By Jeff Clemetson | Editor
Navigating various rules and regulations is hard in any business venture — it is even more difficult if your business is in California’s marijuana industry.
On Feb. 25, a diverse group of entrepreneurs gathered at the Crowne Plaza hotel in Mission Valley to learn how to open and operate a variety of marijuana businesses at a conference called “The Inside Track: Preparing for Your Future in the Cannabis Industry.”
“My job has always been to advise clients in how to participate in the regulated market and what that means — and that’s constantly changing,” said conference organizer Kimberly Simms.
Simms, an attorney who specializes in the marijuana industry, said the conference was a chance to explain the complicated regulatory system that was put in place in 2015 when the Medical Cannabis Regulation and Safety Act (MCRSA) was passed. MCRSA created guidelines in how medical cannabis industry would run including rules for growing, manufacturing, storing, transporting and selling.
“It’s unlikely something that people will be able to navigate [marijuana regulations] without consultants,” Simms said. “A couple years ago, the [legal] risk was much higher but you could kind of dip your toe in it and dabble and see if this was your thing — the barrier to enter was pretty low. Such is not the case anymore. You have to be fully committed to operating within a highly-regulated system and you can’t just piece it together yourself.”
Gabriel Johnson, a marijuana grower, said he came to the conference because he’s interested in getting to know what the laws are going to be and any potential changes to them that are coming up.
“It’s very vague right now with what the laws and regulations and procedures are,” he said, adding that he is especially interested in real estate aspects of the laws because he is looking to buy a property to farm.
One of the other consultants who presented at the conference was Derek Davis, CEO of California Cannabis CPA, who jokingly described his presentation as “the most interesting topic in the world, which is taxes.”
Davis said marijuana business entrepreneurs need professional help because there are special rules and tax codes for the marijuana industry that need to be followed, and knowing what is legally deductible could be the difference between success and failure.
“They unjustly penalize cannabis-related companies by not allowing them to deduct a lot of their business expenses and so what ends up happening is you end up with a huge tax rate,” he said.
Despite the complicated tax codes involving marijuana businesses, Davis recommends that marijuana business operators pay the taxes and be thorough with their returns.
“The risk is higher to not pay your taxes because it’s tax evasion,” he said. “The classic example is Al Capone, who was caught for tax evasion, not bootlegging.”
A question on the minds of many of the conference attendees was whether they would “get caught” up in what Simms described as the “federal situation” — the fact that marijuana is still an illegal drug in the eyes of the federal government. And the federal government has just given the marijuana industry a reason for concern.
On Feb. 23, White House Press Secretary Sean Spicer said that the Trump administration would pursue “greater enforcement” of federal marijuana laws, despite several states, including California, that have legalized.
Simms said the announcement will have a “chilling effect” on some new investors, especially on “big money” investors who only recently have begun to see the industry as viable. But, she said, people who have been doing this for a long time have been dealing with the federal uncertainty all along.
“This is just more of the same bullying that we have been fighting in California for over 20 years,” she said. “This is far from settled and far from over. The cannabis industry, both in the state of California and federally, have many more years of ups and downs and bumps and twists, and that’s part of the fun but it’s also part of the challenge. It is high risk, high reward.”
David McPhearson, principal at HdL Companies which works with governments to draft marijuana policy and legislation, said that because California’s Proposition 64, which legalizes recreational marijuana, is not in effect yet, it gives businesses in the state a chance to slowly transition and keep an eye on what the Trump administration’s policy eventually becomes.
“If the new administration cracks down, no one is settled in yet,” he said. “Sometimes being not the first mover is a good thing.”
Even without the threat of stricter federal enforcement, marijuana businesses face regulatory challenges locally.
Chris Boudreau, CEO of M Deliveries, spoke about the future of marijuana delivery businesses and how a new rule requires deliveries be only from licensed and permitted dispensaries.
“You’ve got opposing directions,” he said. “In one direction, you’ve got a world and a marketplace that is becoming increasingly interested in delivery of things that are fast and convenient. On the flipside, you’ve got increasing regulatory challenges that make delivery of cannabis more difficult.”
Boudreau’s delivery business will not be affected because he is in the process of opening a Mission Valley dispensary at 3455 Camino del Rio South that is tentatively named Emerald Courtyard.
He said that his experience in opening the legal dispensary makes it understandable why there are so many delivery businesses that aren’t code compliant.
“The cost of starting a dispensary is so, so high that it makes it impossible for most people and so if you can’t do that, it limits what you can do,” he said, adding that his own dispensary went through 31 months of review until it was approved by the city and it will cost around $1 million when completed. He suggested a regulated delivery system might be a solution.
“In San Diego, you can’t be in manufacturing or growing so if you want to be in the business, you have to be in retail,” he said. “So, it seems like a sensible compromise that we could allow some delivery if they go through some kind of city process.”
Another city process that marijuana business advocates would like to see changed are the strict land use rules governing dispensaries and other marijuana-related businesses.
“However, we could live in a city that has an outright ban,” Simms said. “I’m grateful that we, as a city, decided to be more progressive.”
—Reach Jeff Clemetson at email@example.com.