By: Salma Granich
One of the largest issues that continue to plague the cannabis industry is the inability for out-of-state residents to be able to consume cannabis products that they purchase at state-licensed local dispensaries. Specifically, Las Vegas is one of the largest tourist cities in the country and with the state of Nevada having legalized cannabis for both medical and recreational use, tourists are faced with the difficult problem of having no legal place to consume their cannabis products. Regulations currently legalize the use of cannabis within a private dwelling, but for tourists visiting from out of town and staying in casinos, it is not something that is feasible for them to do.
Casinos have been advised by the Nevada Gaming Commission to prohibit the consumption of cannabis on their premises, as cannabis is still federally categorized as a Schedule I controlled substance according to the Controlled Substance Act. As such, cannabis is still considered to be federally illegal and allowing any association with the cannabis industry could risk casinos losing their gaming license.
In order to take a proactive step towards correcting this problem, the creation of cannabis consumption lounges have been discussed as a solution. With a consumption lounge, such businesses would be regulated by the state and allow persons over the age of 21 to consume marijuana on the premises, out of the view of the public eye.
On May 1, 2019, the Las Vegas City Council, which controls parts of downtown Las Vegas and Fremont East areas, took the first step towards legalizing consumption lounges by approving an ordinance that would allow the creation of these social consumption lounges within the Las Vegas city limits.
However, with the recent passage of Assembly Bill 533, the local ordinance is put in limbo as the bill places a moratorium on cannabis lounges for two years. The bill prohibits the establishment of consumption lounges until a two-year study can be made on the effects of such lounges and how they would work in Nevada. The bill also establishes the creation of the Cannabis Compliance Board, which is tasked with outlining when and where the consumption lounges would be allowed, if at all. Critics of this amendment to the bill have expressed their concern as to how the Board would be able to study the effects of consumption lounges, for they do not yet exist.
Nevertheless, as state law supersedes local ordinances, any plans to open consumption lounges are halted until July 1, 2021, when the Board’s study period ends. Until then, tourists are still faced with the difficult task of finding places to privately consume their cannabis products.
What is CBD Oil?
Cannabidiol is a compound found within the cannabis plant. It does not contain THC, which is the mind-altering chemical compound in marijuana. There is no high obtained by using CBD, but rather a centering and calming sensation that will come over the user when consumed.
Why is CBD Oil so popular with pregnant moms?
Because the mother is inundated with stress, anxiety, nausea and many times, joint and muscular pains, a mom is searching endlessly for relief. However, most of these moms are also looking to avoid taking pharmaceuticals for these issues. Leaving them turning to this possible miracle of nature to help them. Speaking from the perspective of first hand knowledge, it is a fact that round ligament pain during the later stages of pregnancy can and do prohibit movement when having your second or third child. Crippling Charlie Horse-like pains in the sides of the abdomen can and do force a mom to search for some form of relief. In my case, I opted to attempt using CBD oils as a few midwives had suggested; and thankfully this has come to be a valued source of relief.
Is CBD safe to consume while pregnant?
It is still unknown by any level of certainty whether CBD is safe for the fetus. There have been no long-term studies conducted to lend this information any credence. The studies have been conducted on mice and not human subjects; therefore the transference onto human subjects would be questionable at best.
The study conducted on mice showed that the use of THC inhibited the development of embryos in the earliest stages of development. However, the usefulness of this information is questionable due to the fact that it was also noted that the natural cannabinoid found in the human body, anandamide, had the same effect. While CBD can increase the levels of anandamide, there has been no study conducted as to whether CBD has any negative side effects on a human fetus.
As seen repeatedly, the majority of studies conducted in the realm of cannabinoids and pregnancy have centered on THC or the use of marijuana. As a result, there are many skewed results that do not address the current popular phenomenon of using CBD oils as a method of reducing inflammation, anxiety, pain and nausea for mothers-to-be.
Usefulness of CBD during pregnancy
CBD is known to be a muscle relaxant and has no known long-term side effects or addictive properties. It was noted that contractions during labor were reduced significantly by the use of synthetic CBD. It has been noted in studies conducted in the past that the use of THC can and does impact ovulation and damages embryonic cells, where as CBD isolate, will not cause any of the same harm.
Best Methods of Administration During Pregnancy
Smoking or consuming edibles, which would be considered the fastest method, may not be in the best interest of the mother. If you are not 100% familiar with the extraction method used by the company producing the product, you may not be getting a CBD Isolate but rather one that is tainted by THC.
Therefore, the best and more recommended methods for mothers to use would be 100% CBD Oil in the form of capsules, straight oils, tinctures or lotions/balms. Using a vape to consume your 100% CBD oil is also an option, if the need outweighs the risk, but seeing as smoking in any form while pregnant is taking a risk, the need must be extreme. Most mothers who opt for a natural childbirth will tell you that labor necessitates this.
Mothers Reporting that CBD Oil saved their Sanity while Pregnant
More and more mothers reported that when they were told that they were pregnant, they quickly developed the dreaded hyperemesis gravardium. As a result of this and their resistance to using Zofran (a known chemotherapy drug with a very long list of side effects that are both potential and known detrimental to the fetus but is prescribed commonly to mothers with hyperemesis gravardium), mothers end up finding their path to CBD oils.
To reiterate, the studies commonly referenced in opposition to the use of CBD oils in pregnancy and the potential side effects of it are focused on the effects in the mouse community and not humans. Dr. Stuart Titus, Ph.D., stated that, “CBD is a molecule that helps with neurogenesis, the development of healthy brain cells.” His observations were that pregnant women who consumed diets that were rich in cannabinoids went on to delivery very healthy babies.
In the End
After extensive research since 2017, CBD has a favorable safety profile. Although, this finding has been rejected by the Obstetric and Gynecological community at large and has been stated that it should not be considered an option for any gestating mother. Their statements have revolved around the fact that “anyone can label a product as CBD Oil, but to know for a fact that it is what they claim, would be foolhardy.”
Unfortunately, the results of the studies conducted were not done so on CBD Isolates, but on product that contained THC, the psychoactive compound in marijuana, which in some cases, have caused low birth weight and increased risk of admittance to the Neonatal Intensive Care Unit upon birth. Overall, the majority of statements made regarding CBD have been inconclusive based on the inability to conduct longitudinal studies of the effects thereof.
In the Journal of Psychopharmacology, CBD was associated with significantly decreased subjective anxiety. Additionally, topical usage of CBD was noted as valuable when inflammation and joint pain is present. However, as with any statements released by any organization or physician, they are remiss to endorse the usage of CBD oil in pregnancy due to the lack of negative development potential that has not been noted.
Regardless of the choice made by each mother, please note that you may want to check your local state and city laws in terms of giving birth and THC. In Las Vegas, Nevada, if you are in the hospital to give birth, your bloods are drawn and checked for THC. If you are found to have any in your system, Child Protective Services could be called and could take your children from you at that time.
The need must be beyond the risks in order to use marijuana during pregnancy; but it is also a matter of personal choice if your needs outweigh the risks in using the untested long-term effects of CBD products on pregnancy as well.
Is it Safe to Consume CBD Products During Pregnancy? Royalqueenseeds.com
What you Need to Know about taking CBD while Pregnant therecoveryvillage.com
CBD Oil & Pregnancy: What the Studies Say About this Trendy Treatment Might Surprise You romper.com
Is it Safe to Take CBD Oil While Pregnant? Echoconnection.org
Is CBD Oil safe for Pregnant Women? January 2019 Zmescience.com
CBD and Pregnancy: Are CBD and Hemp Oil Sage During Pregnancy trythecbd.com
IS CBD and Weed Sage in Pregnancy or Breastfeeding? We Look at the Evidence on Cannabis for Moms. Abbeyskitchen.com
Weed legal, but can still separate families. June 27, 2018 Nevadacurrent.com
On March 20, 2019, the Las Vegas City Council met to discuss a proposed bill regarding social use venues (consumption lounge) in the City of Las Vegas. After deliberation, the Council members instructed the City staff that they would like various additions included.
- The creation of a pilot program, which would only allow companies that currently hold a dispensary license to apply for a social use venue license. There were talks to include a sunset provision which would allow, after 12 months, anyone to apply for social use venue license.
- Distance separation requirement pertaining to the resort and gaming corridor.
- No alcohol to be served within a social use venue.
After the presentation of provisions, the City Council decided that further revisions and discussions were necessary before the Council could make a decision. The City Council will discuss this at the meetings scheduled for April 17, 2019.
As the 2018 NFL season comes to an end, we approach the holy grail of the sport, the Super Bowl. The 53rd installment of the “most expensive ticket in town” will feature the Los Angeles Rams vs. New England Patriots, on February 3, 2019 in the beautiful home of the Atlanta Falcons, Mercedes-Benz Stadium. Whether you’re tuning in for the commercials, the half-time show or the actual game, you should be in for a treat.
After the Super Bowl, the offseason begins, and for the players who have been piling up the injuries all season long, the off-season proves itself to be the time for recovery, getting the body ready to do it all over again come September. With all of those injuries come an immense amount of pain, so what’s a player to do if they don’t want to take prescription pills? What is their alternative? Can a player, looking to combat their pain, use marijuana?
As the United States moves forward with their drug laws, and specifically marijuana, we are beginning to see a change in the landscape. There are currently 10 states that have legalized the recreational use of marijuana, while 33 states have legalized the medical use of marijuana in varying forms.
The NFL and Marijuana
Every NFL team resides in a city that has legalized marijuana in some capacity at the state level. However, according to the Controlled Substance Act, marijuana remains a Schedule 1 drug and is federally illegal. Effectively, the NFL is saying that their “workers”, the players, are unable to participate in a state legal activity, no matter the reason, due to their stringent drug policies.
The NFL, through their collective bargaining agreement (“CBA”), specifically states that, “the illegal use of drugs and the abuse of prescriptions drugs, over-the-counter drugs, and alcohol is prohibited for players in the NFL. Players will be tested for drugs coinciding with the NFL Drug Panel including, cocaine, marijuana, amphetamine, opiates, opioids, PCP, MDMA and alcohol.”
All players who are under contract with an NFL Club will be tested once during the period, beginning on April 20, continuing through August 9. Based on the results, they are either free to go about their business, not being tested again until the following season or, upon a failed test, are placed into the NFL intervention program. Through the intervention program, a player who tests positive for a drug on the NFL’s banned substance list will undergo testing at a frequency so determined by either the Medical Advisor or Medical Director. If while in the intervention program a player again has a failed test, they will be subject to stage two or three of the program, whichever is applicable. A player who enters into stage two will be subject to unannounced testing at the sole discretion of the Medical Advisor. If, while in stage two, a player again tests positive for a drug on the NFL drug panel, they will enter into stage three of the treatment program and again undergo unannounced testing at the sole discretion of the Medial Advisor. While in stage two or three a player who is being tested may not be tested more than ten (10) times in a calendar month. A player who tests positive in stage three of the intervention program will banished from the NFL for a minimum period of one (1) calendar year.
A player who has tested positive will be subject to a fine or suspension dependent upon the number of positive tests. The fines come in the form of 11.76, 17.6 or 23.5 percent of the player’s annual salary (two, three, or four game checks); and suspensions can be four, six or ten games, unpaid. The strongest of disciplinary actions for repeat offenders will be either an unpaid, one-year suspension from the league or an indefinite ban subject to a formal proceeding and a necessary reinstatement into the league.
The NFL Players and Marijuana Use
Many players have faced fines or suspensions due to their use of marijuana, no matter the purpose of their consumption. In 2018, the NFL levied almost $4,000,000 in fines related to substance abuse.
Josh Gordon, a former New England Patriots wide receiver, has a well-documented substance abuse problem. Unfortunately for him, his marijuana use has occurred before a reform in the NFL drug policy, which is likely to occur when the CBA is renegotiated in 2020. Martavis Bryant, faces the same problem, consistently running into problems with marijuana and how the NFL CBA and Drug Policy treat the use of the plant. Although these players are in violation of the current NFL CBA there are many players who would benefit from a change in the policies.
Seantrel Henderson is one such player. Henderson, who played the 2018 season with the Houston Texans, was diagnosed in 2015 with Crohn’s disease. Doctors recommended that Henderson use marijuana to treat the pain as an alternative to prescription pills: Henderson said that he hoped the NFL would understand that he was a human, “I’ve got doctors telling me this is the No. 1 medicine that would help your disease,” Henderson said, “You try to tell that to the league and it seems like they didn’t care too much.” Ultimately, doctors removed roughly 2 ½ feet of Henderson’s large and small intestines. During recovery, his doctors again recommended marijuana as the source of pain relief instead of prescription pills and Henderson took their advice. Henderson notes that he thought his playing career was over due do the surgery so he used marijuana for the pain, “At the time, I thought I was done playing,” Henderson said. “I didn’t think I was coming back. At the time, I was using that for pain” Henderson was initially suspended for the first four games of the 2016 season for his marijuana use. He was then drug tested regularly in accordance with the league drug policy which he was found to be in violation of again shortly after his first suspension, resulting in a 10-game suspension. All in all, Henderson was suspended 14 games during the 2016 season and fined $523,580 for following his doctor’s recommendations.
Former Super Bowl champion quarterback Jim McMahon has been outspoken in his support for a change in the NFL’s drug policy relating to marijuana. McMahon, who played for the Chicago Bears, San Diego Chargers, Philadelphia Eagles, Arizona Cardinals and Green Bay Packers throughout his 15-year NFL career, has dealt with numerous injuries during his time in the NFL and has noted how marijuana could have helped him through all of them. He suffered numerous concussions as a player, and currently battles early onset dementia, severe headaches, depression, vision and speech problems. He was taking almost 100 Percocet a month to manage the pain he was suffering from until he began the use of medical marijuana, “They were doing more harm than good,” he said. “This medical marijuana has been a godsend. It relieves me of the pain.” McMahon is a prime example of how the rigors of the NFL can affect a person for years after they hang-up their cleats and how the use of medical marijuana can help them get through that pain.
Impact in the State of Nevada
Nevada is at the forefront of the legalization train having had medical marijuana legalized since the year 2000 and recreational marijuana since 2017. The NFL has shown quite a bit of love to the state of Nevada in recent months, specifically to the City of Las Vegas. Las Vegas is in the headlines related to their new titles as, the “Future Home the Raiders” and “Home of the 2020 NFL Draft”. The Raiders coming to Las Vegas is big news for the city. The love affair with the NHL’s Golden Knights has been a sight to see, and the Raiders are building the same type of excitement.
With the excitement comes many questions, will a player in the NFL be able to consume marijuana like a resident or tourist or, are they barred by the CBA of the NFL. After a bit of investigating and understanding of the facts mentioned above the answer at the moment is no. There is no built-in exception to the NFL’s CBA that has anything to do with marijuana consumption in legal states, or the use of marijuana as a medical alternative. The NFL simply says no. Players cannot use and they will be fined and suspended accordingly.
Through continuing education coinciding with the end of the current CBA and the negotiation of a new CBA, it is possible that we will see the NFL move away from their archaic policy, align with the progressive States, and implement a system that allows their players to consume marijuana instead of opioids. This stance could be in motion sooner than we think, as more information becomes readily available to both the NFL and the NFL Players Association (NFLPA). In regards to marijuana and the NFL’s stance, Brian McCarthy, the spokesman for NFL Commissioner Roger Goodell, recently stated “This is an area of research we are looking to develop further, along with the NFLPA…to determine whether those substances could be used as an effective and safe pain-management tool for players.”
The NFL is a huge part of the sports and entertainment world and the current and future health of their players is paramount to its continued success. Conversations discussing how to better manage the pain that this contact sport causes will bode well to seeing that success come to fruition.
- NFL POLICY AND PROGRAM ON SUBSTANCES OF ABUSE, https://nflpaweb.blob.core.windows.net/media/Default/PDFs/Agents/2016SOAPolicy_v2.pdf
- NFL POLICY AND PROGRAM ON SUBSTANCES OF ABUSE, https://nflpaweb.blob.core.windows.net/media/Default/PDFs/Agents/2016SOAPolicy_v2.pdf
- SPOTRAC, https://www.spotrac.com/nfl/fines-suspensions/
- HOUSTON CHRONICLE, https://www.houstonchronicle.com/sports/texans/article/Seantrel-Henderson-gets-fresh-start-with-Texans-13132409.php
- ESPN, http://www.espn.com/nfl/story/_/id/18147079/seantrel-henderson-buffalo-bills-faces-10-game-suspension-substance-abuse-violation
- HOUSTON CHRONICLE, https://www.houstonchronicle.com/sports/texans/article/Seantrel-Henderson-gets-fresh-start-with-Texans-13132409.php
- SPOTRAC, https://www.spotrac.com/nfl/houston-texans/seantrel-henderson-14648/fines/
- DENVER POST, https://www.denverpost.com/2016/03/03/mike-ditka-knew-his-chicago-bears-players-got-high-says-jim-mcmahon/
- CHICAGO TRIBUNE, https://www.chicagotribune.com/news/local/breaking/ct-chicago-bears-jim-mcmahon-medical-marijuana-met-20160128-story.html
- BLEACHER REPORT, https://bleacherreport.com/articles/2771410-the-worlds-best-athletes-smoke-weed-heres-proof-what-now
Thirty states and the District of Columbia currently have laws broadly legalizing marijuana in some form. However, marijuana remains illegal under Federal law, and this creates an uncertain landscape for marijuana businesses in the preparation of their Federal income tax returns and in handling an IRS audit. In addition, marijuana businesses must be aware of cash handling issues. This article addresses a few of the common tax issues facing marijuana businesses and why these businesses should seek the advice of a tax lawyer in any communications with the Internal Revenue Service.
Section 280E, Business Expenses, and Costs of Goods Sold
In very general terms, the Internal Revenue Code (IRC) allows businesses to deduct “ordinary and necessary” expenses incurred during the taxable year in carrying on a trade or business. See specifically IRC Section 162.
However, under IRC Section 280E, businesses are prohibited from deducting business expenses or taking credits related to income from the sale of federally controlled substances, including marijuana. Interpreted strictly, IRC Section 280E prohibits a marijuana business from deducting any business expenses – even salaries, wages, employee benefits, training, rent, travel, advertising, and depreciation.
Attempts to fight Section 280E in Tax Court have been unsuccessful. For example, the IRS audited Canna Care Inc., a California medical marijuana dispensary, and denied Canna’s deductions for operating expenses, including significant amounts for employee salaries and vehicle expenses. The company appealed the IRS’ findings to the United States Tax Court. Relying on section 280E, the Court upheld the IRS’ determination and denied all of Canna’s deductions. See Canna Care, Inc. v. Commissioner, T.C. Memo 2015-206.
However, in Californians Helping to Alleviate Medical Problems, Inc., v. Commissioner, 128 T.C. 173 (2007)(“CHAMP”), the government acknowledged that Section 280E does not prohibit a taxpayer from claiming costs of goods sold (COGS). Footnote 4 of the opinion provides as follows: “respondent [the IRS] concedes that the disallowance of sec. 280E does not apply to costs of goods sold, a concession that is consistent with the caselaw on that subject and the legislative history underlying sec. 280E.” The CHAMP Court also allowed business expense deductions related to the taxpayer’s separate counseling and caregiving business. According to the Court, “section 280E does not preclude petitioner from deducting expenses attributable to a trade or business other than that of illegal trafficking in controlled substances simply because petitioner also is involved in the trafficking in a controlled substance.”
Most recently, on June 13, 2018, the United States Tax Court issued its opinion in Alterman & Gibson v. Commissioner, T.C. Memo. 2018-83.
During the years before the Court, the taxpayers owned a medical marijuana dispensary in Colorado. The dispensary sold smokable marijuana as well as edibles. It also sold marijuana paraphernalia such as pipes, papers, and other items used to consume marijuana. The IRS audited taxpayers and allowed their costs of goods sold, but disallowed all business expense deductions (under Section 280E) except depreciation.
The Tax Court upheld the IRS’ disallowance of all business expense deductions, even those related to that portion of the taxpayers’ business that sold non-marijuana products such as marijuana paraphernalia. Specifically, the Court stated:
Under the circumstances, we hold that selling non-marijuana merchandise was not separate from the business of selling marijuana merchandise. First, Altermeds, LLC, derived almost all of its revenue from marijuana merchandise. Second, the types of non-marijuana products that it sold (pipes and other marijuana paraphernalia) complemented its efforts to sell marijuana. Altermeds, LLC, had only one unitary business, selling marijuana. If, however, selling non-marijuana merchandise were considered a separate business, then the expenses of that business would be deductible. See CHAMP, 128 T.C. at 183-185.
In sum, the Alterman Tax Court opinion reemphasizes the Court’s past rulings related to marijuana businesses: (1) business expenses are not deductible under Section 280E; (2) costs of goods sold are allowable, as long as they are calculated correctly; and (3) business expenses may be deductible if a marijuana business also conducts a second, ancillary business that is completely separate from the sale of marijuana.
The challenges inherent in fighting back against an IRS audit were also exposed in the Tax Court case of Feinberg v. Commissioner, T.C. Memo. 2017-2011. In that case, the IRS audited a Colorado business licensed for the cultivation and sale of medical marijuana. The IRS disallowed business expense deductions under 280E and also made adjustments to the business’ claimed costs of goods sold. The COGS adjustment was the main issue before the Tax Court. Interestingly, the IRS actually reclassified some of the business’ deductions as COGS, giving the taxpayers greater COGS than originally claimed on its returns. At trial, the business produced no business records pertaining to its operations. Instead, it chose to rely exclusively on an expert report provided by an accountant who specializes in marijuana industry cost accounting. The business contended that its expert report established that the COGS allowed by the IRS were incorrect.
The Tax Court concluded that under Federal Rule of Evidence 702, the expert report was not admissible. Specifically, the Court stated: “The conclusions in the [expert] report are an attempt to present reconstructed income tax returns as evidence of petitioners’ correct tax liabilities. The report is not based on personal knowledge of THC’s business. To determine the correct COGS for THC, substantiation of THC’s expenses is necessary. A reconstructed income tax return based on industry averages does not take the place of substantiation and does not help determine a fact in issue.”
The marijuana business also argued that it should be allowed greater COGS than what the IRS allowed under the Cohan rule. Under Cohan, the Tax Court may estimate the amount of a deductible expense if a taxpayer establishes that an expense is deductible but is unable to substantiate the precise amount. The Cohan rule also applies to COGS. However, in Feinberg, the Tax Court found that even under Cohan, there must be sufficient evidence in the record to provide a basis upon which an estimate can be made; because the business provided no evidence to support COGS higher than what the IRS allowed, the Court upheld the IRS’ final COGS adjustment. The Feinberg case highlights the importance of retaining a competent tax attorney when dealing with any IRS audit, especially if the audit results in litigation in U.S. Tax Court.
IRS Audits of Gross Receipts
Marijuana businesses must also be concerned with IRS audits of their gross receipts, specifically, the IRS’ use of indirect methods of proof. Although neither the Tax Code nor Treasury regulations define or specifically authorize the use of indirect methods of proof, case law has held that indirect methods of proof are acceptable and they need not be exact, but must be reasonable in light of surrounding facts and circumstances. Holland v. United States, 348 U.S. 121, 134 (1954).
The IRS will use indirect methods of proof under various circumstances, including: books and records do not accurately reflect total taxable income received and the revenue agent has established the likelihood of unreported income; expenses appear to exceed income; irregularities in the taxpayer’s books and records; gross profit percentage changes significantly from one year to another; taxpayers’ bank accounts have unexplained deposit items; taxpayer does not make regular deposits and uses cash; tax returns show significant increase in taxpayer’s net worth which is not supported by recorded income; and no method of accounting has been regularly used or the method does not clearly reflect income.
The IRS uses a variety of indirect methods of proof including: the bank deposits analysis (most common), net worth analysis, cash-t analysis, and the mark-up method.
Anytime the IRS intends to perform an indirect method of proof audit of gross receipts, the taxpayer should consult with a tax attorney, as there are exposure risks including a potential IRS criminal investigation or civil fraud referral. A competent tax attorney can advise of these risks and can help limit the taxpayer’s exposure. A tax attorney can also defend against the conclusions drawn by the IRS agent after he or she completes an indirect method of proof audit.
Marijuana businesses must also be concerned with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury that collects and analyzes information about financial transactions in order to combat money laundering and other financial crimes. FinCEN’s self described mission is to safeguard the nation’s financial system from illicit use and money laundering and to promote national security by collecting, analyzing, and disseminating financial intelligence. To that end, the Bank Secrecy Act (BSA) requires financial institutions to file currency transaction reports (CTRs) for cash transactions exceeding $10,000 (daily aggregate amount) with FinCEN. It also requires institutions such as banks, money services businesses, securities firms, insurance companies, casinos, and loan and finance companies, to file suspicious activity reports (SARs) anytime a transaction doesn’t make sense, is unusual for that particular client, appears to be done for the purpose of hiding or obfuscating a transaction, or show deposits structured to avoid CTR requirements (i.e., multiple deposits totaling over $10,000 but divided up to avoid the $10,000 threshold). CTRs and SARs are important tools that FinCEN uses and shares with other regulatory agencies – including the IRS – in its attempt to combat money laundering and the use of Federally backed financial institutions to hide illicit monetary transactions.
A 2014 FinCEN memo stated as follows: “Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, a financial institution is required to file a SAR on activity involving a marijuana-related business (including those duly licensed under state law) in accordance with this guidance and FinCEN’s suspicious activity reporting requirements and related thresholds.” Therefore, in no uncertain terms, under Federal law, a bank must file a SAR whenever it conducts a transaction with a marijuana-related business, even when the transaction is below the CTR $10,000 threshold.
In addition, because marijuana businesses deal largely in cash, they must be aware of Form 8300 requirements. Any business that receives more than $10,000 in cash in a single transaction or related transactions must complete a Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Form 8300 is a joint form issued by the IRS and FinCEN. Marijuana businesses, especially wholesalers, must be cognizant of Form 8300 filing requirements.
The IRS began auditing Colorado marijuana businesses related to their Form 8300 filing requirements in 2016. One business owner, who wished to remain anonymous, reported that some of the marijuana business directed audits came from the IRS’ fraud division. In all of the Colorado Form 8300 audits, the IRS used a questionnaire and posed questions unrelated to Form 8300 requirements. For example, the questionnaire asked the following questions: How did you get started in the business? Who are your competitors in the wholesale marijuana industry? If a bank account exists is all of the cash deposited into the bank account? Asking beyond the audit scope, open-ended questions is a tactic commonly used by IRS revenue agents and why it is important to retain an experienced tax attorney whenever the IRS conducts an audit or investigation, no matter how well the business has maintained its books and records, and stayed in compliance with federal tax obligations and Form 8300 filing requirements.
If you own a business selling, growing, or producing marijuana, you need to work with an experienced tax lawyer to understand your tax rights and responsibilities. The landscape is changing so quickly that you need a legal advocate on your side to help you navigate it all. If your business is audited and you don’t have detailed information about every single transaction, you risk forfeiting your COGS claim and you could be subject to penalties for filing an inaccurate tax return.
Silver Law PLC operates in Arizona and Nevada and all of its lawyers are former trial attorneys for the IRS. A tax lawyer from our team can help you understand how the complex Tax Code applies to your marijuana business operations. We’ll help you ensure that you are meeting your obligations. If you have been audited or are facing collections, we are also in a position to help you navigate that process. We can either find ways to bring down your tax debt or can negotiate a settlement for you. Call us today and talk with a tax lawyer in Las Vegas or Phoenix to learn more.
Silver Law PLC
7033 E Greenway Pkwy #200
Scottsdale, AZ 85254
Silver Law PLC (Las Vegas)
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Las Vegas, NV 89145
Good record keeping is essential to ensuring your marijuana business runs smoothly. Not only does it allow you to track your business’ progress and stay organized, it also helps your business remain in compliance, as some records are required to be kept by law and can be subject to inspection by government officials.
In addition to maintaining financial records for accounting purposes, your business should also be keeping the following for at least 5 years:
Personnel records include: applications, documentation of training, performance reviews and any disciplinary actions taken against an employee.
This includes documentation of all taxes paid to state and federal entities. You should also maintain documentation of all license fees paid to state and local jurisdictions.
All receipts from financial transactions made by your business need to be kept, including, but not limited to: contributions, reimbursements, reasonable compensation, and expenses. Additionally, if your business sells or transfers marijuana or marijuana products, you must retain the receipts, in addition to the corresponding electronic tracking inventory reference.
These records should include: dates, amounts, and testing results of all marijuana or marijuana products that is cultivated, produced, sold, or destroyed by your business. Additionally, you should always be tracking and recording the amount of marijuana that is stored at your business. Marijuana should be tracked from seed to sale with various points of information as required by regulations.
Transfer logs should include the amount of marijuana product transferred, the date of the transfer, in addition to the full name of the person(s) who is transferring and receiving the marijuana product.
Other records that should be kept by your business include: transportation logs, maintenance/cleaning/sanitation logs, advertising approvals, packaging approvals, as well as a record of any inspections conducted at your business. You should also always maintain a visitor log, which includes the full name of the visitor, the date and time of the visit, as well as the reason for the visit.
Basically, any records relating to the marijuana or marijuana products or the operations of your business should be maintained and kept for 5 years.
The Nevada Dispensary Association (“NDA”), a non-profit trade association, was formed in 2014 with a mission to develop and promote best practices in Nevada’s medical marijuana industry. Medical marijuana use was legalized in Nevada in 2000, but no mechanism for legal sales of marijuana existed at that time. Then, in 2013, Senator Tick Segerblom sponsored a bill that was later passed by the Nevada legislature. This bill allowed a limited number of dispensary, cultivation, production, and laboratory establishments to operate in Nevada.
The History of Medical Marijuana Legalization in Nevada
Once medical marijuana establishments became legal, many of the business owners who applied and were ultimately awarded medical marijuana establishment licenses were long-time Nevada residents with deep roots in the community. A number of medical marijuana business owners initiated their involvement in the industry because they had family members with serious medical problems who were being treated with medical marijuana. Many others were drawn to the unique opportunity to build a new industry in Nevada from the ground up, approaching the opportunity as an interesting and rewarding challenge.
Who Does the Nevada Dispensary Association Represent?
The Nevada Dispensary Association currently represents more than 90 percent of the dispensaries in Nevada, including establishments located in both Northern and Southern Nevada. Many NDA members also hold cultivation and production licenses and operate those establishments, which has helped the association to stay mindful of a wide cross-section of interests and issues throughout Nevada’s marijuana industry. The NDA’s Board includes:
- President: Andrew Jolley, Founder and CEO of The Source
- Secretary: David Goldwater, Co-owner of Inyo Fine Cannabis
- Treasurer: Ben Sillitoe, Co-founder and CEO of Oasis Cannabis
- Board Member: John Ritter, Chairman of the Board, The Grove
- Board Member: Brett Scolari, General counsel to Tryke
In 2014, the NDA hired attorney Riana Durrett, Esq. to direct its government affairs initiatives. The association promoted Durrett to the position of Executive Director in 2015. Durrett graduated from Boyd School of Law in 2008 and practiced law in Nevada and California before choosing to dedicate her efforts to the NDA full-time.
Recreational Marijuana Legalization in Nevada
Nevadans passed the ballot initiative to Regulate Marijuana like Alcohol in 2016, which legalized recreational marijuana possession and sales for adults over 21 years of age. The NDA urged lawmakers to allow sales of marijuana to begin earlier than mandated by the ballot initiative, which otherwise would have allowed sales to start on January 1, 2018. This allowed for a bump in tax revenue the State would not have collected otherwise. Nevada’s first recreational marijuana sales occurred on July 1, 2017.
Nevada Dispensary Association’s Contribution to the Medical Marijuana Program
The vast majority of the NDA’s efforts have aimed at protecting Nevada’s medical marijuana program from being minimized with the legalization of adult-use sales, as well as promoting the development and implementation of a strict regulatory framework. In 2017, the Association supported legislation aimed at preserving the medical marijuana program for patients by reducing the cost of patient cards, streamlining the process to obtain a patient card, and extending the period for which the card would be valid. This legislation also improved operations in the medical marijuana program, including establishing the first “single stream” of medical and adult-use marijuana in order to streamline the program and reduce costly inefficiencies. The Association also supported legislation that implemented consumer safety rules, such as limits on servings and requiring child-resistant packaging.
In March 2017, Nevada Governor Brian Sandoval enacted a Task Force to develop and make recommendations on how to regulate adult-use sales in Nevada. The Governor appointed NDA Board Member John Ritter, along with other stakeholders such as law enforcement officials, local government representatives, youth drug use prevention organizations, legislators, and staff from the Governor’s office, among others. NDA’s board, members, Executive Director, and representatives of NDA members were chosen to participate in “working groups,” along with the stakeholders mentioned above, to assist the Governor’s Task Force in thoughtful deliberation on efficient and effective regulation. NDA members also participated in a series of additional public workshops to provide feedback on what would become the strict regulatory framework that is now in place in Nevada. NDA members have stepped up to the plate each time the industry faced a challenge, providing credibility and reliability as the program has developed.
The Future of The Nevada Dispensary Association
Through the cooperation and leadership of its members, along with its efforts to collaborate with non-member industry stakeholders, the NDA has become the voice of Nevada’s marijuana industry. Looking forward, the NDA and its members look forward to continuing to help foster a stable and reliable industry that contributes to Nevada and its communities. For further information on the NDA, or to reach out to the organization, visit nvdispense.com.
In 2017, over 42 million people visited Las Vegas.1 With such a large volume of tourists, and with the legalization of medical and adult-use marijuana in Nevada, the question of whether or not marijuana can be brought into or out of the state arises. Despite more states continuing to legalize marijuana for medical and/or adult use, it is important to know that there are still limitations on traveling with marijuana. As it is widely known, marijuana is still federally illegal.2 This means that while local law enforcement in states that have legalized recreational use may be more forgiving if someone of the legal age is in possession of the legal amount, federal prosecutors are still encouraged to pursue those in possession following the repeal of the Cole Memo.3 Federal prosecutors were not necessarily prohibited from pursuing marijuana possession and related crimes during the implementation of the Cole Memo, but it was re-classified as a low priority to prosecutors, with eight specific instances still being of concern to the Department of Justice. However, if one state has legalized recreational marijuana can it legally be carried from one state to another? No. One should refrain from packing marijuana away in a film canister and carrying it on a plane, period. There are two main prohibitions to packing marijuana onto airplanes when travelling. First, as mentioned above, it is still federally illegal.4 Second, airports may, and do, pass rules prohibiting the possession of marijuana on their premises.5 This blog will examine some of the finer points as to why flying with marijuana is still illegal.
Marijuana is Still Federally Illegal
The main obstacle to carrying marijuana in your carry-on is that possession is still federally illegal.6 Although McCarran International Airport is located in Nevada, a state that has legalized recreational and medical marijuana, the Department of Homeland Security, a federal entity, is responsible for security through the Transportation Security Administration (TSA).7 Because federal employees are responsible for screening every flyer in the United States, and because the possession of marijuana is still federally illegal, then by the very fact, passing through security to board an airplane subjects flyers to federal scrutiny, making carrying marijuana onto airplanes illegal.
However, in Welch v. Huntleigh United States Corp., the Court stated that TSA employees do not have the authority to “detain individuals and must call law enforcement officers to search, seize, and arrest individuals if illegal items are found. . . Since the . . . screeners were only able to perform consensual searches, and had no authority to arrest, [screeners] cannot be considered law enforcement officers.”8 The Welch court also stated that “screeners are able to conduct consensual administrative searches for items which are prohibited entry into the airport’s sterile areas.”9 On top of TSA agents’ limited authority, the scope of items screened for is further limited. According to 49 U.S.C. § 44902, a TSA agent’s screening is limited to “establishing whether the passenger is carrying unlawfully a dangerous weapon, explosive, or other destructive substance.”10 Therefore, while TSA agents cannot directly arrest passengers, it falls on them to inform airport police or other law enforcement officers in the area of any prohibited substance, if necessary.
Airports Outlaw Possession of Marijuana
This leads to a second obstacle: airports passing rules specifically outlawing possession of marijuana on their premises. McCarran International Airport is owned and operated by Clark County. The County chooses to prohibit patrons who “possess, consume, use, display, transfer, distribute, sell, transport, or grow marijuana in or upon any Airport or any property or facility owned by the department of aviation.”11 One of the first airports to take such a stance in a state with legal recreational marijuana was Denver International Airport in Colorado. In December of 2013, the Denver International Airport became the first city facility to prohibit marijuana possession on its property, citing the fact that it is still illegal under federal law and that the federal government regulates the aviation industry.12 In some instances, federal funding may be used to coerce states and entities to comply with federal goals.13 One way that the federal government may dictate how states should legislate is through the withholding of federal funds.14 The federal government’s control over airport policies effects how law enforcement responding to marijuana possession plays out. Despite possession being legal in Nevada, if a traveler is found to have marijuana on their person inside McCarran International Airport, then even local law enforcement may cite them because it is prohibited through Clark County ordinance on airport property.15 However, according to The Cannabist-an affiliate of the Denver Post-in the first five months following Denver International’s ban on possession, “Denver police have not cited anyone for possession and have not confiscated any marijuana products.”16 In context, there were 21,105,942 passengers through Denver International in the first five months of 2014.17
Interstate Travel with Marijuana is Against Nevada Law
While it may not be actively enforced by the TSA, it is still illegal to fly with any amount of marijuana. Even prior to the Cole Memo being repealed, it was illegal to transport marijuana across state lines.18 Listed as one of eight exceptions, the Cole Memo stated the Department of Justice aimed to continually enforce “Preventing the diversion of marijuana from states where it is legal under state law in some form to other states.”19 Not only is it federally illegal, it is against the Nevada Revised Statutes to bring marijuana from outside Nevada into the state, and vice-versa.20
The City Council of Las Vegas has taken small steps to join a handful of other cities across the western United States to license and regulate consumption of marijuana and marijuana products outside of private residences. On June 27th, 2018 the City Council hosted a Social Use Workshop to discuss drafted changes to the City Municipal Code. While there is a long way to go before social use venues come to fruition, the proposed changes are good news for the Las Vegas marijuana community.
Regulations and Restrictions for Social Use Venues
Currently, only consumption in private residences is allowed, however, these proposed ordinances would allow businesses to apply for a privileged business license from the City of Las Vegas to allow consumption on the business premises. A social use venue would come with many regulations and restrictions. Most notably, consumption would be restricted to indoors only and could not be visible to the general public from outside the establishment. Other restrictions to social use venues during business hours would prohibit: allowing anyone under the age of twenty-one to be employed by the establishment, allowing anyone under the age of twenty-one inside of the establishment, selling or providing any marijuana or marijuana products on the premises, allowing the use of any paraphernalia or equipment that does not comply with the fire safety plan, or storing marijuana or marijuana products on the premises.
Potential Business Combinations with Social Use
A decision by the City Council to license social use as a privileged business license opens the possibility to different combinations of businesses and social use. For example, the drafted ordinance would allow the sale and service of alcohol with under eleven percent alcohol content if the establishment is approved for a beer and wine room license as well. Social use venues could also sell, provide or distribute marijuana paraphernalia, with sales being subject to a general retail license.
Documents Required when Applying for a Social Use License
Due to the nature of applying for a privileged business license, applicants for a social use venue would need to submit additional documentation to the City when applying. Some of these additional documents include: written statements acknowledging all applicable laws and the penalties for violating these laws, a written statement to the Director releasing liability of the City to issuing a license to the establishment, acknowledgement that the issuance of a privileged license is at the discretion of the City Council, a security plan designed to ensure compliance with the ordinance, a fire safety plan designed to ensure the safety of employees, patrons and the public.
Additional Responsibilities for Marijuana Social Use Establishments
As some current members of the marijuana industry in Las Vegas and surrounding areas are aware, the operation of a marijuana establishment comes at a price and with unique requirements. Obtaining a social use venue license would be no different. While currently the number of social use venue permits is not restricted, the available locations, fees and application process may restrict some businesses from obtaining permits. Currently, the annual fee for a social use venue is set at $5,000. Similar to current marijuana establishments, a social use venue would not be allowed within 1,000 feet of any school, or within 300 feet of any of the following: city park, church/house of worship, individual care family/group home, individual care center, community recreational facility (public), or any facility whose primary function is to provide recreational opportunities to minors. Social use venues would also be responsible for: complying with odor control and disposal requirements in the Las Vegas Municipal Code, following the approved fire and security plans, maintaining and conducting all activities, in addition to providing security and security measures, upon the premises, providing a twenty-four-hour surveillance system to monitor the interior and exterior of the premises (with a live feed which must be accessible to authorized law enforcement at all times and in real-time), not knowingly allowing the violation of any applicable laws or regulations, and the venue must ensure that at least one qualified person is on the premises at all times during the hours of operation.
Furthermore, because the privileged business licenses may be paired with other business licenses, the parking requirement will be that of the principal use of the site. If, however, it were to be a sole social use business, then it would be necessary to require one parking space for each 250 square feet of gross floor area. Additionally, pursuant to the City of Las Vegas Municipal Code 6.86, each employee of a social use venue must first obtain and maintain a valid work card.
It is important to remember that this is a draft and there will be revisions prior to a vote by the City Council. This is a great leap forward for the City of Las Vegas and the marijuana industry in the Las Vegas Valley.
What’s the First Step in Applying for a “Marijuana Consumption Lounge”?
If you’re interested in applying for a consumption lounge, Connor and Connor can help you identify what the first steps might be. We have years of experience helping people start businesses, specifically in the marijuana industry. Contact us today to schedule a consultation.
In Nevada’s marijuana industry, it is crucial to keep up-to-date with current events and the ever-evolving laws and regulations. Much like the state’s gaming industry, Nevada’s marijuana industry is strictly regulated; those who fail to comply with the regulations can face serious consequences (such as the loss of one’s license).
The Connor & Connor team has written several articles discussing the various legal aspects of the marijuana industry. While the articles below certainly do not encompass every law and regulation, they can serve as a starting point for anyone interested in learning more.
If you have any questions regarding how a specific law or regulation applies to you and your marijuana business, contact us today.
Featured in Nevada Lawyer Magazine:
This article examines the legal and ethical concerns of marijuana advertising on social media sites such as Facebook. This article was also featured on the State Bar of Nevada’s Facebook page.
This article discusses how being a medical marijuana patient affects a person’s right to bear firearms.
Featured in Elevate Magazine’s ‘Legalese’ column:
Conflict between state and federal cannabis laws create tension for cannabis patients and their employers
Can an employer fire you for marijuana use? What if you have a medical marijuana patient card? This article discusses the legal aspects of marijuana use in the Nevada workplace.
It is important to remain in compliance with the Nevada Department of Taxation’s marijuana advertising requirements, as violations of the guidelines can be met with severe consequences. This article discusses the various Nevada marijuana advertising restrictions.
Although there is no specific law prohibiting marijuana use while pregnant, Child Protective Services may still get involved, as marijuana is still classified as a federally illegal substance. This article examines the potential legal consequences of consuming marijuana while pregnant.