Cannabis CPA Becomes A Cannibal

Cannabis CPA Becomes Cannibal

Cannabis CPA Becomes Cannibal
Cannabis CPA Becomes Cannibal

Cannabis CPA Becomes Cannibal and you could be lunch. We just signed on our third cannabis industry expert witness in a professional liability litigation case in two weeks. You would think that we would be thrilled as these assignments tend to start in five digits and go to mid-six digits…nope, I have a pit in my stomach when I consider the reality that I am going to be part of a process that may DESTROY another accountant, EA or CPA’s career or life for that matter. Some people will play “holier than though” and suggest that we should turn down the assignment, and my response is HELL NO! When an attorney, EA or CPA takes on a cannabis industry client that has a complex business, and needs that vastly exceed their skills, it put that client’s life and livelihood at risk.

It also happens to be precisely the type of incompetence and negligent behavior that someone who I admire tremendously used to seeth over. Prior to 2009, most tax practitioners may have heard of the IRS Office of Professional Responsibility [“OPR”] some point in a professional ethics course. By the time she left OPR in 2015, Karen Hawkins, Esq. had made damn sure that every single one of us knew what OPR was, why it was there and what our responsibilities were.

  • When you deal with cannabis businesses, particularly in the areas of maintaining required:
  • Books of Account
  • Inventory Records and documentation to support the calculation of Cost of Goods Sold
  • Internal Accounting Controls over Cash
  • Competence and consistency in performing accounting, tax and regulatory compliance tasks.

We are NOT talking about hyper-complex IRC Sec 280E allocations and rocket science…these tasks are basic and should be within the competence of any first-year professional staff person, or bookkeeper with proper supervision.

Cannabis CPA Becomes Cannibal

If anyone does believe what was just written, permit us to provide a short reading list.

  • Alterman and Gibson TC Memo 2018-83 where cannabis tax attorney Henry Wykowski, Esq. of Henry G. Wykowski & Associates got his balls cut off by the judge. It is plain as the nose on your face that the taxpayers got screwed due to their own crappy record keeping,
    Cannabis CPA Becomes Cannibal
    Henry Wykowski, Esq.

    counsel’s failure to fully review records and documentation before getting to court, and failure to engage a CPA where tasks were outside of counsel’s competence. [There is an excellent article on the topic written by Prof. Bryan Camp that should be required reading Lesson From The Tax Court: Into The Weeds on COGS]

  • Neil Feinberg et ux., et al. v. Commissioner, (2017 Memo 2017-211) if there EVER we an example of taxpayer’s being granted the benefit of the doubt by a court, and then proceeding to shoot themselves in the head due to self-inflicted wounds from a bumbling expert, incomplete and sloppy record keeping this is it. Renowned cannabis tax expert
    Cannabis CPA Becomes Cannibal
    Jim Marty, CPA

    , Jim Marty, CPA of Bridge West CPA’s was eviscerated by a Tax Court judge who wrote

Whether the report and testimony will be received in evidence and considered in determining THC’s COGS for tax years 2009-11 depends on the application of principles expressed in Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), and Rule 702 of the Federal Rules of Evidence. [We have extensive background materials on Daubert and its application for expert that you can access here.]

Rule 702 of the Federal Rules of Evidence provides:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an  opinion or otherwise if:

(a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue

(b)  the testimony is based on sufficient facts or data;

(c) the testimony is the product of reliable principles and methods; and

(d) the expert has reliably applied the principles and methods to the facts of the case.

In Daubert, 509 U.S. at 592, the Supreme Court stressed the trial court’s role as a “gatekeeper” in excluding at the outset evidence that is unreliable or irrelevant. The trial judge must make “a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.” Id. at 592-593.

The Marty report is brief and summary, and its content is unreliable. Multiple statements in the report refer to no underlying source of information. For other statements that do cite an underlying source, Marty has failed to include the[*9] information or data on which he relied. In many instances, the report does not reference or provide sufficient information or data for us to conclude that the opinions expressed are based on anything other than his own conjecture…

For the reasons stated above, we conclude that the Marty report is not admissible under rule 702 of the Federal Rules of Evidence because is it is not helpful in understanding evidence or in determining a fact and it includes legal conclusions.

When you consider taking on the responsibility for a taxpayer and their business where they are entrusting their economic viability, life and livelihood to you, remember that there are a very specific rule and responsibilities that you take on.

Cannabis CPA Becomes Cannibal

Let’s also keep in mind that using self-aggrandizement to declare expertise that can NOT be confirmed is misleading advertising which is sanctionable under Circular 230, Sec. 10.30 states”

§ 10.30 Solicitation. (a) Advertising and solicitation restrictions. (1) A practitioner may not, with respect to any Internal Revenue Service matter, in any way use or participate in the use of any form of public communication or private solicitation containing a false, fraudulent, or coercive statement or claim; or a misleading or deceptive statement or claim. Enrolled agents, enrolled retirement plan agents, or registered tax return preparers, in describing their professional designation, may not utilize the term “certified” or imply an employer/employee relationship with the Internal Revenue Service…

Circular 230 Sec. 10.35 continues

§ 10.35 Competence. (a) A practitioner must possess the necessary competence to engage in practicebefore the Internal Revenue Service. Competent practice requires the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.

§ 10.51 Incompetence and disreputable conduct. (a) Incompetence and disreputable conduct. Incompetence and disreputable conduct for which a practitioner may be sanctioned under §10.50 includes, but is not limited to — see Circular 230 for details

Circular 230, Sec. 10.52 provides sanctions for

 (a) A practitioner may be sanctioned under §10.50 if the practitioner —

(1) Willfully violates any of the regulations (other than §10.33) contained in this part; or

(2) Recklessly or through gross incompetence (within the meaning of §10.51(a)(13)) violates §§ 10.34, 10.35, 10.36 or 10.37.

When we are retained to assist counsel in reviewing the work of another tax professional, we commit to doing so with the same level of objectivity that we would want for ourselves. Every single one of us has an obligation to review both our work and our process on a regular basis and make improvements to our process and skills.

The IRS recognizes that none of us is immune from making a mistake, and learning from them is key. Anyone that doesn’t may run into a very nasty surprise contained in IRC Sec. 6694(b)(2) which provides for an enhanced penalty for patterns of negligence and occasional disregard for the rules.

Cannabis CPA Becomes Cannibal
The Fate of an Incompetent Tax Practitioner

A failure to take corrective action lays the foundation for the Internal Revenue Service to assert the existence of a pattern of repeated and potentially reckless and intentional disregard of the regulations and requirements. Such a pattern can result in the assertion of the “second tier” enhanced penalty under IRC Sec. 6694(b)(2). Such a penalty assertion could result in an additional sanction through a practitioner disciplinary referral to OPR.

A practitioner that puts a client in jeopardy through their incompetence should be crucified or burnt at the stake. Oh and by the way I left on generic accountant/tax return preparer a lovely message on their Facebook page this morning.

Cannabis CPA Becomes Cannibal

In case the print is too small, the is what it says:

You may not like what I am about to say, but that is too bad. Congrats on a new accounting degree…perhaps you will consider taking the EA or CPA exam, or getting a graduate degree and continuing to learn about taxation and accounting. It is PAINFULLY obvious that your skills are nowhere near the level of services you are purporting to offer, particularly with respect to IRC Sec. 280E. I can be strong enough in my urging you to look up and read Circular 230, paragraphs 10.30, 10.35, 10.52, or perhaps read this link…/hr-block-…/.
How do I know this, take a couple of minutes to review my Linkedin profile, I have been a CPA for 37 years, and am one of the people that cannabis industry businesses wind up having to hire to clean up the messes that get created by people that lack the requisite level of accounting education and experience to tackle the work for a client that is WAY above their paygrade. Once again, that is the reality, and hopefully, someone pointing this out to you may save you or your client from a nightmare. Best of luck.



Cannabis CPA Becomes Cannibal

Elmer Cannabis Fudd – Dope CPA ???

Elmer Cannabis Fudd – Dope CPA ???

Elmer Cannabis Fudd – Dope CPA ??? – We spoke to a 24-year-old Cannabis Marketing Expert over the weekend. I am still in awe of her brilliance and embarrassed…she called me a “nerd”, “tax geek” and “your grandpa’s CPA”. Essentially said that everything I learned over the past thirty-seven years worthless. She said “no one cares aboutElmer Cannabis Fudd - Dope CPA ??? where you went to school, or that you were a Big 4 firm Tax Partner. What matters today is “buzz words”, flash and how many cool apps you use in your practice. She says, “you can’t imagine the damage you did to yourself by not becoming a Xero Ambassador or a Tax Super Ninja Guru”. Then she got me, with a pitch I couldn’t resist. Since she is so smart and none of you would ever think of this, here is what we are going to do.

  • I am going to change my legal name to “Elmer Cannabis Fudd“…any name that has “cannabis”, cannabiz, or 710 in it just SCREAMS expertise.
  • We are going to sign up to become “Dope CPA’s“…plain old CPA doesn’t mean much, sort of like Clown Accounting.
  • We are going to stop producing three thousand word articles since no one wants to read that much of this boring stuff.
  • Next, we are moving our headquarters to northern Idaho, about 60 miles east of Spokane, the WA…that way we will bee a major force in serving the Idaho adult-use cannabis market. We might as well open 77 virtual offices in our own minds as well

Elmer Cannabis Fudd – Dope CPA ???

Has the dripping sarcasm caught anyone yet? If you know me well it was obvious with the first line of this article. We are fed up, just sick and tired of the stream of gibberish, prattle, and blather that is flowing forth from many of our colleagues that serve the cannabis industry. It reminds me of the mix of effluent that spewed out of my dog’s backside after he ingested self-lighting charcoal briquets as a puppy and I gave him an enema mixed with seltzer to clean him out.  [Note: If you insist on producing this kind of garbage, at least read Post Stupid Stuff – Make Sure Its Yours so you don’t get trapped by a plagiarism checker.]

Let’s get more specific…how many articles have you read on IRC Sec 280E that mention “Cost of Goods Sold” or the CHAMPS case and don’t say much of anything else. Well here is what we have said about IRC Sec. 280E in the past three months:

Missing Opportunity IRC Sec. 280E
Alterman TC Memo 2018-83 Alternative View
Analysis IRC Sec. 280E 
IRC 280E – Beyond Dispensaries

Here are a couple of recent pieces focused on the commercial cannabis market in California

Lessons June 30, 2018
California Cannabis Cultivation – Qualification as Farming

Do you detect a difference between us and Cleatus Smelly EA, the Dope CPA, the Idaho Cannabis CPA and every other master of “cannabiz” and “buzz words”? Yea I know we seem kind of arrogant and really abrasive…well folks twenty years in transactional practice in New York will that to you.

As a takeaway, we are going to bring back a really old and kind of amateurish piece of Photoshop I did…after a client describes me to a prospective client as an “Israel Defense Forces D9 Armored Bulldozer with the reverse gear removed…look out Cletus…

Elmer Cannabis Fudd – Dope CPA ??


Lessons June 30, 2018

Lessons June 30, 2018

Lessons June 30, 2018 – The news is full of articles about $350 million worth of cannabis being “Destroyed by California” …as if the state

Lessons June 30, 2018

was responsible for the destruction. It’s time that all of us take two steps back and reflect on the reality of what has transpired over the past eighteen months. Our purpose in writing this article is not to be critical of any stakeholder in the California commercial cannabis industry, rather we believe that it is important to be able to review a rigorous outline of “how we got here” before ascribing blame or fault. It should also provide background for what everyone might strive to avoid in the future.

Lessons June 30, 2018

In order to fully understand the significance of today’s events, we need to revisit the history of the legalization of cannabis in California, starting with Proposition 215[1].

Governor Brown signed the Medical Marijuana Regulation and Safety Act into law on October 09, 2015, and it became effective on January 01, 2016. The Act, composed of 3 bills (AB 266, AB 243, and SB 643) established a licensing and regulatory framework for the cultivation, manufacture, transportation, storage, distribution, and sale of medical cannabis in the State of California[2].

Subsequently, California voters passed the Adult Use of Marijuana Act (Proposition 64) in 2016, both acts designated responsibilities for oversight of commercial cannabis to several state agencies[3].

On June 27, 2017, California Governor Jerry Brown signed the cannabis trailer bill (also known as California Senate Bill 94). A trailer bill is a legislation that implements specific changes to the law to enact the state budget. Generally, a separate trailer bill is needed for each major area of budget appropriation, such as transportation, human services, education, revenue, or, in this case, cannabis. These bills typically are negotiated as part of the entire budget package each fiscal year.

In this instance, the cannabis trailer bill effectively merged the two existing cannabis bills—the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act—into one streamlined bill: The Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). Having one comprehensive state law will provide for a more unified and efficient regulatory process governing both medicinal and adult-use (recreational) cannabis. 

The regulatory agencies were tasked with specific mandates within the new cannabis regulatory scheme. CDFA was charged with the creation of CalCannabis to regulate cultivation activity[4]. BCC was tasked to develop the regulations associated with activities undertaken by Retail[5] [“Dispensaries”] and Distributors[6]. The statute continued to provide guidelines under which BCC would establish the regulatory framework[7]. The framework included a directive for cannabis sold at retail between January 1, 2018, and June 30, 2018, which stated

“Beginning January 1, 2018, a licensee may sell cannabis or cannabis products that have not been tested for a limited and finite time as determined by the bureau. The cannabis or cannabis products must have a label affixed to each package containing the cannabis or cannabis products that clearly states “This product has not been tested as required by the Medicinal and Adult-Use Cannabis Regulation and Safety Act” and must comply with any other requirement as determined by the bureau.”

BCC issued Emergency Regulations in November 2017 which provided The statute contained provisions for Quality Assurance, Inspection and Testing[8] and Packaging and Labeling[9].

Thus, the overarching for the regulatory framework and the transition rules were outlined almost two years ago as of the date of the article. For the sake of brevity, there are numerous other resources wherein the details of the first set of Emergency Regulations[10] can be reviewed. The Emergency Regulations were readopted in May 2018 with some modifications and they can be accessed here.

BCC issued a summary of the transition rules[11] which were to take effect on July 1, 2018, in early June. We published an article entitled Charitable Contributions – Cannabis on June 21, 2018, where we outlined a number of techniques and strategies that retailers could use to avoid the adverse impact of the July 1 transition rules. We were gratified that over forty of our existing clients and new clients availed themselves of planning opportunities we had described

Lessons June 30, 2018

[1] California Proposition 215, also known as the Medical Use of Cannabis Initiative or the Compassionate Use Act, was on the November 5, 1996, general election ballot in California as an initiated state statute where it was approved.

The passage of Proposition 215 is considered a significant victory for medical cannabis. It exempts patients and defined caregivers who possess or cultivate cannabis for medical treatment recommended by a physician from criminal laws which otherwise prohibit possession or cultivation of cannabis.

In May 2009, the U.S. Supreme Court declined to hear an appeal of a California state appellate ruling from 2008 that upheld Proposition 215 and concluded that California can decide whether to eliminate its own criminal penalties for medical cannabis regardless of federal law. The appellate ruling came about because of a lawsuit against Proposition 215 filed by San Diego and San Bernardino counties.

These counties objected to Proposition 215 on the grounds that it requires them, in their view, to condone drug use that is illegal under federal law. They also challenged a law that requires counties to issue identification cards to medical cannabis patients, so these patients can identify themselves to law enforcement officials as legally entitled to possess small amounts of cannabis. [ San Francisco Chronicle, “Solano to allow medical cannabis ID cards,” June 24, 2009]

Proposition 215 also led to the lawsuit, People v. Kelly.  This case was decided in January 2010 by the California Supreme Court, which ruled that the state of California cannot, through the legislative process, impose a state limit on medical cannabis that is more restrictive than what is allowed under Proposition 215. People v Kelly helps define laws governing the initiative process in California especially as it relates to legislative tampering.

The language that appeared on the ballot stated:

  • Exempts patients and defined caregivers who possess or cultivate cannabis for medical treatment recommended by a physician from criminal laws which otherwise prohibit possession or cultivation of cannabis.
  • Provides physicians who recommend the use of cannabis for medical treatment shall not be punished or denied any right or privilege.
  • Declares that measure not is construed to supersede prohibitions of conduct endangering others or to condone the diversion of cannabis for non-medical purposes.
  • Contains severability clause.

In 2004, the California State Legislature passed the Medical Cannabis Program Act (MMPA). The MMPA was intended to clarify which specific practices with regard to medical cannabis were to be considered lawful in the state. The MMPA:

  • Established a voluntary statewide identification card system;
  • Set limits on the amount of medical cannabis each cardholder could possess;
  • Laid out rules for the cultivation of medical cannabis by collectives and cooperatives.

In 2007, the California Fourth Appellate District ruled against the City of Garden Grove, and in favor of a medical cannabis patient (Felix Kha), saying that “it is not the job of the local police to enforce the federal drug laws.”

The case resulted from the seizure of medical cannabis from Kha by the Garden Grove police force in June 2005.

Kha was pulled over by the Garden Grove Police Department on June 10, 2005, and cited for possession of cannabis, despite Kha showing the officers proper documentation of his status as a medical cannabis patient.

The charge against Kha was subsequently dismissed, with the Superior Court of Orange County issuing an order to Garden Grove that the city must return to Kha 8 grams of medical cannabis that was seized from him by the police. The police, backed by the city of Garden Grove, refused to return Kha’s medicine and the city appealed.

In the 2007 state court decision, the court ruled that the federal Controlled Substance Act of 1970, enacted to combat recreational drug abuse and trafficking, did not intend to regulate the practice of medicine, “a task that falls within the traditional powers of the states.”

Before the California Fourth District Court of Appeal issued its decision, California Attorney General Jerry Brown filed a “friend of the court” brief on behalf of Kha’s right to possess his medicine. The justices noted they were convinced by Brown’s arguments that local agencies are bound by state laws in approaching medical cannabis.

The California Supreme Court denied a case review in March 2008, and Garden Grove then went to the United States Supreme Court, which turned the case down in late November 2008.

Medical cannabis advocates called the decision a huge victory in clarifying law enforcement’s obligation to uphold state law – in this case, Proposition 215.

[2] The Medical Marijuana Regulation and Safety Act established the Medical Cannabis Cultivation Program within the California Department of Food and Agriculture to license cultivators, establish conditions under which indoor and outdoor cultivation may occur, establish a track and trace program for reporting the movement of medical cannabis items through the distribution chain, and assist other state agencies in protecting the environment and public health.

The MMRSA tasked the following California Departments with establishing regulations for the medical cannabis industry:

  • Department of Food & Agriculture “CDFA” – Responsible for licensing cultivators and establishing a track and trace program through the Medical Cannabis Cultivation Program. “CalCannabis”.
  • Department of Public Health “CDPH” – Responsible for licensing laboratories and manufacturers of products, such as edibles through the Office of Medical Cannabis Safety “MCSB”.
  • Department of Consumer Affairs “DCA” – Responsible for licensing transporters, distributors, and dispensaries through the Bureau of Medical Marijuana Regulations. Which became the Bureau of Cannabis Control “BCC”.

[3] The California Department of Food and Agriculture (CDFA) was granted the authority to

  • establish a cannabis cultivation licensing process for the state, and
  • develop a track-and-trace system to record the movement of cannabis and cannabis products through the state’s supply chain.

As a result, CDFA created a new division called CalCannabis Cultivation Licensing, which is tasked with overseeing these projects.

[4] Regulations issued by the Department of Food and Agriculture governing the licensing of indoor, outdoor, nursery, special cottage, and mixed-light cultivation sites shall apply to licensed cultivators under this division. The Department of Food and Agriculture shall have the authority necessary for the implementation of the regulations it adopts pursuant to this division, including regulations governing the licensing of indoor, outdoor, mixed-light cultivation site, nursery, and special cottage cultivation.

(b) The regulations shall do all of the following:

(1) Provide that weighing or measuring devices used in connection with the sale or distribution of cannabis are required to meet standards equivalent to Division 5 (commencing with Section 12001).

(2) Require that cannabis cultivation by licensees is conducted in accordance with state and local laws.

(3) Establish procedures for the issuance and revocation of unique identifiers for activities associated with a cannabis cultivation license, pursuant to Chapter 6.5 (commencing with Section 26067). All cannabis shall be labeled with the unique identifier issued by the Department of Food and Agriculture.

(4) Prescribe standards, in consultation with the bureau, for the reporting of information as necessary related to unique identifiers pursuant to Chapter 6.5 (commencing with Section 26067).

(c) The Department of Food and Agriculture shall serve as the lead agency for purposes of the California Environmental Quality Act (Division 13 (commencing with Section 21000) of the Public Resources Code) related to the licensing of cannabis cultivation.

(d) The Department of Pesticide Regulation shall develop guidelines for the use of pesticides in the cultivation of cannabis and residue in harvested cannabis.

(e) A cannabis cultivator shall not use any pesticide that has been banned for use in the state.

(f) The regulations promulgated by the Department of Food and Agriculture under this division shall implement the requirements of subdivision(b) of Section 26060.1.

(g) The Department of Pesticide Regulation shall require that the application of pesticides or other pest control in connection with the indoor, outdoor, nursery, specialty cottage, or mixed-light cultivation of cannabis complies with Division 6 (commencing with Section 11401) of the Food and Agricultural Code and its implementing regulations.

[5] (1) “Retailer,” for the retail sale and delivery of cannabis or cannabis products to customers. A retailer shall have a licensed premises which is a physical location from which commercial cannabis activities are conducted. A retailer’s premises may be closed to the public. A retailer may conduct sales exclusively by delivery.

[6] (2) “Distributor,” for the distribution of cannabis and cannabis products. A distributor licensee shall be bonded and insured at a minimum level established by the licensing authority.

[7] (b) The bureau shall establish minimum security and transportation safety requirements for the commercial distribution and delivery of cannabis and cannabis products. Except as provided in subdivision (d) of Section 26110, the transportation of cannabis and cannabis products shall only be conducted by persons holding a distributor license under this division or employees of those persons. Transportation safety standards established by the bureau shall include, but not be limited to, minimum standards governing the types of vehicles in which cannabis and cannabis products may be distributed and delivered and minimum qualifications for persons eligible to operate such vehicles.

(c) The driver of a vehicle transporting or transferring cannabis or cannabis products shall be directly employed by a licensee authorized to transport or transfer cannabis or cannabis products.

(d) Notwithstanding any other law, all vehicles transporting cannabis and cannabis products for hire shall be required to have a valid motor carrier permit pursuant to Chapter 2 (commencing with Section 34620) of Division 14.85 of the Vehicle Code. The Department of the California Highway Patrol shall have authority over the safe operation of these vehicles, including, but not limited to, requiring licensees engaged in the transportation of cannabis or cannabis products to participate in the Basic Inspection of Terminals (BIT) program pursuant to Section 34501.12 of the Vehicle Code.

(e) Prior to transporting cannabis or cannabis products, a licensed distributor shall do both of the following:

  • Complete an electronic shipping manifest as prescribed by the licensing authority. The shipping manifest shall include the unique identifier, pursuant to Section 26069, issued by the Department of Food and Agriculture for the original cannabis product.
  • Securely transmit the manifest to the bureau and the licensee that will receive the cannabis product. The bureau shall inform the Department of Food and Agriculture of information pertaining to commercial cannabis activity for the purpose of the track and trace program identified in Section 26067.

(f) During transportation, the licensed distributor shall maintain a physical copy of the shipping manifest and make it available upon request to agents of the Department of Consumer Affairs and law enforcement officers.

(g) The licensee receiving the shipment shall maintain each electronic shipping manifest and shall make it available upon request to the Department of Consumer Affairs and any law enforcement officers.

(h) Upon receipt of the transported shipment, the licensee receiving the shipment shall submit to the licensing authority a record verifying receipt of the shipment and the details of the shipment.

(i) Transporting, or arranging for or facilitating the transport of, cannabis or cannabis products in violation of this chapter is grounds for disciplinary action against the license.

(j) Licensed retailers and microbusinesses, and licensed nonprofits under Section 26070.5 shall implement security measures reasonably designed to prevent unauthorized entrance into areas containing cannabis or cannabis products and theft of cannabis or cannabis products from the premises. These security measures shall include, but not be limited to, all of the following:

  • Prohibiting individuals from remaining on the licensee’s premises if they are not engaging in activity expressly related to the operations of the retailer.
  • Establishing limited access areas accessible only to authorized personnel.
  • Other than limited amounts of cannabis used for display purposes, samples, or immediate sale, storing all finished cannabis and cannabis products in a secured and locked room, safe, or vault, and in a manner reasonably designed to prevent diversion, theft, and loss.

(k) A retailer shall notify the licensing authority and the appropriate law enforcement authorities within 24 hours after discovering any of the following:

  • Significant discrepancies identified during inventory. The level of significance shall be determined by the bureau.
  • Diversion, theft, loss, or any criminal activity pertaining to the operation of the retailer.

(3) Diversion, theft, loss, or any criminal activity by any agent or employee of the retailer pertaining to the operation of the retailer

(4) The loss or unauthorized alteration of records related to cannabis or cannabis products, registered qualifying patients, primary caregivers, or retailer employees or agents.

(5) Any other breach of security.

(l) Beginning January 1, 2018, a licensee may sell cannabis or cannabis products that have not been tested for a limited and finite time as determined by the bureau. The cannabis or cannabis products must have a label affixed to each package containing the cannabis or cannabis products that clearly states, “This product has not been tested as required by the Medicinal and Adult-Use Cannabis Regulation and Safety Act” and must comply with any other requirement as determined by the bureau.

[8] (a) Cannabis batches are subject to quality assurance and testing prior to sale at a retailer, microbusiness, or nonprofit licensed under Section 26070.5, except for immature cannabis plants and seeds, as provided for in this division.

(b) A licensee that holds a valid distributor license may act as the distributor for the licensee’s cannabis and cannabis products.

(c) The distributor shall store, as determined by the bureau, the cannabis batches on the premises of the distributor before testing and continues until either of the following occurs:

  • The cannabis batch passes the testing requirements pursuant to this division and is transported to a licensed retailer.
  • The cannabis batch fails the testing requirements pursuant to this division and is destroyed or transported to a manufacturer for remediation as allowed by the bureau or the Department of Public Health.

(d) The distributor shall arrange for a testing laboratory to obtain a representative sample of each cannabis batch at the distributor’s licensed premises. After obtaining the sample, the testing laboratory representative shall maintain custody of the sample and transport it to the testing laboratory.

(e) Upon issuance of a certificate of analysis by the testing laboratory that the cannabis batch has passed the testing requirements pursuant to this division, the distributor shall conduct a quality assurance review before distribution to ensure the labeling and packaging of the cannabis and cannabis products conform to the requirements of this division.


(1) There shall be a quality assurance compliance monitor who is an employee or contractor of the bureau and who shall not hold a license in any category or own or have an ownership interest in a licensee or the premises of a licensee.

(2)The quality assurance compliance monitor shall conduct random quality assurance reviews at a distributor’s licensed premises before distribution to ensure the labeling and packaging of the cannabis and cannabis products conform to the requirements of this division.

(3) The quality assurance compliance monitor shall have access to all records and test results required of a licensee by law in order to conduct quality assurance analysis and to confirm test results. All records of inspection and verification by the quality assurance compliance monitor shall be provided to the bureau. Failure to comply shall be noted by the quality assurance compliance monitor for further investigation. Violations shall be reported to the bureau. The quality assurance compliance monitor shall also verify the tax payments collected and paid under Sections 34011 and 34012 of the Revenue and Tax Code are accurate. The monitor shall also have access to the inputs and assumptions in the track and trace system and shall be able to verify the accuracy of those and that they are commensurate with the tax payments.

(g) After testing, all cannabis and cannabis products fit for sale may be transported only from the distributor’s premises to the premises of a licensed retailer, microbusiness, or nonprofit.

(h) A licensee is not required to sell cannabis or cannabis products to a distributor and may directly contract for sale with a licensee authorized to sell cannabis and cannabis products to purchasers.

(i) A distributor performing services pursuant to this section may collect a fee from the licensee for the services provided. The fee may include but is not limited to, the costs incurred for laboratory testing. A distributor may also collect applicable state or local taxes and fees.

(j) This section does not prohibit a licensee from performing testing on the licensee’s premises for the purposes of quality assurance of the product in conjunction with reasonable business operations. The testing conducted on the licensee’s premises by the licensee does not meet the testing requirements pursuant to this division.

[9] (a) Prior to delivery or sale at a retailer, cannabis and cannabis products shall be labeled and placed in a resealable, tamper-evident, child-resistant package and shall include a unique identifier for the purposes of identifying and tracking cannabis and cannabis products.

(b) Packages and labels shall not be made to be attractive to children.

(c) All cannabis and cannabis product labels and inserts shall include the following information prominently displayed in a clear and legible fashion in accordance with the requirements, including font size, prescribed by the bureau or the State Department of Public Health:

  • The following statements, in bold print:
  • For packages containing only dried flower, the net weight of cannabis in the package.

Identification of the source and date of cultivation, the type of cannabis or cannabis product and the date of manufacturing and packaging.

The appellation of origin, if any.

  • List of pharmacologically active ingredients, including, but not limited to, tetrahydrocannabinol (THC), cannabidiol (CBD), and other cannabinoid content, the THC and another cannabinoid amount in milligrams per serving, servings per package, and the THC and another cannabinoid amount in milligrams for the package total.
  • A warning if nuts or other known allergens are used.
  1. Information associated with the unique identifier issued by the Department of Food and Agriculture.
  2. For a medicinal cannabis product sold at a retailer, the statement “FOR MEDICAL USE ONLY.”
  • Any other requirement set by the bureau or the State Department of Public Health.

(d) Only generic food names may be used to describe the ingredients in edible cannabis products.

(e) In the event the Attorney General determines that cannabis is no longer a Schedule I controlled substance under federal law, the label prescribed in subdivision (c) shall no longer require a statement that cannabis is a Schedule I controlled substance.

An additional section addresses misbranding

A cannabis product is misbranded if it is any of the following:

  • Manufactured, packed, or held in this state in manufacturing premises not duly licensed as provided in this division.
  • Its labeling is false or misleading in any particular.

Its labeling or packaging does not conform to the requirements of Section 26120 or any other labeling or packaging requirement established pursuant to this division.

  • (b) It is unlawful for any person to manufacture, sell, deliver, hold, or offer for sale a cannabis product that is misbranded. (c) It is unlawful for any person to misbrand a cannabis product.
  • (d) It is unlawful for any person to receive in commerce a cannabis product that is misbranded or to deliver or offer for delivery of any such cannabis product.

[10] Text of Emergency Regulations November 17. 2017

[11] BCC – End of Transition Rules


Beginning July 1, 2018, a retailer may only sell cannabis products that meet the requirements set by the California Department of Public Health for ingredients or appearance.

The requirements listed above can also be found in the transition period fact sheet located here on our website:

Those looking to get in touch with the Bureau of Cannabis Control can call our Call Center at (833) 768-5880, or send an email to [email protected]

Source: [BCC Transition Rules] (

Lessons June 30, 2018


**Summary of Proposed Changes**

**“Adult Use” and “Medicinal Use” License Categories**
The transition period includes a provision that businesses can operate with each other regardless of the adult-use (A) or medicinal (M) designation on their license. CDPH proposes making this provision permanent. Applicants will be able to submit one license application to manufacture both “A” and “M” products on their manufacturing premises and pay one licensing fee.

Operations, processes and requirements for cannabis manufacturers are the same for both the adult-use and medicinal markets. For this reason, this package proposes that:

  • Businesses can conduct cannabis commercial business with other licensees regardless of the A or M designation.
  • Cannabis manufacturers will be required to label cannabis products that are over 1,000 mg for “Medical Use Only” prior to sending the product to the distributor.

**Incorporation of Shared-Use Facilities**
Emergency regulations for shared-use cannabis manufacturing facilities went into effect on April 13, 2018. CDPH references those regulations in this re-adoption package.

**Other Changes**
Minor technical and grammatical edits were made throughout the text to provide clarification about the requirements and to better align the regulations with the statutory language

Lessons June 30, 2018


Lessons June 30, 2018

Charitable Deduction – Cannabis

Charitable Deduction – Cannabis

Charitable Deduction – Cannabis businesses should consider the implications of California transition rules which tax effect on July 1 with additional requirements for testing, packaging and labeling products. If inventory can no longer be sold, there are a number of strategies that

Charitable Deduction - Cannabis

should be considered. The rest of this post will highlight the general rules for claiming either a loss or charitable deduction in connection with the disposition of cannabis that can no longer be sold at retail.

CAUTION – We researched the issue, but were unable to find any authority which addressed:

  • Restrictions on the deductibility of an actual donation of cannabis [literally the plants] to a charitable organization.
  • There is no authority relative to IRC Sec. 280E disallowing charitable contribution.

If anyone is aware of authority which would limit the deduction, please let us know immediately. 

  • If plant inventory is destroyed or sold, the cost of the plants becomes part of Cost of Goods Sold, so there is no disallowance of the deduction under IRC Sec. 280E.

Charitable Donation

Sometimes you can get a larger deduction from distressed inventory by donating it to a tax-exempt charity. If a charity puts the distressed inventory to its intended use or to care for the ill, the needy or infants, the donating business might be able to deduct the fair market value of the inventory as a charitable donation. The deduction is limited to the lesser of the fair market value reduced by half the gain that would be recognized if it were sold or twice the tax basis in the inventory.

Companies looking to reduce inventory and take a tax deduction may donate obsolete inventory to a charitable cause. An agreement is made between the charity and you, saying the items were donated at no cost to the charity. You may deduct the fair market value for the inventory from your taxes following the donation. Inventory receipts signed by the charity and your business will document the transaction.

Charitable Deduction – Cannabis

Bona Fide Sales

A bona fide sale is simply selling the item to a salvage yard or liquidator. In these cases, the tax deduction is the fair market value minus what you recover for the item. If you sell obsolete inventory to a liquidator for $100, and the inventory has a market value of $1000 at the time of the sale, you have a $900 deduction for the sale. For it to be considered a bona fide sale, you cannot have any interest or rights to the property. To qualify for a bona fide sale deduction, it cannot be consigned to another seller.

Destruction of Inventory

You can get a tax deduction for obsolete inventory by destroying it.This is typically a last resort, as the tax savings are minimal. The IRS requires photographs before and after the destruction of the inventory to verify it has been destroyed. Additional documentation includes the market value of the item and the inventory purchase order. Destroying inventory may reduce property tax in certain states, and the IRS allows a minimal deduction of the value of the items.

Markdown and Clearance Sale

You can sell the products in a clearance or markdown sale, as an attempt to clear out inventory. This does not offer any tax breaks under the IRS. Instead, you would be able to record the sale as a business transaction. As long as the product sells for cost, the business can save money on storage fees and inventory calculations. If the product sells for less-than-cost, depending on the amount of loss, certain IRS tax deductions and credits may apply.

Charitable Deduction – Cannabis

Treasury regulation 1.471-2 allows businesses to deduct the drop in their inventories’ value if the inventory can’t be sold at normal prices or can’t be used “in the normal way.” Inventory is normally recorded at cost, but when it becomes distressed, the business can revalue it at its selling price minus the direct costs of disposal. The deduction is equal to the difference between the inventory’s historical cost and its distressed valuation.

GAAP Accounting Rules for Inventory Write-Downs

once you have identified inventory that you cannot sell, you must write this inventory off as an expense. Assuming no receipt of payment for the inventory, you will debit a cost of goods sold account and credit either inventory directly or your inventory reserve account. GAAP requires that all obsolete inventory be written off at the time it’s determined obsolete. Therefore, if a company is not regularly reviewing their inventory for obsolescence they could have a large hit to their bottom line. While the process of writing off inventory for GAAP purposes is rather straightforward, being able to get the tax deduction is not quite as direct.

We add a side, note to a very interesting article.

The CA Regulations Requiring Destruction of the Sacred Plant on July 1, 2018, Provides an Opportunity for Extraordinary Acts of Compassion Before July 1, 2018

CDTFA Excise Tax Flowcharts

CDTFA Excise Tax Flowcharts

CDTFA Excise Tax Flowcharts

Several months ago, we published two articles…

Reporting Collection CA Cannabis Taxes

Reporting collection CA cannabis taxes are highlighted in this post.  The material that follows was prepared to illustrate the computation, collection and remittance of California’s cannabis excise taxes, and the computation of the gross profit for the parties to a cannabis business transaction, in the simplest of commercial cannabis transactions – the regulated commercial

CDTFA Excise Tax Flowcharts
Calculating Reporting CA Cannabis Taxes

movement of flower from the cultivator to a dispensary.  The sole difference between the two examples of the commercial movement the flower is the number of parties involved.  In the first example, the flower is sold by a cultivator to a distributor that in turn sells the flower to a dispensary.  In the second example, the cultivator sells to a distributor that sells to a second distributor that in turn sells to the dispensary.  The total of the costs incurred in the movement of the flower is the same in both examples as is the total profit shared by the cultivator and the distributor or distributors.

and the second was

CA Cannabis Excise Tax – Extraction – Processing

This post is the second in a series of posts we expect to publish related to CA Cannabis Excise Tax – Extraction – Processing.  Our previous post focused on a simple example involving the collection,

CDTFA Excise Tax Flowcharts
California Dept. of Tax and Fee Administration

reporting, and remittance of California’s Cannabis Excise Tax (“CET”) related to flower, it was complicated. When we begin to move to extraction, processing, and distribution, the complexity expands, almost exponentially.  We continue to be amazed by the number of comments relating to the CET that merely regurgitate information published by the California Department of Tax and Fee Administration [“CTDFA”]. The example in this post illustrates some of the inadequacies of the CDTFA’s analysis and propose some solutions.  The inadequacies of CDTFA’s analysis are principally the product of:

  • The failure of CDTFA to address the realities of the cannabis supply chain.
  • The failure of CDTFA to address the complexities of the calculation of CET.

We had engaged with CDTFA in a number of discussions in connection with the topic, and in coming posts will share what we learned. We can’t be sure but will speculate that those discussions are connected with these new flowcharts.



Los Angeles City-County Resources

Los Angeles City-County Resources

Los Angeles City-County Resources provides an overview of the regulatory process for the cannabis industry in the City of Los Angeles and Los Angeles County and our website.

City of Los Angeles Dept of Cannabis Regulation

The Department of Cannabis Regulation (DCR) is responsible for administering the Rules and Regulations adopted Los Angeles City-County Resourcesby the Council for licensed commercial cannabis businesses within the City of Los Angeles. The DCR administers the business application process in conjunction with the Cannabis Regulation Commission, makes determinations related to non-retail cannabis licensing, administers and coordinates the audit and inspection processes for licensed cannabis-related businesses, and enforcing regulatory compliance of licensed businesses engaged in commercial cannabis activity.

Measure M, passed by over 80% of voters in March 2017, gave City Council the full authority to regulate cannabis-related activity within the City of Los Angeles.  With that authority, the Department of Cannabis Regulation was established by ordinance on July 30, 2017.

The official website is here.  Our City of Los Angeles resources are located here.

County of Los Angeles – Office of Cannabis Management (OCM) is a unit within the Los Angeles County Chief Executive Office. The OCM’s role is to coordinate the implementation of the County’sLos Angeles City-County Resources cannabis policies and regulations. The OCM serves as a countywide coordinating body, working closely with the Board of Supervisors and County departments to implement the County’s cannabis policies and priorities. As directed by the Board of Supervisors and along with affected departments, the OCM will:

  • Coordinate the development and implementation of ordinances and policies regarding commercial cannabis activities;
  • Engage industry and community groups to ensure the County’s cannabis regulations are working;
  • Dialogue with cities and other counties to share ideas and best practices, and to work toward a general uniformity of approach to cannabis regulation;
  • Assist County public health and law enforcement officials to track and address developments related to cannabis; and
  • Work with the County’s Office of Legislation and Intergovernmental Affairs to advocate for legislation at the state and federal levels that advance the County’s cannabis policies and priorities.

People v. Kelly  [47 Cal.4th 1008 (2010), [103 Cal. Rptr. 3d 733, 222 P.3d 186]

Proposition 215

Proposition 64

BCC – EndTransition Rules

BCC – End  Transition Rules

Legal Cannabis Support – Clarion Call

Legal Cannabis Support – Clarion Call

Legal Cannabis Support – Clarion Call
aBIZinaBOX Inc.

Legal Cannabis Support – Clarion Call – I am writing this post to express my personal views regarding the incredible opportunity 2018 provides me as a CPA – tax practitioner with thirty-seven years in professional practice. I was prompted to write this post in part as a consequence of the posts of others as is described below. The principal reason for writing this post is to call on all advisors with any interest in this incredible opportunity to act as members of a group whose over-riding goals are the successes of their clients.

First, let me describe the incredible opportunity that 2018 provides me and many others. Over the past 18 months, I have been given the opportunity to become immersed in the legal commercial cannabis industry in California. The overnight transformation from a laissez-faire, largely unregulated marketplace into an exceptionally complex, highly regulated marketplace with twenty-three state-level agencies, and hundreds of county and municipal agencies are breathtaking. In a short span of time, a professional advisor has been presented with the greatest challenges of a professional lifetime in a Wild West landscape. In this environment, professional advisors have both an opportunity, and of far greater significance, the obligation, to provide their skills, guidance, and creativity so their clients succeed and California’s fledgling regulated cannabis industry thrives.

I also want to take the opportunity of this post to describe the exceptional opportunities and experiences that have brought to this point in time. It began at the University of Illinois – Urbana Accountancy program. I had the good fortune to be pointed to the MS – Taxation Program at the University of Texas – Austin by Professor Robert Jamison. Arthur Wyatt, CPA [deceased] encouraged me to join Arthur Andersen LLP where I ultimately become a Tax Partner.

Andersen culture taught us from day one that a client’s business success was of paramount importance. We were expected to subordinate personal and family commitments to pursue business success for our clients – a perspective that appears to have changed in recent decades. Not only were we encouraged to use all of the worldwide resources of the global Arthur Andersen organization to assist our clients, but also we were aggressively encouraged to seek out and engage with our client’s legal counsel. Leveraging the complementary knowledge and skills we had as certified public accountants and global presence of Anderson with the talents and skills of exceptionally gifted attorneys allowed us to jointly make the maximum possible contribution to the successes of our clients.

When I take a moment to reflect upon the group of exceptionally talented attorneys with whom I have had the good fortune to work and learn, the list is astounding. While I did not start out with the intention of recognizing them, and there are many more who should be mentioned, a few who come immediately to mind are:

• Currently – The Law Offices of William E. Taggart Jr, [formerly Taggart and Hawkins] – William E. Taggart, Jr. Esq. as well as his former partner Karen L. Hawkins, Esq. [Chair of the ABA Tax Section and formerly the Director of the IRS Office of Professional Responsibility].

Schulte, Roth & Zabel – Real Estate, Hedge Funds, and Tax Practice – Daniel S. Shapiro, Esq. [Deceased] and Allen Waldenburg, Esq.

Paul Weiss, Rifkind, Garrison, and Wharton – Arthur Liman, Esq. [Deceased]

Katten, Muchin Rosenman LLP – Harvey Silets Esq. [Deceased] – [Multiple Clients].

Gould & RatnerGerald A. Weber Esq, and Gail P.  Bley Esq. – [Tishman Speyer Properties].

Williams & Connolly – Jerry Feffer Esq. [Deceased] and James Bruton III, Esq. – [Representation of Leona Helmsley].

Anyone who has been involved in tax practice at a national level in the United States over the past fifty years ought instantly to recognize the contributions of several if not all of this group. I am indebted for what I have learned. I am proud of the contributions we made working together for the successes of our mutual clients without deteriorating into efforts to demonstrate to a client which advisor was brighter, more creative or more aggressive.

Legal Cannabis Support – Clarion Call

During the last week, I happened upon two articles:

What to Look for in a Cannabis Accountant – James Hunt Esq, Harris Bricken

Tax Audit Defense Worth It?David W. Klasing, Esq.

Both of these articles were unfortunately written by very skilled and accomplished tax attorneys who appear to have completely abandoned the “client success comes first” principle that seemed to be second nature to the attorneys named above and so many others with whom I have worked. The authors of these two articles made a deliberate choice in these articles to use a combination of fear-mongering, intimidation and leveraging off of client anxiety to pursue their own enrichment. Demeaning CPA’s enrolled agents and other advisors in the pursuit of self-aggrandizement is not a formula for client success.

Our next post is going to specifically focus on the needs of the cannabis industry and what attorneys and CPAs can do to effectively and efficiently serve those needs.

Legal Cannabis Support – Clarion Call

This post should be read in conjunction with –

Cannabis Biz Tough – Lawyers – CPA’s


BCC Announces Comment Period Extended Emergency Regs

BCC Announces Comment Period Extended Emergency Regs

BCC Announces Comment Period Extended Emergency Regs. The Bureau of Cannabis Control (Bureau) announced today that it has submitted the proposed readoption of emergency regulations for commercial medicinal and adult-use cannabis to the Office of Administrative Law (OAL).

Those who wish to comment on the proposed readoption of these emergency regulations must submit their comment directly to OAL within five calendar days of OAL’s posting of the proposed readoption on their website. The comment period will begin on Friday, May 25, 2018, and end on Wednesday, May 30, 2018. You may submit comments on the proposed readoption to OAL at:

Office of Administrative Law
OAL Reference Attorney
300 Capitol Mall, Suite 1250
Sacramento, CA 95814
E-mail: [email protected]

When you submit a comment to OAL, you must also submit a copy of your comment simultaneously to the Bureau at:

Bureau of Cannabis Control
2920 Kilgore Road
Rancho Cordova, CA 95670
E-mail: [email protected]

OAL will confirm the Bureau has received the comment before considering it. Pursuant to California Code of Regulations, Title 1, section 55(b)(1) through (4), the comment must state that it is about an emergency regulation currently under OAL review, and include the topic of the emergency.

Adoption of emergency regulations does not require response to comments. Any responses to comments from the Bureau will be submitted to OAL within eight calendar days following the date of submission of the proposed emergency regulation to OAL, unless specific exceptions are applicable.

For additional information about the proposed readoption of these emergency regulations, or to subscribe to email alerts to hear about updates as they become available, please visit the Bureau’s website at For information on all three state licensing authorities, please visit the state’s California Cannabis Portal at Follow the Bureau on Facebook, Twitter and Instagram for daily news and updates.

Those looking to get in touch with the Bureau of Cannabis Control can call our Call Center at (833) 768-5880, or send an email to [email protected].


California Emergency Regulations – Inside

California Emergency Regulations – Inside

California Emergency Regulations - Inside
BCC, CDFA CalCannabis and CDPH MCSB

California Emergency Regulations – Inside  The triumvirate of California cannabis industry regulators – Bureau of Cannabis Control [“BCC”] [Retail and Distribution Licenses, Event Licenses], California Dept. of Food and Agriculture – “CDFA”’s CalCannabis [Cultivation Licenses, and California Department of Public Health [“CDPH”]’s Manufactured Cannabis Safety Board [“MCSB”] extended Emergency Licenses for 180 days.

Full Text of Readopted Regs

Bureau of Cannabis Control [“BCC”] [Retail and Distribution Licenses, Event Licenses],

California Dept. of Food and Agriculture – “CDFA”’s CalCannabis [Cultivation Licenses,] and

California Department of Public Health [“CDPH”]’s Manufactured Cannabis Safety Board [“MCSB”]


    • Applicants may complete one license application and request an A-designation, an M-designation, or both for the license.
    • Regardless of designation requested, applicants, will pay one license fee
    •  Licensees may engage in commercial cannabis activities with any licensee, regardless of designation.


    • A financial interest includes an agreement to receive a portion of the profits of a business.
    • Clarifies what items must be identified on a premises diagram so the bureau can determine whether the proposed premises meet the requirements for licensure.
    • Requires use of the Commercial Cannabis Licensee Bond form under Title 11, California Code of Regulations, Article 56, Section 118.1 (Title 16, California Code of Regulations section 5008).
    • Clarifies a licensee’s notification requirements when there are certain modifications to the business (e.g., standard operating procedures, license designations, premises location).
    • Fees have been revised to account for the proposed licensing changes and better reflect the updates in funding needs.


    • Prohibits advertising or marketing from using depictions or images of minors under 18 years of age.


  • Clarifies activities licensees may conduct on their premises. Licensees authorized for retail sales may not sell or deliver cannabis goods through a drive-through or pass-out window. Deliveries of cannabis goods shall not be made to people within motor vehicles.
  • Clarifies premises location restrictions. Proposed premises shall not be within a private residence or in a location that requires persons to pass through a private residence.
  • Provides that premises adjacent to other premises engaging in manufacturing and cultivation must be separated by walls and doors.


    • Identifies certain security personnel requirements, including age restrictions, qualifications, and when security personnel is required.
    • No longer requires non-storefront retailers to have security personnel
    • Clarifies requirements for sharing security personnel, video surveillance systems, and alarm systems when multiple premises are contained in the same building.
    • Identifies door and lock requirements for limited access areas.
    • Allows distributors to relabel packages with the accurate amount of cannabinoids and terpenoids post-laboratory testing in certain circumstances.


  • REMEDIATION • Restricts remediation of cannabis goods that fail to test to licensed manufacturers.


    • Clarifies the requirements for the transportation of cannabis goods. Permits for cannabis goods to be transported by foot, forklift, or similar means, when cannabis goods are transported to premises located in the same building or same parcel of land.
    •  Allows security personnel, licensed by the Bureau of Security and Investigative Services, to be in a transport vehicle.
    •  Clarifies how a distributor may verify that cannabis goods received are accurately reflected in the shipping manifest without unpacking and inventorying all boxes.


  • Permits a delivery employee to complete multiple deliveries of cannabis goods if they are prepared by the retailer prior to the delivery employee leaving the licensed premises. The total amount of cannabis goods in the delivery vehicle may be up to $10,000. Requires delivery drivers to conduct age verification of customers.


    • Clarifies microbusiness requirements. Also provides that areas of the premises designated for manufacturing and cultivation must be separated from the distribution and retail areas.


    •  Licensees are no longer required to collect field duplicate samples.
    • Clarifies laboratory limit of quantification (LOQ) requirements for all Category I residual solvents or processing chemicals.
    • Clarifies laboratory LOQ requirements for all Category I residual pesticides.
    • Adds malathion and its corresponding action levels to Category II residual pesticides.
    • Clarifies certain Certificate of Analysis requirements when a content label is affixed to the cannabis or cannabis product batch at the time of testing.




  • “Premises” distinctions defined. SB 94 and AB 133, the statutes enacted in 2017 to implement and refine Prop 64, both defined a licensed “premises” as a “designated structure” that is held “under the control” of the licensee for commercial cannabis activity and must be contiguous and held by only one licensee. The statutes did not, however, define what those terms meant with regard to physical segregation of licensed spaces, which is an important factor for places like warehouse spaces where multiple tenants want to operate concurrently, or any rental space with common areas. The new emergency regulations address this issue by clarifying that for the areas of licensed premises required to be under a licensee’s exclusive control for operations, actual walls and locked doors will be required, but that common or shared spaces will be allowed for multi-tenant spaces without violating that requirements.


  • The potential for shared entrances.  The new rules contemplate the use of a shared entrance so that each licensed premises need not have its own exclusive access to the outside world. The catch, however, is that if neighboring licensees share a common entryway, and state inspectors are prevented from accessing licensed premises due to neighboring licensed premises preventing passage, then both licensees shall be responsible for the access violation and subject to discipline.


  • No change to license stacking – But despite all the controversy, the new regulations do not change the situation: a single licensee can still hold an unlimited amount of cultivation licenses each for up to 10,000 square feet of canopy, with no requirement that those licenses each have separate and distinct premises.


  • Strict separation of residential and commercial buildings – The rules now require that the premises diagram in the license application clearly define which buildings on site are residential and which are commercial, and prohibit any licensed premises from being located within a private residence or from requiring a person to pass through a private residence to access the licensed premises.


  • Expanded access to shared utilities – The new emergency regulations provide additional opportunities for tenants in a multi-tenant building or shared space to pool resources, including security camera systems, security guard services, and alarm systems. The catch, however, is that if multiple licensees decide to share such resources, each licensee is responsible for the violation of any regulations by any other licensee as it pertains to the shared resource.