L.A. Considers Cannabis Social Equity Reforms
California’s Department of Cannabis Reform (DCR) has proposed sweeping changes to the licensing system. On June 23rd, the Los Angeles City Council met to consider these new proposals, many of which address social equity issues.The City of Los Angeles Department of Cannabis Reform website (cannabis.lacity.org/blog/dcr-transmits-reports-immediate-council-consideration) lists the following as the objectives:
- Establish a process for the issuance of temporary approval for all applicants
- Allow businesses to relocate
- Clarify the process for applicants to request a finding of Public Convenience or Necessity
- Allow individuals to participate in the Social Equity Program based on the original criteria or new criteria as supported by the Expanded Cannabis Social Equity Analysis
- Amend the selection process for Phase 3 Round 2 Type 10 retail application processing by establishing a selection process that identifies Social Equity Individual Applicants eligible for further process via a lottery process rather than an online, first-come, first serve process
- Limit Type 10 and Type 9 application processing to Social Equity Individual Applicants until January 1, 2025, unless an applicant received priority processing under LAMC Sec. 104.07
- Expand the definition of Equity Share and establish related requirements to provide additional protections to mitigate against potential predatory practices
- Reorganize, clarify and include necessary procedures for the administration of the CIty’s commercial cannabis Licensing and Social Equity Program
- Address recommendations put forth by the Cannabis Regulation Commission
- Address extensive feedback from the licensing and Social Equity Program stakeholders
Some, like cannabis industry consultant Lynne Lyman, are excited about the proposals, telling MJBizDaily, “It’s like this big omnibus fix for the whole ordinance, and it really re-creates the social equity program to make it work, because it has not worked.” But others, such as cannabis attorney Michael Chernis, were less enthusiastic. He voices support for the social equity program, but also the concerns of others as the plan would, “cut off any chance for anyone but a social equity applicant to get a retail license, a non-storefront retail license or, as far as I can tell, any license for five years,” including pre-existing cannabis businesses.
Leafreport Finds CBD Accuracy Better, Still Off
In a new report released June 11th, Leafreport teamed with Las Vegas based Canalysis Laboratories to check up on the accuracy of CBD labels. While their findings were encouraging, with an overall summary that the CBD industry has “come a long way in improving the quality and accuracy of its products,” there were still some rather large discrepancies. 
The effort began with 37 different CBD products, with more possibly added in future tests. Of those products, 73% had CBD levels that were within 10% of the listed amount, 13% had levels more than 40% higher or lower than what was claimed, and one product only contained 6% of the CBD on the label. The study also found that 84% of the products that had inaccurate labels actually contained more CBD than advertised, and 33% of the brands had significant amounts of various cannabinoids other than CBD, indicating they were of high quality. The team also mentions that the products with the best marks were made by well known reputable brands, with lesser known companies offering the more inaccurate doses.
Harborside Inc Challenges Federal Tax Code 280E
In the early 1980s a rather clever and brave drug dealer named Jeffry Edmondson attempted to deduct business expenses from his federal taxes, resulting in the addition of Section 280E of the Internal Revenue Code being added in 1982. The law prevents any entity that sells Schedule 1 or 2 controlled substances from claiming tax deductions regularly available to businesses. Harborside Inc. is looking to change that by challenging the law in court.
Previously deemed “a giant drug trafficker, unentitled to the usual deductions that legitimate businesses can claim” by the U.S. Tax Court, Harborside Inc on its website declares itself “a California-focused cannabis company with retail, production, and cultivation operations built around recognized brands.” With five retail dispensaries and one cultivation facility under a vertically-integrated model, the company also trades on the Canadian Securities Exchange.
They’ve hired lawyer James Mann, who does not mince words when it comes to the law in question, “280E is this unwelcome intrusion of moral judgement in the tax law and it doesn’t really belong there.” Mann argues that 280E violates the 16th Amendment because it taxes more than just income. He also contests that the company should be allowed to deduct cost of goods sold, same as wages, because the law only applies to bottom-line expenses. “They’re trying to force expenses from above the line, which is cost of goods sold, to below the line, which is expenses and deductions, and I think that’s opportunistic rather than out of a desire for fair and just administration of the tax law.”
Success in court could make huge waves in the cannabis industry, as laws like 280E force marijuana businesses to pay tax rates as high as 70%. Many business owners struggle to make the gap, as the government sucks up the majority of the estimated industry revenue.
