aBIZinaBOX Inc - CPG

Cannabis Practice Group

Tax - CDTFA

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Surviving Legalization!

Surviving Legalization!

Surviving Legalization! – We were prompted to write this note by the article “Cannabis Regulation: The Struggle of Small Farmers,” written by Lance Griffin and published on February 21, 2020, in Terpenes and Testing Magazine.  We were prompted to write this article not for what Lance Griffin’s article says but for what it does not say.

The article starts with The New Yorker’s May 2019 description of the devastating impact of legalization on the Emerald Triangle.  This starting point is old news.  Mr. Griffin asks, “So, what happened when California voted to legalizeSurviving Legalization! adult-use cannabis in 2016?  According to The New Yorker, “. . . legalization generated for these farmers ‘not only an economic crisis but also an existential one.'”  Mr. Griffin notes that thousands of small Emerald Triangle growers have been forced out of the industry, and then states

“The practical repercussions of shutting out small farmers are catastrophic.  As of 2019, it was estimated that 80% of cannabis sales in California were still from the black market, significantly reducing projected market growth and creating an uncertain future for the state’s regulated program.

“Incidentally, roughly 20,000-30,000 cannabis cultivators were estimated to operate in the Emerald Triangle pre-legalization. As of 2019, about 1,000 possessed a license.

“The black market in California is even referred to as the ‘traditional market.’”

We must mention one point in passing that Mr. Griffin and many others seem to miss.  The underground market, the “traditional market,” is growing, but the Emerald Triangle is dying.  The underground market is thriving in California but in new locations in California.

Surviving Legalization!

Humboldt County is the epicenter of the Emerald Triangle.  Most commentators have attributed 50%-60% of the cannabis production of the Emerald Triangle to Humboldt County.  Humboldt County is ground zero for the devastation that legalization wreaked on California’s underground cannabis industry.  We concluded in our analysis over two years ago that 40%-50% of the gross annual economy of Humboldt County was based on cannabis cultivation.  Of course, this is an economic estimate that is somewhat speculative.  Those involved growing cannabis in the Emerald Triangle kept their activities as underground as possible for obvious reasons.

The Humboldt County Sheriff’s Office estimated there were 6,000-10,000 cannabis cultivators in Humboldt County in 2017.  If we take the lower number of cultivators, 6,000, and assume each is backyard grower with an annual production 25 pounds of flower, each of these growers would produce approximately $25, 000 of revenue from cultivation in the County.  The total revenue is only $150M.  However, Humboldt County has less than 150,000 residents.

This revenue comes into the County from elsewhere in California.  No one in Humboldt County buys because everyone knows, or is related to, a grower.  Not surprisingly, some of the revenue from cannabis cultivation that flows into Humboldt County comes from outside California.  A substantial portion of this revenue will be expended each year in Humboldt County.  Most of the cannabis revenue spent in the County will turn over multiple times each year before this money leaves the County to be spent on vacations in Hawaii and four-wheel drive vehicles.

For purposes of illustration, we will assume this money turns over four times in a year.  The $150M of revenue from cannabis grown in Humboldt County becomes $600M of gross revenue generated in the County in a year.  The per capita income of Humboldt County is only a little over $10K.  The total annual revenue generated within Humboldt County based on a per capita income of $10K is approximately $1.5B, or $1,500M.  If the preceding analysis is reasonably accurate, 40% of the pre-legalization economy of Humboldt County was based on its underground cannabis industry.  Anyone who knows anything about the underground cannabis industry in Humboldt County will very likely argue the financial significance of cannabis to the County is greater than 40%.

Surviving Legalization!

The population of Humboldt County represents approximately 0.075% of the population of California.  Sacramento is not concerned about the residents of Humboldt County as voters.  The smallest identifiable minority populations that concern California politicians are larger groups of voters than the residents of Humboldt County.  As a financial force in California, Humboldt County is even less significant.  By comparison, the City and County of San Francisco have six times as many residents, and each San Francisco resident has over ten times the financial clout of a Humboldt County resident based on per capita income.  Sacramento simply does not care what happens to Humboldt County.

Legalization has been a disaster for Humboldt County, but not necessarily for all Humboldt County growers.  Some of the biggest cannabis cultivation operations in Central and Southern California are based on the expertise of Humboldt County growers financed in some instances with money from Canada, Texas, or New York.  A number of  Emerald Triangle cannabis cultivators relocated and expanded their operations in areas better suited to, and more welcoming of, high volume agricultural production.

We decided to write this article because a significant share of the responsibility for the disaster the legalization of cannabis has produced for Humboldt County can be attributed to the Board of Supervisors and the Planning Commission.  Few will recall that a very substantial percentage of the first hundred cultivation issued in California were issued to Humboldt County cultivators.  A few Humboldt County growers managed to secure State and County licenses before most cannabis cultivators knew the rules.

It is unfair to heap too much blame for this financial disaster on the Board of Supervisors and the Planning Commission. These bodies are elected.  The members of these bodies are elected by Humboldt County residents.  The entire population of Humboldt County – growers, elected officials, and residents – share in the responsibility for allowing the legalization of cannabis in California to create a financial disaster for the County.  Humboldt County was on its own to address the impact of cannabis legalization.  It was foolish to think otherwise.  The growers, the elected officials and the residents of Humboldt County are wholly responsible for their failure to realize the County was on its own.

Surviving Legalization!

If there is one group that should be singled out as having the greatest responsibility for allowing the legalization of cannabis to create a financial Surviving Legalization!disaster for Humboldt County, it is the cadre of consultants, experts and advisors who took so much money for knowing only a little more than their clients, and for not knowing nearly enough to provide the level and quality of advice was required, and still is required, to address the financial chaos cannabis legalization has created for Humboldt County.

It is not too late to salvage a significant portion of California’s cannabis industry for Humboldt County.  The County must not look to Sacramento for help.  The County must salvage what it can of its cannabis industry through its resources.  There are far more resources available than most realize.  These resources are not utilized.

In this regard, Cannabis Cooperative Associations (“CCAs’), which the Legislature enabled in SB 94, gave small cannabis cultivators a competitive advantage over large cultivators.  Unfortunately for Humboldt County and similar enclaves of small cannabis cultivators, CCAs are not properly utilized.

We will explain in subsequent posts how CCAs can provide substantial financial advantages for small cannabis cultivators.

Surviving Legalization!

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Wake Up California!

WAKE UP CALIFORNIA!

WAKE UP CALIFORNIA!, On February 14th the Los Angeles Times published an article by Joe Mozingo entitled “Cannabis Farm Was a Model for California’s Legal Industry”. Then Came a Sheriff’s Raid.”  The article suggests the law enforcement officers who executed the search warrant were surprised by the extent of the criminal activity at this “model” cannabis farm.  Wake up California!  Wake up Santa Barbara County!

The article provides interesting background relating to the explosion of Santa Barbara County’s cannabis industry as well as the development of this particular farm.  The article describes how Santa Barbara County jumped into the “Rush for the Green” with both feet and great enthusiasm.  The article also suggests it is a surprise to some – perhaps many – that this “model” cannabis farm is a multi-million-dollar criminal conspiracy.

Wake up!  No Californian should be surprised in the slightest!  Every individual involved in plant-touching activities in California’s cannabis industry is a criminal.  Every individual involved in plant-touching cannabis business activities in California is engaged in the distribution of a controlled substance – a criminal violation of federal law.  Wake Up California!Those individuals who are involved in a business in this industry but do not touch the plants could be charged as criminal co-conspirators.

Wake Up California!

Eight years ago, the information published by Joe Mozingo last Friday would have been promptly followed by an announcement from the Office of the U.S. Attorney that it already has pending a criminal investigation of the cannabis industry in Santa Barbara County.  The announcement would have explained the pending criminal investigation relates to public corruption, tax evasion and money laundering.  The announcement would have been made whether or not it was true.

It has been less than eight years since the DEA, the Criminal Investigation Division of IRS and the Office of the U.S. Marshal executed search warrants secured by the U.S. Attorney for the Northern District of California on eight different locations in Oakland that were associated with Oaksterdam University and its founder, Richard Lee.  In the raid on Oaksterdam on April 2, 2012, the federal government simultaneously seized every cannabis plant; every item of electronic equipment; every business record; and every safe along with contents from each of eight locations located in Oakland that were associated with Richard Lee and Oaksterdam.

How times have changed.  The U.S. Attorney General now has bigger fish to fry, or to protect, depending on your political persuasion.  Washington, D.C. will allow California to wallow in the mess it has made of its cannabis industry.  Any association with the mess California has made of cannabis legalization has an immense political downside and little, if any, political upside.

A substantial majority of Californians agree that the roll-out of cannabis regulation cannabis is an unmitigated disaster.  It is virtually impossible to find a rational person who does not agree that California made many errors in implementing regulation.  There is a diversity of opinion on the reasons for the disaster but almost unanimous agreement on the disaster.  The Santa Barbara situation described in the article is merely one of the thousands of such symptoms that exist throughout California.

Wake Up California!

We were surprised by Joe Mozingo’s article, but for different reasons than those expressed in the article.  We were surprised it took the execution of a search warrant by the Santa Barbara County Sheriff to “discover” this “model” operation is a multi-million-dollar criminal conspiracy.  Anyone who knows anything about California’s cannabis industry knows that criminal conduct permeates every level and every facet of the industry.

Santa Barbara County very likely produces more cannabis at this date than any other county.  What did Santa Barbara County think the cultivators would do with this production capacity?  Santa Barbara County has licensed 275 acres of canopy according to Joe Mozingo’s article.  The bulk of this acreage can produce multiple crops each year.  The article indicates these growers are doing precisely what Santa Barbara expected them to do – produce tons of cannabis.

Santa Barbara growers are producing tens of millions of dollars worth of cannabis.  They are reporting and paying taxes on a significant portion.  The same article, however, indicates a far larger portion of this production is not being reported.  Of greater significance, it appears likely a substantial number of cannabis growers in Santa Barbara are engaged in tax evasion – conduct that may even rise to the level of criminal tax evasion.

One should not be harsh in one’s criticism of Santa Barbara County’s complicity.  Carpenteria may smell like skunk, but the County collected $9.6M in taxes on cannabis that it did not have before it created this economic boom.  The County very likely picked up a comparable amount of additional revenue in increases in real property taxes.  The County receives approximately $1,500 of revenue for each Carpenteria resident who is suffering from the smell.  The County also benefits from the increase in commercial activity.

Wake Up California!

Santa Barbara County differs from many other areas in California solely because it took a bigger and faster leap into California’s cannabis industry.  Throughout California cities and counties have sought to take advantage of the economic opportunity that many perceived was created by Proposition 64.  In the long-term Santa Barbara County may prove to be the County that most benefits from the “Rush for the Green.”  It will be a number of years before the final results will be known.

California is entering its 3rd year of a regulated and taxed legal market.  Presumably, most of the 275 acres that Santa Barbara has licensed are also licensed by CalCannabis?  CalCannabis and BCC should know how much cannabis can be produced by this acreage, although it is far more important that CDTFA knows how much is being produced.  CDTFA is the agency that collects Cannabis Cultivation Tax (“CCT”), Cannabis Excise Tax (“CET”), as well as Sales Tax and California income tax.

IRC §280E is not the problem for the California cannabis industry that has been so extensively described in various articles.  The vast majority of the taxes imposed on California’s cannabis industry are local taxes or California taxes.  Federal income taxes on California’s cannabis industry likely would make up less than 10% of the total tax load on the industry if the IRS was successful in collecting all such income taxes.  The IRS does not collect a substantial portion of the income taxes that are owed to the federal government by participants in the industry.

The principal reason for this article is our surprise at the questions that Joe Mozingo did not ask.  Where is CalCannabis?  Where is the Bureau of Cannabis Control (“BCC”)?  Where is the California Department of Tax and Fee Administration (“CDTFA”)?  Where is Governor Newsom?  Where is Xavier Becerra, California’s Attorney General?  Why did California’s roll-out of regulation prove to be such a disaster?  Could this disaster have been avoided?  What can be done after 2+ years of bureaucratic ineptitude?

This disaster could not have been wholly avoided.  Proposition 64 was ill-conceived and poorly drafted.  We have previously written on this topic. [See Reboot in 2020!, and Implementing Proposition 64: Marijuana Policy in California ] The California Legislature and the administrative agencies it tasked with the regulation of this industry bear the principal responsibility for the disastrous roll-out of regulation.  We have earlier commented on many of these issues. [See Greed and Cannabis, Major Cannabis Tremors! and IRC Sec. 280E Insanity].

Wake Up California!

Many points to unfair taxes on cannabis as a cause of problems for the industry.  Complaints regarding taxes that are too high or that are unfair is a red herring.  Consumers pay all taxes imposed on the movement of cannabis from cultivators to consumers.  Even the income taxes imposed on the businesses involved in the movement of cannabis from the cultivator to a retail sale are collected from the consumer in the purchase price.  It is the management of taxes that presents the challenge for a cannabis business not the rate of tax or the unfairness of its imposition.

The management of taxes in California’s cannabis industry is difficult.  This difficulty is wholly the fault of the California Legislature, BCC, CalCannabis, and CDTFA. California made it difficult and costly for businesses to enter the regulated commercial cannabis market.  California made it costly and difficult for a business to make money in its regulated commercial cannabis marketplace.  California also made it far more attractive for a cannabis business to be only partially compliant with the law.  California has achieved a wholly predictable result.  The vast majority of California cannabis businesses are only partially compliant with the law whether or not they have some license.

Governor Newsom already knows some of the changes that must be made in order to bring California’s commercial cannabis industry under regulatory control.  He has included the first steps in his proposed budget.  However, there will always be many not-wholly-compliant commercial cannabis businesses until the profitability from a lack of complete compliance with the law does not outweigh the risks associated with non-compliance.

Money can be made in California’s cannabis industry by wholly compliant cannabis businesses that are well-advised.  California’s cannabis industry is unfortunately filled with “experts” that know only a small portion of what they should know as a precondition to providing advice.

This is the first of a series of articles we intend to publish relating to the management of taxes in California’s cannabis industry which is the key to making money in wholly compliant cannabis businesses in California.

Wake Up California!

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Reboot in 2020!!

Reboot in 2020!!

Reboot in 2020!! – The merriment of the holiday season has not overtaken California’s cannabis industry as 2019 comes to a close.  The Legislature, Governor Newsom’s office, cannabis regulatory agencies (principally BCC, CalCannabis, CDPH, and CDTFA), law enforcement agencies, and a multitude of other groups and individuals interested in this industry has been confronted with the reality of a disaster.  To paraphrase my father’s recurring admonition when something I attempted went wrong, “It is your own damn fault because you did not think it through.”  The LA Times published an article on December 24th that begins,

“Two years after California began licensing pot shops, the industry remains so outmatched by the black market that a state panel recently joined some legalization supporters in calling for significant changes — perhaps turning again to voters to address the problems.

In its annual draft report, the Cannabis Advisory Committee warned Gov. Gavin Newsom and California legislators that high taxes, overly burdensome regulations and local control issues posed debilitating obstacles to the legal marijuana market.”

With tax revenue about a third of what was expected and with only about 800 of an anticipated 6,000 licensees open for business, the panel said, officials may need to consider “revisiting the ballot initiative process.

The 22-member advisory panel — made up of industry leaders, civil rights activists, local officials, law enforcement and health experts — noted that California is expected to generate $3.1 billion in licensed pot sales in 2019, making it the largest market for legal cannabis in the world. But nearly three times as much — $8.7 billion — is expected to be spent on unlicensed sales.”Reboot in 2020!!

The premise for the LA Times article is accurate.  California’s cannabis industry is in a state of chaos.  Proposition 64 was seriously flawed.  The Legislature exacerbated the problems created by Proposition 64 by acting as a group of politicians instead of acting as thoughtful leaders acting in the interests of the public.  California’s roll-out of regulation pursuant to this Proposition has been maladroit.  We have discussed many of the reasons for these issues.

Reboot in 2020!!

The reasons for the chaos that are described in the LA Times article reflect a superficial analysis.  Excessive tax rates, burdensome regulations, and local interference are as many symptoms as they are causes.  The transition from a “light touch,” locally regulated medical cannabis industry in California to a highly regulated, legal state-wide adult-use industry that preserved medical use rights was an experiment, at best[1].  Proposition 64 was an amendment to the California Constitution.  Proposition 64 wholly preserved Proposition 215. The preservation of the rights granted by California residents under Proposition 215 in Proposition 64 will have legal ramifications for the next 10 years at a minimum.

Proposition 64 established the foundation for a “dual control” arrangement for the regulation of California’s cannabis industry.  Local governmental agencies have the final say on land-use, health and safety issues, and the ability to collect tax revenues from the industry, but all local authority was subject to a framework of a comprehensive, burdensome and poorly reasoned state-wide regulation of this industry.  Never before has California put so much money and expended so much effort in a futile attempt to put lipstick on a pig and call it a movie star.  Never before in the history of California has so much administrative empire-building occurred with so little justification.

Thousands leaped into this industry in anticipation of financial rewards.  Hundreds saw similar opportunities in becoming “instant experts” on various aspects of the industry.  Carpetbaggers arrived in California from far and wide.  Some cities and counties in California developed policies and licensing criteria based on local criteria.  Others contracted out these tasks to firms such as HDL[2] that oversold processes and programs for their own purposes.  Local governments adopted unrealistic procedures and structures which were coupled with costs and fees that cannot be supported[3].

The contention tax rates are too high is a red herring.  Consumers pay taxes on cannabis.  The controversy over tax rates reflected in the LA Times article is a dispute over the sharing of revenue between taxing agencies and those seeking to profit from the industry.  Cannabis businesses that are properly structured, organized and operated can minimize the impact of high tax rates.  Well advised and well-run cannabis businesses can readily compete with the underground cannabis industry.   Similarly, excessive regulation and local control issues are red herrings.

Reboot in 2020!!

It is a fantasy to view California’s cannabis industry as a $3.1B licensed market and an $8.7B unlicensed market as described in the LA Times article.  Licensed and unlicensed are not the same groups as legal and illegal.  Licensed and unlicensed are also not the same as tax-compliant and tax non-compliant.   How should a cannabis business that is operating in complete compliance with local ordinances and paying all local taxes but largely ignoring state regulation be characterized?

California will have a substantial underground cannabis industry for the foreseeable future.  [[.  California is likely to always have a significant truly illicit cannabis industry.  We have no idea whether these two segments are included in the $8.7B described as unlicensed sales in the LA Times article.  The Legislature and commentators, as well as all of the “leaders” of the cannabis industry, should ignore licensed and unlicensed as categories and focus solely on that activity defined in SB 94 as “commercial cannabis activity.”

The issues of “licensed or unlicensed,” “legal or illegal,” “tax-compliant or tax non-compliant” become far more difficult when solely commercial cannabis activity is examined.  With regard to commercial cannabis activity, we prefer to use the terms “legal” and “non-compliant” as this collection of business activities, in reality, is a very broad Bell Curve.  Few cannabis businesses are wholly compliant with all applicable laws and regulations.  Most cannabis businesses comply with some significant number of the applicable laws and regulations.

California will have a substantial amount of commercial cannabis activity that is non-compliant as long as the delta for the distribution costs for the movement of cannabis on a commercial scale between cultivator and consumer justify the risks associated with non-compliance.  It is not that cannabis taxes are too high, or that regulatory compliance is too costly or too complex, or that the behavior of the cannabis regulatory and tax agencies is too sloth-like[4].  Rather, it is all of the preceding at a state-level.  We have written extensively regarding a number of these issues[5].

Reboot in 2020!!

There is no “black” market of commercial cannabis activity in California.  There are several classifications of commercial cannabis activity that fall into different shades of “grey.”  There is no single solution to the many problems created by Proposition 64 and the Legislature’s establishment of a single regulatory structure for medical and adult-use cannabis.  Superficial analyses such as the LA Times article contribute little toward solutions.  Similarly, the Report of Legislative Analyst Office recommending a different tax structure simply adds complexity instead of offering solutions to existing problems.

William G. Panzer, an Oakland attorney who was co-author of Proposition 215, which legalized medical marijuana in California called the current licensing system a “nightmare.”

“There is lots of talk about it,” Panzer said of a new initiative. “I love the idea, if there is financing. You are not going to get the problems fixed through the Legislature.”

Panzer, a criminal defense attorney who supported Proposition 64, said he expects the industry will pressure state lawmakers to consider additional reforms when the Legislature reconvenes in January.

“The only people making money in the cannabis industry these days are people putting on seminars on how to make money in the cannabis industry,” he said.

Ding…Ding…Ding! Mr. Panzer just hit it on the head.  It is the National Cannabis Industry Association [“NCIA”]’s business model.  A group that would rather continue to put on repetitive trade shows and seminars rather than expend the efforts on grassroots lobbying at the state level in California like the Cannabis Trade Federation [“CTF”] is doing at the Federal level in Washington D.C.  However, California does not need another initiative.  California has had far too many initiatives.

Reboot in 2020!!

Well advised cannabis businesses that are properly structured and operated can compete financially with any of the non-compliant segments of California’s commercial cannabis industry.  Some further tweaking by the Legislature may be appropriate, but we suggest the most significant action the Legislature can take is to insist that the various cannabis regulatory agencies make every possible effort to make it as easy as possible for cannabis businesses that desire to secure licenses to secure such licenses.  The Legislature must demand these agencies eliminate or reduce all barriers to compliance with licensing requirements to the maximum extent possible.  The mandate of Proposition 64 was to bring California’s existing cannabis industry into regulation rather than close out those involved in the industry and license an entirely new group consisting largely of opportunists.

[1] An excellent analysis of Proposition 64 is contained in Implementing Proposition 64: Marijuana Policy in California by the Stanford Law School Law and Policy Lab.

[2] HDL, formerly known as Hinderliter, de Llamas & Associates, The firm was founded in 1983 as a firm devoted to real property tax and sales tax assessments.  The underlying business model for decades appears to have been based on conducting audits for cities and counties to assist in ensuring such local jurisdictions were collecting the taxes due.

[3] See Cantonization – California – Cannabis for further discussion of the background.

[4] Bureau of Cannabis Control [“BCC”], California Dept. of Public Health [“CDPH”] – Manufactured Cannabis Safety Branch [“MCSB”], California Dept. of Food and Agriculture [“CFDA”] – CalCannabis, and the California Dept. of Tax and Fee Administration [“CDTFA”].

[5] Much of our content on the topics can be found in our blog repository on Cannabis Law Report.

Reboot in 2020!!

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Grinch or Politician?

GRINCH OR POLITICIAN?

Grinch or Politician? – We are busy with a cross-country relocation, but we nevertheless felt compelled to make a quick comment in response to NORML’s knee-jerk December 23, 2019, post,

Tell Senator Crapo that a 2% THC cap is unacceptable and that banking reform can’t wait..

Senator Crapo is not a grinch.  Senator Crapo is one of 536 politicians, or some comparable number of members of this particular species who reside in Washington, D.C. and who spend substantially all of their time pandering for votes.  With respect to the SAFE Act, Senator Crapo is just developing a foundation for his political positioning.

Grinch or Politician?

The devil will always be found in the details of legislation such as the SAFE Act.  Who knows where legislation in the United States such as the SAFE Act will go in view of the intense partisanship in Washington, D.C.?  At this time Grinch or Politician?Congress is being driven more by partisan political expediency than at any time in the last fifty years.  Little or no consideration is given by any of those who purportedly represent the American public for the best interests of this constituency. 

Grinch or Politician?

How long has it been since you have heard a prominent politician in Washington, D.C. says,

“I, and my party, have made some errors in our approach to this issue, and there is some significant merit to the approach urged by the other party, but . . . and for that reason, I am going to devote my efforts to the development of the position that does the most to accomplish those changes that are in the best interests of all of the residents of this country regardless race, religion, age, sexual orientation, status, financial resources, or political power taking into account all of the relevant considerations.”

We agree banking reform cannot wait.  The denial of access to banking to the cannabis industry – legal or illegal – is simply stupid.  It always has been stupid.  How can unreported income be tracked if the United States does not insist that criminals use banks?  Well-advised, well-connected, financial criminals move millions of dollars around the world making it disappear untaxed.  At the same time a West Los Angeles dispensary – legal or illegal – cannot open a bank account without lying, and thereby committing the financial crime of bank fraud.  The justification for denying access to banking to the cannabis industry is merely one of many falsehoods perpetrated on the America public by Washington, D.C.

Grinch or Politician?

Please do not misunderstand our position.  We are not supporters of the legalization of cannabis as it has been pushed forward by many of its supporters.  Marijuana is a drug similar to alcohol and tobacco.  The use of marijuana should be limited to adults.  The use of marijuana should be regulated.  We have always supported the decriminalization of the possession and use of marijuana.  We have always supported the medical use of marijuana.

Look at Senator Crapo’s actions for what they really mean.  Senator Crapo’s actions are nothing more than his political positioning to facilitate the financial interests that control most of the wealth in the United States in order to maintain control over this industry segment and the population it represents going into 2020.  Senator Crapo has no moral or ethical motivation for his actions.  Senator Crapo does not care whether the cannabis industry – legal or illegal – has access to banking.  Senator Crapo is solely driven by what plays best politically for his interests.

Grinch or Politician?

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Greed and Cannabis

GREED AND CANNABIS

Greed and Cannabis – Our staff wrote this brief commentary as an observation relating to the state of California’s cannabis industry.  The principles that produce financial efficiency for California’s cannabis industry are equally applicable in other states regardless of the status of cannabis as medical or recreational or both.  Financially efficient operations are universally essential for success in business.  We specialize in assisting in the creation of financially efficient business operations.

We want to first describe some of our qualifications for writing this article.  As our regular readers know, we provide professional advice and assistance to businesses.  We create financial efficiency through a minimization of the taxes local, state, and federal governments take from businesses.  The government is the unwanted partner of every business.  We developed a special interest in Greed and Cannabis California’s cannabis industry because the total tax load approaches 50% of the total amount a consumer pays for cannabis.

Our interest in California’s cannabis industry extends far beyond taxes.  We have a substantial personal and historical perspective relating to cannabis in California.  Members of our staff have been involved in California’s cannabis industry since Haight-Ashbury was the place to be in the mid-1960s.  Members of our team have witnessed both the damage and the benefit of cannabis.  Members of our staff have observed first-hand the injuries the federal government has caused through misguided, oppressive, and racist policies relating to cannabis.

Greed and Cannabis

Cannabis is a dangerous drug.  Greed is also a dangerous drug.  The combination of these two drugs is the principal reason for the chaos in California ‘s cannabis industry.  Of these two drugs, greed is more dangerous.  Greed is insidious.  The impacts of greed are more difficult to contain.  Greed has no redeeming aspects unless success in building an empire large or small is such an aspect.  Cannabis in comparison has substantial value as a medicine.

First, a comment regarding greed.  Greed for personal or political power is more insidious than mere monetary greed.  Monetary greed is a powerful force in California’s cannabis industry.  Monetary greed, of course, goes hand in hand with political power.  Many conservative politicians in California became quite amenable to allowing the cultivation, distribution, and sale of cannabis when it was coupled with the promise of substantial tax revenue.  When political supporters were in-line to reap the financial benefits of legalization, the merits of legalization became obvious to the most conservative subject, of course, to appropriate regulatory control.

Before we get to the principal reason for this article, we must comment on an aspect of greed that is frequently overlooked as a cause of the chaos in California’s cannabis industry.  Many have pointed out that one of the reasons for the chaos in the industry is excessive and oppressive regulations.  Why did California adopt unnecessarily oppressive regulations?  Greed.  If success for CalCannabis were to be measured by the percentage of cultivators the agency has licensed, which is the proper measure for determining success for CalCannabis, the agency has wholly failed.

Greed and Cannabis

Why did CalCannabis fail?  The actions of CalCannabis represent an overlooked form of greed – administrative empire-building.  The more questions that must be answered to secure a license, the more boxes checked and the more documents that must be submitted, the more staff and budget is necessary for an agency to complete its regulatory task.  Short-sighted and ill-considered decisions relating to California’s cannabis regulatory agencies started the ball rolling.  The chaos will continue until sound leadership and an exercise of sound judgment coupled with appropriate funding ends the empire-building and requires performance from California’s cannabis regulatory agencies.

CalCannabis failed miserably in its task.  The Bureau of Cannabis Control (“BCC”) and the California Department of Tax and Fee Administration (“CDTFA“) performed almost as poorly.  If, for no other reason, BCC deserves a “D-” for its failure to guide and direct CalCannabis.  BCC is the agency with overall supervisory responsibility for the regulation of California’s cannabis industry.  BCC is ultimately responsible for every error made in connection with California’s regulation of its cannabis industry.  BCC, of course, made numerous errors in judgment in its own right.

CDTFA deserves a “D-” for its failure to utilize its many resources.  CDTFA is likely second solely to the IRS in its knowledge and experience relating to tax administration.  CDTFA has a generally more talented staff than the IRS.  CDTFA was tasked with the administration of two new taxes – Cannabis Cultivation Tax (“CCT”) and Cannabis Excise Tax (“CET”).  Each of these new taxes differed in some respects from any other taxes administered by CDTFA.

Greed and Cannabis

CDTFA failed to devote the knowledge and experience available within the agency to the development of systems and processes specifically designed to address the unique aspects of these two new taxes.  As a consequence, CDTFA is not receiving all of the CCT and CET it should be collecting.  CDTFA is not receiving all of the CCT and CET that is being collected from cannabis consumers.  Further, CDTFA cannot readily determine the source of the funds it is presently receiving as CCT and CET.  CDTFA failed almost as badly as CalCannabis.  Of course, BCC is ultimately responsible for the inadequate performance of CDTFA.

Enough ranting about the incompetence of California’s cannabis regulatory agencies.  Should we blame the Legislature?  No.  The Legislature is just a tool.  The Legislature responds to pressures that are likely to assure the reelection of legislators.  Should we blame Proposition 64?  No.  It is too late.  We opposed Proposition 64, but it passed notwithstanding our opposition.

If any group has principal responsibility for the chaos in California’s cannabis industry, it is the participants in the industry and its leaders.  From outlaw growers to the most responsible dispensaries, the industry and the leaders of the industry are as responsible for the chaos as Proposition 64, or the Legislature, or the cannabis regulatory agencies, or local governmental agencies.

Greed and Cannabis

The participants in the industry will always follow a path of limited resistance.  As long as it is far easier to make a living without being in full compliance with the law, many will skirt compliance with the law.  It is the leaders of this industry that have truly failed the industry.  They have done so out of greed and self-interest.  The leaders of California’s cannabis industry have failed to utilize the tools that are readily available.  The leaders of the industry clamor for additional legislation to solve problems, but with every change comes additional complexity.  Further legislation is not necessary.  The tools for financially efficient, fully-compliant business operations are already available for the well-advised.

One of the reasons for writing this article is to point out  Legislature has made two significant changes to California tax laws relating to cannabis – SB 34 and AB 37.   AB 37 eliminates the partial conformity of California tax law with §280E.  AB 37 will have a limited impact in the long-run.  California’s partial conformity with §280E has only a minor impact on California’s cannabis industry for the reasons discussed in the paragraph that follows.

Tried and true tax avoidance techniques have always existed to minimize the impact of IRC §280E for the well-advised.  Unfortunately for the industry, the leading tax advisors in the industry would rather “fight than switch.”  A substantial part of the adverse impact of IRC §280E is easily avoided through appropriate accounting and record-keeping techniques.  Additional aspects of the adverse tax impact of §280E can be prevented through changes to operating structures that can be utilized in many states, including California.

SB 34 eliminates CCT and CET for specific cannabis programs administered by local governmental agencies.  SB 34 will have a substantial impact on how businesses operate in California’s cannabis industry in the long-term.  SB 34 makes an important addition to the arsenal of financial advantages that flow from the movement of cannabis from cultivators to consumers as medical cannabis.  We have pointed out on multiple occasions the economic benefits that exist from conducting cannabis activities in the medical space in California.  SB 34 makes a significant addition to the advantage of medical cannabis for the well-advised.

Greed and Cannabis

The Legislature created Cannabis Cooperative Associations (“CCAs”), a special form of a corporation, for California’s cannabis industry.  CCAs provide a financially more efficient structure for the conduct of any commercial cannabis activity in California than any conventional business structure.  Every California cannabis business should investigate how it can utilize the umbrella of a CCA to increase the profitability of the commercial cannabis activity for the owners.  Few of the leaders of California’s cannabis industry have taken the time to carefully study this legislation.  As a consequence, it will be several years before the benefits of this operating structure are generally understood in the industry.

We have yet to examine the operations of a California cannabis business for which we cannot create substantial financial benefits through adjustments to its systems and processes for the conduct of business.  Last week we visited a newly opened cannabis dispensary to examine its wares and observe its operations.  We purchased some cannabis in order to secure a receipt.  We estimate based on our casual investigation of this new dispensary that we can save the operators over $15K per month before taxes through some minor adjustments to the dispensary’s record-keeping.

California’s cannabis industry has entered into a period of survival.  There are far too many players at every level in California’s cannabis industry.  The legislation already exists for the well-advised to survive.  Additional legislation will merely prolong the period of failure for most who find they cannot succeed with the tools already available.

Greed and Cannabis

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Cannabis Meets Abacus

Cannabis Meets Abacus

Cannabis Meets Abacus – we are pleased to announce that we have completed the development of three models of the abacus to streamline accounting, tax and compliance functions required by the regulators for the legal cannabis industry in California.

Basic Abacus

The first model is our “Basic Abacus” which is designed for use by a Dispensary by simpletons. The abacus can be connected to QBOnline and all the related add-on apps which are available in their marketplace.

CLASSIC ABACUS LEARNING TOY: This is a traditional abacus wooden bead counting frame with 100 brightly colored wooden beads’

QUALITY CONSTRUCTION: The abacus is made from a solid hardwood base and frame that holds 10 thick coated wires with 10 colorful wooden beads on every 100 beads in all.Cannabis Meets Abacus

8 EXTENSION ACTIVITIES: Our bead counter for children comes with eight additional extension activities that help employee’s math, counting, and logical thinking skills.

100 percent HAPPINESS GUARANTEE: We design every abacus \ to the highest quality standards, and to nurture minds and hearts. If your people are not inspired, give us a call and we’ll make it right.

The Basic Abacus can perform all the tasks required to operate a small cannabis business.

Cannabis Meets Abacus

Advanced Abacus

Our Advanced Abacus is a precision instrument designed for use by Distributors, Extractors, and Manufacturers. We have released specialized function sets of beads for both of those functions.

The Advanced Abacus has myriad features, including                                         s

Real-time constant integration with METRC and it fully supports all Bureau of Cannabis Control [“BCC”], CalCannabis, California Dept. of Public Health [“CDPH”] Manufactured Cannabis Safety Branch [“MCSB]
and California Dept. of Tax and Fee Administration [“CDTFA”] reporting requirements for the cannabis industry.

Integrate ACH Credit and credit card operations with PayPal, Stripe, and Zelle.

Cannabis Meets AbacusSupport for integration with QBOnline, Xero, NetSuite, and Sage Intacct.

Integration for avalara.com. taxjar.com and the CDTFA website for sales and excise taxes.

Integrates with Drake, Intuit Pro Series, Lacerte, and ATX for import of accounting date into tax returns.

Expansion modules are available to add specialized beads to each abacus.

Cannabis Meets Abacus

Small Farm Hemp Abacus

We create the Small Farm Hemp Abacus as part of our efforts to attract the Grand Poobah of Hemp to the table. We are excited to announce that we are going to be the US Distributor for his new alternative collection of transplantable organs that he created on a $79 3-D Printer in his garage.

Getting back to business, in addition to the functionality described below, you can learn about its other features.

Count while chanting to veer you can remember the number of monitors, and numbers.

The large number of “while playing” or “It” and finally the number of “containing” and “skills you can learn up to”.

From the ball to touch you can start to play. Cannabis Meets Abacus

The number of balls you can separately or match, with the number system fun and learning.

It is very suitable for early learning educational toys

Cannabis Meets Abacus

Other Services

We offer a wide range of services to help you succeed, including

A wide range of self-study materials on abacus use including new modules for hemp and cannabis business.

Live webinars in online and face-to-face formats.

Advanced training in the provisioning and deployment of abacus’s in a cannabis business of all types in a wide range of locations.

Maintenance Contracts to keep your abacus running in top shape.

SSL Digital Certificates can deploy on your abacus which when combined with the “split packet” engine which is standard with the Advanced Abacus

We appreciate your time and look forward to assisting your efforts to bring an aBIZinaBOX Abacus to your cannabis business.

Cannabis Meets Abacus

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