Search Results for: 280

IRS 280E: A Real Bummer For The Marijuana Industry

BY LARRY J. BRANT

As a general rule, in accordance with IRC § 162(a), taxpayers are allowed to deduct, for federal income tax purposes, all of the ordinary and necessary expenses they paid or incurred during the taxable year in carrying on a trade or business.  There are, however, numerous exceptions to this general rule.  One exception is found in IRC § 280E.  It provides:

“No deduction or credit shall be allowed for any payment paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any state in which such trade or business is conducted.”

Congress enacted IRC § 280E as part of the Tax Equity and Fiscal Responsibility Act of 1982, in part, to support the government’s campaign to curb illegal drug trafficking.  Even though several states have now legalized medical and/or recreational marijuana, IRC § 280E may come into play.  The sale or distribution of marijuana is still a crime under federal law.  The impact of IRC § 280E is to limit the taxpayer’s business deductions to the cost of goods sold.

On October 22, 2015, the U.S. Tax Court issued its opinion in Canna Care, Inc. v. Commissioner, T.C. Memo 2015-206.  In that case, Judge Haines was presented with a California taxpayer that is in the business of selling medical marijuana, an activity that is legal under California law.

The facts of this case are interesting.  Bryan and Lanette Davies, facing significant financial setbacks and hefty educational costs for their six (6) children, turned to faith for a solution.  After “much prayer,” Mr. Davies concluded that God wanted him to start a medical marijuana business.  Unfortunately, it does not appear that he consulted with God or a qualified tax advisor about the tax implications of this new business before he and his wife embarked upon the activity.

The 280e Cannabis Conundrum

By  Keith Richards 

If you are in the Cannabis industry and are not already familiar with IRS Code section 280e, then you are likely going to face a rude awakening this tax season.  Even with all the noise about this issue, it is still surprising to find operators that are not paying attention to some basic business principles such as knowing how costs (in this case taxes) will affect their business. It doesn’t mean that you have to become a CPA because the rules are fairly straight forward and there is significant literature addressing the topic.  However, using a trusted advisor to navigate areas of unfamiliarity (taxes and otherwise) would be the most beneficial way to insure that that you don’t go out of business due to the burden of unexpected taxes or worse, end up in jail ala Al Capone.

First, let’s understand the law:

Internal Revenue Code section 280e specifically states “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

Whew….what does that mean? The IRS is a group of clever individuals whose job is to maximize revenue to the United States by taxing income.  They are not concerned whether the income was derived legally or illegally, but whether you pay your taxes on the income generated. Federally, Cannabis is still a controlled substance and illegal and therefore falls under the provisions of IRS Code section 280e. Per the provision, unlike “ordinary” companies that are able to deduct expenses in determining taxable income, 280e related entities (Cannabis being one type) cannot deduction normal and ordinary operating expenses.  The result is that a Cannabis related entity will be denied these deductions, will report higher taxable income and of course pay more taxes. This is where many operators are getting themselves in trouble.  They fail to realize and account for the additional tax burden that will be imposed and then either don’t have the cash to pay or simple didn’t know the law and fail under audit. Under 280e Instead of paying a tax rate of 30% or 40% a Cannabis business might end up paying 60% to 90% in taxes.

Second, understand your cost of goods sold:

From a retail standpoint Cost of Goods Sold (COGS) are the costs that a business incurs such as materials, certain labor and the wholesale price of goods purchased that are subsequently retailed.  From a grower standpoint, COGS can include additional components that are directly related to production such as seeds, nutrients, electricity for grow lighting, supplies etc.  COGS is considered an adjustment to revenue as opposed to an expense deduction and as such does not fall under the provisions of 280e.  Consequently, while a Cannabis company cannot deduct operating expenses, it can adjust revenue for cost of goods sold. Therefore, it would be prudent for an operator to have a good understanding all of the components of COGS.

 

Third, develop a strategy:

Given that Cannabis related entities are limited on expense deductions but can adjust for COGS, in order to minimize the tax burden, hiring professional advice is a relatively small expense when compared to the potential exposure.  That being said, here are a few tips that each Cannapreneur should consider and discuss with their trusted advisor:

Diversify your services – consider offering additional services such as Yoga, or meditation, or stress counseling.  You may be able to allocate some of your operating expenses to these other services and take them as deductions against these goods and services.

Use IRS Code 263a to capitalize costs to inventory – Code Section 263a allows an organization to capitalize certain expenses which then become a component of inventory.  Once the inventory is sold and run through COGS these previously disallowed expenses now become an adjustment to revenue (as opposed to a disallowed expense) as a component of inventory and COGS.

Correct legal entity – A regular S-Corp is required to pay a fair wage to the owners and operators of the entity, yet these wages would be considered a non-deductible expense under 280e. On the other hand, a Limited Liability Corporation (LLC) is not required to pay the owner a salary and instead the earnings of the LLC are the owner’s taxable earnings. The owners would report net income allocated as opposed to salary and therefore there is no salary expense that would be disallowed.

Fourth – Stay well informed of potential law changes

In 2011, a bill called “The Small Business Tax Equity Act” was introduced to congress.  Essentially, the bill attempted to resolve the difference between state and federal law allowing for an exemption from section 280e for medical marijuana entrepreneurs as long they were in compliance with State law. The 2011 bill died and was reintroduced in 2013 emphasizing all marijuana businesses but it died as well.  In April 2015, a pair of congressmen (Rep. Earl Blumenauer and Sen. Ron Wyden of Oregon) have reintroduced the bill for a third time. This legislation is gaining widespread support by organizations such as Americans for Tax Reform, the National Cannabis Industry Association, Drug Policy Alliance, Marijuana Policy Project, Americans for Safe Access, and NORML.  Given the amount of attention and support this topic has garnered, there is hope that “third time’s a charm” and marijuana businesses will finally become exempt from 280e.  However, with congress one never really knows.

Finally – change is a constant:

Cannapreneurs need to recognize that the Cannabis industry is going through growing pains in the same way that many other first time industries have developed. There are many factions, special interest groups and profiteers that are each trying to influence the future direction to their benefit and as such the rules to the game are continually changing. For that reason it is important to stay abreast of change and surround yourself with solid professional advice that can help along the way.  Be sure to consult with your tax and legal advisors and make solid informed decisions for the long term.

 

Keith Richards is a successful CEO/COO & CFO.  Currently he is a Partner with the Newport Board Group, a national professional services firm of strategic advisors. He’s also a Director with Integral Edge Partners focusing on high performance leadership transformation and corporate culture development. He is a regular commentator on a variety of business radio programs, keynote speaker and blog author. Keith can be reached at keith.richards@newportboardgroup.com followed on LinkedIn at www.linkedin.com/in/keitharichards and on twitter @KRLeadership.

 

 

 

CCSE Hosts Banking, Taxes & 280E Industry Panel On July 24th

WASHINGTON: Federal tax code 280E is the single largest hurdle for any entrepreneur attempting to create a sustainable Cannabis business. Although the sale of marijuana is legal in several states, it remains illegal under federal law, and Revenue Code 280E bans most deductions and tax credits given to businesses selling Schedule I and II controlled substances, which includes marijuana.Under current tax law, Section 280E allows marijuana businesses to deduct only their cost of goods sold  all other normal and ordinary business expenses are rejected by the IRS, including marketing, training, transportation, etc. So where does this leave you, as a legitimate business owner? Is it possible to succeed under these restrictions? The answer is yes, but it requires education and creativity.

The Coalition for Cannabis Standards and Ethics (CCSE), a 501(c)(6) nonprofit, will be hosting a panel discussion on financial issues affecting the Washington cannabis industry on Thursday, July 24th from 5:30pm – 7:30pm, followed by a one-hour mixer.  The panel will be held at the Armory Loft #3, inside the Center House at the Seattle Center.The panel includes some of the brightest minds tackling the 280E issue today in order to help you succeed and gain the knowledge required to overcome this daunting obstacle in the Cannabis industry. The discussion will focus on 280e and inventory accounting, best practices for managing the finances of a cannabis business, as well as access to banking. It will be sure to be a very interesting and lively discussion!Members of the panel include:

Dean Guske, CPA

Dean has over 26 years experience in the areas of taxation, accounting, and business consultation.  In addition, he has become the leading expert in Washington state regarding the proper filing of tax returns for the cannabis industry.  He regularly speaks to CPAs and industry leaders regarding IRC 280e and its impact on federal tax returns.

John Davis
John is the CEO of Northwest Patient Resource Center, serves as the Executive Director of the CCSE, and is also on the Board of Directors of both Seattle Hempfest and the National Cannabis Industry Association.  John is a longtime entrepreneur and drug policy activist.

Carmella Houston
Carmella is the Vice President of Business Services at Salal Credit Union, which is currently beta testing with licensed I-502 businesses in Western Washington.  Carmella started the Business Banking division at Salal CU three years ago.  Carmella has more than 20 years of banking experience including: regulatory oversight, commercial real estate lending, construction and business lending.

Todd Arkley, CPA (moderator)
Todd started Arkley Accounting Group in order to focus on small businesses and the cannabis industry.  He has over 13 years experience in private industry, in roles ranging from controller to CFO.  His current clients include both medical and 502-licensed businesses, as well as ancillary businesses supporting the cannabis industry.  Todd currently serves as Treasurer on the CCSE Board of Directors.

WSLCB Actions: New Permanent Rule For Certificates Of Compliance For Cannabis Business Locations And Extension Of Emergency Rules On Prohibition Of Vitamin E Acetate

January 6, 2021 Board Action

On Jan. 6, during a regularly scheduled meeting, the Washington State Liquor and Cannabis Board took the following actions:

Adopted Emergency Rules (CR-103E) Regarding Vitamin E Acetate

Emergency Rules (WAC 314-55-1055) – Marijuana Product Disclosure Form (Effective January 6, 2021)

Emergency Rules (WAC 314-55-1065) – LCB Vitamin E Acetate Prohibition (formerly LCB Vitamin E Acetate Ban) (Effective January 6, 2021)

Emergency Rules (WAC 314-55-077) – Marijuana Processor License – Privileges, Requirements and Fees (Effective January 6, 2021)

Emergency Rules (WAC 314-55-079) – Marijuana Retailer License – Privileges, Requirements and Fees (Effective January 6, 2021)

 

Adopted Permanent Rule (CR-103P)  Certificate of Compliance – location of business upon application submission)

Implementation of SSB 6206 – Marijuana Business Premise Certificate of Compliance (Effective February 6, 2021)

OLCC Recalls Contaminated Marijuana Products Sold Into Recreational Market

Product still in stores “locked” in Cannabis Tracking System to prevent new sales

OREGON:The Oregon Liquor Control Commission is issuing an immediate health and safety recall after identifying pesticide contaminated marijuana products sold through OLCC recreational marijuana licensed retailers. The OLCC has notified retailers to place a hold on all affected products.

The marijuana flower and extract products initially failed pesticide testing (for the analyte Abamectin) with a subcontracted laboratory, but the primary lab – Ecotest – marked that it passed testing in March 2020. The OLCC in September 2020 issued an immediate license suspension to Ecotest due to a number of violations, including the loss of accreditation from the Oregon Environmental Laboratory Accreditation Program (ORELAP) for failing to meet required testing procedures and standards (see OLCC press release). Later, the OLCC formally cancelled Ecotest’s license.

The contaminated marijuana originally entered the Oregon market from a medical grower transferring it into the OLCC regulated system. Oregon Medical Marijuana Program growers are allowed, with prior approval, to sell no more than 20 pounds of marijuana flower annually into the recreational system.

The contaminated product includes several strains of marijuana flower pre-rolls, and “Purple Slurry” extract. Due to the incorrect entry of results by Ecotest, when making the

Consumers can identify the affected products with the following information:

“Emerald Extracts Purple Slurry”

  • Manufactured by Emerald Treasure LLC (030-1008341A083)
  • Label Id = 2805
  • Made on 9/9/20
  • Tested by MW Labs (010-1008606C050) on 9/14/2020

Marijuana flower pre-rolls

  • Strains of “Qurkle,” “BP Oil Slick,” or “Green Crush”
  • Tested by Ecotest (010-1008170B3B6) on 3/12/2020
  • Sold from Bernie’s Universal Dispensaries in South Beach, OR

Consumers who have these recalled products should dispose of the products or return them to the retailer where they were purchased.

A table listing the retailers that sold the items and the approximate dates the products were sold is attached to the press release version of this communication, which can be found on the OLCC website.

The contamination issue was reported to OLCC on December 29, 2020 by a second processor whose extract product failed pesticide testing; their product was never sold to consumers. Using data from the Cannabis Tracking System, OLCC staff were able to verify the failed subcontracted test, trace the affected items in the system, and issue guidance to licensees to set aside the contaminated product.

Consumers who have these recalled products should dispose of the products or return them to the retailer where they were purchased.  Consumers can follow these instructions found on the OLCC Recreational Marijuana Program website to destroy marijuana on their own.

There have been no reports of illness. The possible health impact of consuming marijuana products with unapproved pesticide residues is unknown. Short and long-term health impacts may exist depending on the specific product, duration, frequency, level of exposure, and route of exposure. Consumers with concerns about their personal health should contact their physician with related questions. Consumers with questions or concerns about recalled product or pesticide residues in marijuana products are encouraged to contact the product retailer and/or the Oregon Poison Center at 800-222-1222.

WSLCB Looking For Panelists For Its First Deliberative Dialogue Sessions

Be a Panelist, Participant, or Listener

WASHINGTON:  Do you want to share your perspectives about cannabis quality assurance testing? Would you like to share your experiences with fellow licensees, consumers, and others? Would you like to be part of a different way of sharing information and gaining understanding?

If you answered “yes,” let us know!

WSLCB has been working on developing new cannabis product-testing rules. A public hearing on proposed rules was held on November 18, 2020. While we heard oral comment from many licensees, we would like to hear from everyone in the supply chain so we have a better understanding of the complete system – processors, producers, retailers, consumers, and others. And we want everyone in the supply chain to have an opportunity to hear the wide range of perspectives

We’d like to hear from everyone in the supply chain so we have a better understanding of the complete system – processors, producers, retailers, consumers, and others. And we want everyone in the supply chain to have an opportunity to hear the wide range of perspectives.

About the sessions

LCB’s Policy and Rules manager Kathy Hoffman will moderate three sessions with different panelists and topics. To get the conversation started the sessions begin with prepared questions for each panel, with time near the end for audience questions and participation (online of course). Our goal is to increase communication between consumers, licensees, labs, and the agency.

The three session dates and topics as follows:

  • January 28, 2020: Consumer Panel (4 -5 panelists)
  • February 4, 2020: Processor/Producer Panel (5-6 panelists)
  • February 11, 2020: Cannabis Testing Lab Panel (4 -5 panelists)

We want to make sure that each panel represents the rich diversity of our communities, license types, and growing practices. Can you help?

Please send the following information to rules@lcb.wa.gov, attention Kathy Hoffman by close of business (5PM) on TUESDAY, JANUARY 20, 2020:

  1. Your name
  2. Which of the three panels and dates you’d like to be considered for
  3. Your contact information (email and phone number)
  4. Tell us if you are a consumer, producer, processor, producer/processor, retailer or lab employee or owner
  5. If you are a processor, producer or processor/producer, tell us:
    • Your tier size (1, 2,or 3); whether you are an indoor or outdoor grower; and where you are located.
  6. Tell us three or four questions you’d like to ask others on your panel (for example, how do other producers sample? Or, when you purchase product, what are you looking for?)

We will be sending more information on the deliberative dialogue process, our panelist selection process, and other details.

Don’t miss out on this opportunity to offer your perspectives on an important topic – send your information to rules@lcb.wa.gov, type in the subject line “Attention Kathy Hoffman” today!!

OLCC Commission Bans Some Additives from Cannabis Vaping Products

Additives linked to potential harm to cannabis consumers

More transparent ingredient disclosure required going forward

OREGON:  At its regular monthly meeting on December 17, 2020, the Oregon Liquor Control Commission banned two ingredients immediately from further use in cannabis vaping products — squalene and squalane. In addition, the Commission approved rules designed to provide better protection for cannabis consumers by requiring recreational marijuana licensees provide more transparent disclosure of, screening for, and labeling of inhalable cannabinoid products that use non-cannabis additives. The Commission also ratified five stipulated settlements.

The action taken against squalene and squalane comes in the wake of an OLCC investigation (see December 11, 2020 press release) that uncovered the use of those ingredients in cannabinoid vaping products sold in Oregon. The OLCC found that squalene and squalane were not disclosed as ingredients and were included on product labels as “natural flavors.” Studies, including one commissioned by the OLCC, have shown that squalene and squalane can produce harmful chemicals when exposed to heat and inhaled, posing potential harm to consumer health.

If the OLCC discovers any remaining products in the marketplace that contain squalene or squalane, those products will be subject to an immediate recall, a provision included in the new rules. Squalene and squalane join Vitamin E acetate on OLCC’s list of banned adulterants; as a result of the Commission’s actions, propylene glycol (PG) and triglycerides, like MCT oil, will be added to the list effective April 1, 2021.

The Commission began examining the impact of non-cannabis additives in the wake of the e-cigarette use-associated lung injury (EVALI) health crisis in mid-2019. During 2020, the OLCC held a series of discussions with cannabis industry stakeholders, public health officials and OLCC cannabis licensees to contemplate an approach for identifying and screening out non-cannabis ingredients added to cannabis products that pose a potential danger to human health. A framework for applying those standards was used to create the rules.

The approved rules will help the Commission protect health and safety by compelling greater ingredient disclosure, and to address both the acute and chronic health effects of additive ingredients when heated and inhaled by specifying the standards for non-cannabis additives being used in inhalable cannabinoid products. Because of the disclosure requirements, licensees and consumers will have greater assurance that any additives used in cannabis vape products were manufactured with the intent that they would be inhaled.

The rules take effect December 22, 2020, and the OLCC on that date will immediately begin accepting label applications under new rules for inhalable cannabinoid products. The Cannabis Tracking System (CTS) will be updated by that time to include a category for designating inhalable cannabinoid products.

Any inhalable cannabinoid products made on or after April 1, 2021, will be subject to the new rules, including no use of PG or MCT and full disclosure of additive ingredients on the item’s label. By April 1, all inhalable cannabinoid products (regardless of manufacture date) must also be tracked in CTS with disclosure of the additive mix used in the cannabinoid product.

From April 1 to July 1, 2021, OLCC recreational marijuana licensees are allowed to “sell down” any inhalable cannabinoid products made before April 1, 2021. Beginning July 1, 2021, all inhalable cannabinoid products in the marketplace must comply with the new rules and standards, and anything that does not comply, regardless of manufacture date, must be destroyed.

The Commission also ratified the following violation fines and suspensions based on stipulated settlements (detailed information on specific cases can be found here on the OLCC website):

SHADOWBOX FARMS (#1467A) will serve an 32-day recreational marijuana producer license suspension OR pay a fine of $5,280 for one violation.

Licensee is: Rogue Valley Group, LLC; Tim Winner, Manager; Artemis Group, LLC, Member; Joseph Bundy, Member; Megan Bundy, Member; Bryan Bundy, Member.

FLOWERSMITH will serve a 14-day recreational marijuana producer license suspension OR pay a fine of $2,310 for two violations.

Licensees are: Flowersmith, LLC; Samuel Felton, Member; Gavin Henner, Member

BLACK MARKET DISTRIBUTION will serve a 69-day recreational marijuana wholesaler license suspension OR pay a fine of $11,385 for three violations.

Licensees are: Black Market Distribution, LLC; Aaron Mitchell, Member; Rosa Cazares, Manager.

COPPERHEAD ORGANIC FARMS will surrender its license at the earlier of the date of transfer of ownership of the business or February 19, 2021 for four violations.

Licensees are: CH Organics, LLC; Corey Tarr, Member; Debra Davis Estate, Member.

FTC Announces Crackdown On Deceptively Marketed CBD Products

Companies made unsupported claims that their oils, balms, gummies, coffee, and other goods could treat serious diseases such as cancer and diabetes

DISTRICT OF COLUMBIA: The Federal Trade Commission today announced the first law enforcement crackdown on deceptive claims in the growing market for cannabidiol (CBD) products. The FTC is taking action against six sellers of CBD-containing products for allegedly making a wide range of scientifically unsupported claims about their ability to treat serious health conditions, including cancer, heart disease, hypertension, Alzheimer’s disease, and others.

The FTC is requiring each of the companies, and individuals behind them, to stop making such unsupported health claims immediately, and several will pay monetary judgments to the agency. The orders settling the FTC’s complaints also bar the respondents from similar deceptive advertising in the future, and require that they have scientific evidence to support any health claims they make for CBD and other products.

“The six settlements announced today send a clear message to the burgeoning CBD industry: Don’t make spurious health claims that are unsupported by medical science,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “Otherwise, don’t be surprised if you hear from the FTC.”

The crackdown, Operation CBDeceit, is part of the Commission’s ongoing effort to protect consumers from false, deceptive, and misleading health claims made in advertisements on websites and through social media companies such as Twitter.

Each case the FTC is announcing today is described below:

Bionatrol Health, LLC

According to the FTC’s complaint against Utah-based companies Bionatrol Health, LLC and Isle Revive, LLC, and two former managers and owners, since at least December 2019 the respondents sold a CBD oil to consumers on two websites. Among other things, the respondents allegedly claimed without substantiation that their CBD product is safe for all users, treats pain better than prescription medications like OxyContin, and prevents and treats age-related cognitive decline and chronic pain. The respondents also claimed, without scientific evidence, that CBD oil is “medically proven” to improve a variety of conditions, according to the FTC’s complaint. In addition, the FTC alleges the respondents deceived consumers who ordered one bottle of their CBD oil by changing the order to five bottles without consumers’ consent.

The proposed administrative order settling the FTC’s charges prohibits the respondents from making certain prevention, treatment, or safety claims about dietary supplements, foods, and drugs without human clinical testing to substantiate the claims. It also requires competent and reliable scientific evidence for other health-related product claims, and prohibits the respondents from misrepresenting the cost of any good or service and from charging consumers without their express, informed consent. Finally, it requires the corporate respondents and individual respondent Marcello Torre to pay $20,000 to the FTC and to notify consumers of the Commission’s order.

Epichouse LLC (First Class Herbalist CBD)

According to the FTC’s complaint against Utah corporation Epichouse, LLC, which operated under several names, including First Class Herbalist, and the company’s founder and owner, John Le, since at least September 2019 the respondents sold several CBD products on their website, including oils, a pain-relief cream, coffee, and gummies.

Among other alleged unsupported claims, Epichouse and Le promoted CBD as safe for all users, able to treat pain better than prescription medications such as OxyContin, and able to prevent a wide range of serious conditions, including cancer, diabetes, and heart disease. In their advertising, they also falsely claimed that CBD is scientifically proven to improve many serious health conditions—including chronic pain and hypertension—and provide neurological benefit—such as preventing age-related cognitive decline—according to the FTC’s complaint.

The proposed administrative order settling the FTC’s charges prohibits the respondents from making certain prevention, treatment, or safety claims about dietary supplements, foods, and drugs, unless they have the human clinical testing to substantiate the claims. It requires them to have competent and reliable scientific evidence when making any other health-related product claims. Finally, the order requires the respondents to pay $30,000 to the FTC and notify consumers of the Commission’s order.

CBD Meds, Inc.

According to the FTC’s complaint against CBD Meds, Inc.; G2 Hemp, Inc.; and Lawrence Moses, a/k/a Lawrence D. Moses, Jr., individually and as an officer of the corporate entities, the two companies advertised CBD oil on their website and on YouTube. In their ads, the FTC contends, the Winchester, California-based firms made a number of false or unsubstantiated claims, including that CBD effectively treats, prevents, or mitigates serious diseases and conditions like artery blockage, cancer, glaucoma, autism, and schizophrenia, among many others. The respondents also falsely represented that some of the efficacy claims were scientifically proven or that the U.S. government has confirmed the health benefits of CBD.

The proposed administrative order settling the FTC’s charges prohibits the respondents from making certain prevention, treatment, or safety claims about dietary supplements, foods, and drugs, unless they have the human clinical testing to substantiate the claims. More broadly, it requires them to have competent and reliable scientific evidence when making any other health-related product claims. Finally, the order requires the respondents to notify consumers of the Commission’s order.

HempmeCBD

According to the FTC’s complaint against EasyButter, LLC, also d/b/a HempmeCBD, and its owner and officer Michael Solomon, since at least January 2018, the respondents have sold CBD products on their website, including CBD-infused shea butter, gummies, lozenges, honey sticks, vape pens, and oils. The complaint alleges that HempmeCBD claimed its CBD products could treat or cure serious ailments like cancer-related symptoms, substance abuse, and AIDS. The complaint alleges HempmeCBD lacked the scientific substantiation for such health claims and falsely claimed to have studies showing CBD is effective at treating autism.

The proposed administrative order settling the FTC’s charges prohibits the respondents from making certain prevention, treatment, or safety claims about dietary supplements, foods, and drugs, unless they have the human clinical testing to substantiate the claims. It also requires them to have competent and reliable scientific evidence when making any other health-related product claims. Finally, it requires the respondents to pay the FTC $36,254 and to notify consumers of the Commission’s order.

Reef Industries, Inc.

According to the FTC’s complaint against California-based Reef Industries, Inc.; Cannatera, Inc.; AndHemp, Ltd., and the companies’ three principals, the respondents have sold a variety of CBD products directly to consumers on their website and Twitter accounts since at least January 2019 and misrepresented the health benefits of CBD. The FTC alleges that the respondents made unsubstantiated claims that CBD can prevent, cure, mitigate, or treat diseases and serious health conditions, including Alzheimer’s disease, arthritis, autoimmune disease, and irritable bowel syndrome. The complaint also alleges the respondents falsely claimed that studies or scientific research prove that CBD is effective at treating, curing, or mitigating these diseases and conditions.

The proposed administrative order settling the FTC’s charges prohibits the respondents from making certain prevention, treatment, or safety claims about dietary supplements, foods, and drugs, unless they have the human clinical testing to substantiate the claims. More broadly, it requires them to have competent and reliable scientific evidence when making any other health-related product claims. Finally, it requires them to pay the FTC $85,000 and notify consumers of the Commission’s order.

Steves Distributing, LLC

According to the FTC’s complaint against Steves Distributing, LLC, d/b/a Steve’s Goods; and the company’s CEO Steven Taylor Schultheis, since beginning operations in 2018, the respondents have sold a variety of products containing both CBD and cannabigerol (CBG), which, like CBD, is a non-psychoactive compound derived from hemp. The company advertises its CBD and CBG products, including tinctures, gummies, capsules, topical balms, suppositories, bath balms, and coffee, on its website and through social media companies like Twitter.

The FTC alleges that the respondents claimed, without adequate substantiation, that their CBD and CBG products are effective alternatives to prescription medications and treat a wide range of diseases and serious health conditions, including Alzheimer’s disease, cancer, and diabetes. The complaint also alleges the respondents falsely claimed that their CBD and CBG products have antibacterial properties, prevent or reduce the risk of heart attacks, strokes, and other diseases, and that certain of these claims were supported by scientific evidence.

The proposed administrative order settling the FTC’s charges prohibits the respondents from making certain prevention, treatment, or safety claims about dietary supplements, foods, and drugs, unless they have the human clinical testing to substantiate the claims. More broadly, it requires them to have competent and reliable scientific evidence when making any other health-related product claims. Finally, it requires the respondents to pay the FTC $75,000 and notify consumers of the Commission’s order.

The Commission votes approving each of the six administrative complaints and proposed consent orders were 5-0, with Commissioner Rohit Chopra and Commissioner Christine S. Wilson issuing separate, concurring statements. A complete list of respondents can be found in the complaint for each respective case.

The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment for 30 days after publication in the Federal Register after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments will appear in the published notice. Once processed, comments will be posted on Regulations.gov.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $43,280.

Washington: Cannabis Testing Lab Praxis Shut Down For Falsifying Test Results

More than 1200 sample tests given elevated THC potency results by lab in Lewis Co.

WASHINGTON:  The Washington State Liquor and Cannabis Board (LCB) issued a summary suspension of Praxis Laboratory’s certification to conduct quality assurance located in Centralia, Washington was found to have falsified testing data to provide high tetrahydrocannabinol (THC) potency results for more than 1200 samples of cannabis.

During the investigation the lab owner attempted to destroy evidence of falsified data in an effort to obstruct LCB’s ability to conduct a complete investigation.

Labeling cannabis with falsely high THC potency levels is a form of consumer deception and is prohibited under Washington law. THC is the natural chemical compound responsible for cannabis’s psychoactive effect. Because of this, cannabis users seeking more pronounced psychoactive results may choose to buy cannabis with higher levels of THC.

The summary suspension is effective for 180 days beginning December 10, 2020 until June 8, 2021. During that time the WSLCB will seek permanent revocation of the “marijuana laboratory” certification due to fraud, and the subsequent investigation obstruction. Moving forward, the lab will no longer be allowed to test cannabis for licensees in Washington.

The LCB educates licensees to reach compliance and enforces Washington’s liquor, cannabis, vape and tobacco laws and regulations. The WSLCB is mandated to ensure that licensees in Washington State follow state laws and regulations. When licensees fail to comply with state law, the Board, under state authority can take action including the issuance of suspensions to ensure public health and safety.

OLCC Approves Recreational Marijuana License Stipulated Settlements

Receives updates on Portland’s Cannabis Equity program, Voter-approved ballot measures

OREGON:  At its regular monthly meeting on November 19, 2020, the Oregon Liquor Control Commission approved eight recreational marijuana license stipulated settlements. Additionally, the City of Portland’s Cannabis Policy Oversight Team (CPOT) provided the Commission with an update on the Portland Cannabis Program.

CPOT reviewed its efforts to make equity the center of all decision-making efforts related to cannabis regulation, including ensuring that patients should have access to cannabis for medicinal purposes. CPOT is also reworking its cannabis grant program to focus on distributed funding to BIPOC recipients.

OLCC staff provided assessments of how two ballot measures approved by Oregon voters earlier this month could impact the agency.

Measure 109, which establishes a program for the therapeutic use of psilocybin mushrooms directs the Oregon Health Authority (OHA) to enter into an agreement with the OLCC to use the state’s Cannabis Tracking System (CTS) to prevent psilocybin diversion from therapy program. OLCC has initiated conversations with its CTS vendor the OLCC has deferred further action, until OHA currently busy with pandemic can begin implementing the program.

One provision of Measure 110 reclassifies some drug convictions which will impact the evaluation process of OLCC licensee and permitee applicants. Currently the OLCC rarely makes a license or permit decision based solely on drug convictions, but there are differences between the OLCC’s alcohol and recreational marijuana licensing and permitting criteria that will now be reconciled; this might require the OLCC to enter into rulemaking.

The Commission also ratified the following violation fines and suspensions based on stipulated settlements (detailed information on specific cases can be found here on the OLCC website):

LA MOTA (#28CC) in Portland will serve an 18-day recreational marijuana retailer license suspension OR pay a fine of $2,970 fine for two violations.

Licensee is: La Mota, LLC, Co-Licensee; Aaron Mitchell, Member; Rosa Cazares, Co-Licensee.

VIBRANT HIGHS will surrender its marijuana processor license suspension for one violation.

Licensees are: OGX, LLC; Paul Luttrell, Member; Jonathan Showker, Member; Kathy Cook, Member.

 LA MOTA FRONT AVE in Portland will serve a nine-day recreational marijuana retailer license suspension OR pay a fine of $1,485 fine for one violation.

Licensees are: La Mota Front Ave, LLC, Co-Licensee; Aaron Mitchell, Member; Rosa Cazares, Co-Licensee.

EVIO LABS MEDFORD in Medford will surrender its recreational marijuana laboratory license suspension for four violations.

Licensees are: Smith Scientific Industries, Inc.; Anthony Smith, President/Director/Stockholder; William Waldrop, Secretary/Director; EVIO, Inc., Stockholder; Lori Glauser, Director/Stockholder; William Waldrop, Director/Stockholder.

MR NICE GUY RETAIL in Corvallis will serve a 10-day recreational marijuana retailer license suspension OR pay a fine of $3,630 fine for two violations.

Licensees are: MNG Holdings, LLC; Michael NG, Member; Patrick Martin, Member.

MR NICE GUY RETAIL in Salem will pay a fine of $280 for one recreational marijuana retailer license violation.

Licensees are: MNG Holdings, LLC; Michael NG, Member; Patrick Martin, Member.

NECTAR in Salem will serve a seven-day recreational marijuana retailer license suspension OR pay a fine of $1,155 fine for two violations.

Licensees are: Nectar Markets, LLC; Nectar Holdings, Inc., Member; Jeremy Pratt, President/Director/Stockholder; Jeffrey Johnson, Vice-President; Michael Olson, Secretary/Treasurer.

ALBION FARMS will serve an 18-day recreational marijuana producer license suspension OR pay a fine of $2,970 fine for two violations.

Licensees are: MediRec, LLC; Vandaly Industries, Inc., Member; Eric Buckner, President.