawyers from Kasowitz Benson Torres are representing Florida MCBD in a suit against New York-based Columbia Care. The complaint, in New York County's Supreme Court Commercial Division, argued that a medical marijuana license worth tens of millions of dollars was fraudulently misappropriated, my colleague Jane Wester reports at Law.com.

• Nicholas Drum and Dayna Christian of Immix Law Group in Oregon filed a breach-of-contract suit against Eaze and two other defendants in the U.S. District Court of Oregon on behalf of advertising company Billups Inc. The suit alleges that the companies owe Billups $1.15 million for unpaid services. Attorneys for the defendants have not yet entered appearances.

• Brian Allison has been named Weedmaps' western region director of government relations. Allison was previously a political and legislative coordinator for the American Federation of State County & Municipal Employees.

• Bulkley Richardson partner Jeffrey Poindexter successfully argued that marijuana company Insa Inc. should be allowed to open in a former hamburger joint in Springfield, Massachusetts. Hampden Superior Court Judge Michael Callan found the city's denial of a permit Insa sought "arbitrary and capricious," The Republican newspaper reported.

 

In the Weeds…

>> Justice Department Blocks 'Essential' Marijuana Workers From Bankruptcy Protection. "The Justice Department is preventing struggling cannabis businesses and their workers from accessing bankruptcy to weather the coronavirus-related downturn, even in states that determine medical marijuana is an essential industry during the pandemic." [WSJ]

>> Essential Marijuana Sellers Are a Good Business for Their Landlords. "The business of marijuana growing and processing is essential, according to many state governments. That has been a boon for owners of cannabis real estate during the coronavirus pandemic." [WSJ]

>> California's Legal Pot Industry Faces Year of Decline Because of Coronavirus, Newsom Warns. Americans may have been pot-binging during stay-at-home orders, but California's governor, who "projected in January that the state's cannabis excise tax would bring in $479 million this year and $590 million in the fiscal year starting July 1, but his revised budget now forecasts just $443 million this year and a decline to $435 million next year. [Los Angeles Times]

>> Maine's Decision to Allow Non-Residents to Open Adult-Use Pot Shots Sparks Lawsuit. "Maine Cannabis Coalition claimed the state Department of Administrative and Financial Services was violating state law by refusing to enforce the residency requirement that lawmakers included in the Marijuana Legalization Act. The law says only Maine residents can run a recreational marijuana grow, manufacturing plant or retail store." The state dropped the residency requirement last month to resolve a lawsuit from Wellness Connection of Maine, a dispensary with ties to Acreage Holdings. Wellness Connection holds four of the state' eight medical marijuana dispensary licenses. [Portland Press Herald]

>> Nevada Reviewing MedMen Donation Allegations. "The Nevada secretary of state's office is reviewing allegations made by a former executive of the cannabis company MedMen Enterprises Inc. that the company's co-founders made illegal campaign donations to Democratic Gov. Steve Sioslak." The governor's office did not return a message from the AP seeking comment. [AP]

 

The Calendar

June 5 - Offit Kurman cannabis law attorney Jason Klein joins Eric Steenstra, president of Vote Hemp,in a webinar to discuss federal and state implementation of the 2018 Farm Bill.

June 9 - Farella Braun + Martel presents the webinar "Maximizing Insurance Coverage: What Cannabis Businesses Need to Know." Partner Tyler Gerking hosts.

June 10 - Business Insurance presents the webinar "Cannabis Underwriting: Discerning Good, Bad, and Ugly." Speakers include Erich Bublitz, chief regulatory compliance officer at Admiral and Kevin Maher, chief underwriter at Canopius US.