Monday, July 23, 2018
Sunday, July 22, 2018
Has Investing in Cannabis gone mainstream? In “As Marijuana Goes Mainstream, Investors Rush In,” The New York Times answered this question affirmatively, but that article focused primarily on publicly traded companies. What about industry-wide?
As our attorneys regularly put together investment rounds for cannabis companies we see these macro trends at the deal level. And in recent months we are increasingly seeing a wider variety in types of investors — often private investors more familiar with commercial real estate, tech investing, or other private company financing — crossing over into cannabis. These investors bring a wealth of knowledge on terms, structures, and business strategy. For many tech-focused startup companies providing services to the cannabis industry, the deals may look nearly identical to those in other industries; in fact, we’ve done equity financings where the documents are identical to a typical tech startup.
However, particularly for investors working with “direct operator” cannabis companies for the first time, there will be certain aspects of the cannabis industry that do not translate and other aspects that are shocking or incomprehensible to investors coming over from other industries. Now that cannabis has gone “mainstream,” investors may believe all the kinks have been worked out, but as those in the cannabis industry know, that’s not true. Not by a long shot.
- Banking remains imperfect, and there still are gaps by geography or company size and type. Many cannabis companies still operate on an all-cash basis.
- Company Execs (and others involved in “direct operators”) can still go to jail for this. That’s what federal illegality means. This comes as a shock to many.
- Many investors and funds are still going to be unable to invest, depending on their source of funds. For example, state or public pension funds are a non-starter.
- Many cannabis businesses are limited by state borders.
- Regulators are still catching up at the state level and their timing may not meet with your spreadsheet projections.
- Regulators at the local level are highly unpredictable. On cannabis financing, our corporate finance lawyers often must contend with municipalities that had permit processes up and running and then completely changed their minds.
The above contribute to the “green tax” in the cannabis industry — factors that complicate and add expense to doing business in the industry — and these often surprise investors coming from other industries. Investors that are open-minded and have a “growth mindset” can make the shift pretty quickly. But other investors may grow frustrated and impatient with having to face the hurdles faced by all cannabis companies. Companies are wise to evaluate potential investors and test their mettle, as the industry will soon enough.
The article Cannabis Investing: Has it Gone Mainstream? Find more on: The Felicia Sullivan Blog
Saturday, July 21, 2018
I previously discussed how cannabis works of authorship, including the design of sufficiently original logos (only the graphic elements of the logo, not the words), are copyrightable. I also alluded to the possibility that such copyrights may be unenforceable due to the federal illegality of cannabis. Indeed, whether a cannabis copyright is enforceable remains speculative as none of the U.S. federal district courts (which hold exclusive jurisdiction over copyright infringement cases) have issued an order in a cannabis copyright lawsuit. Today, I revisit this issue by looking at whether federal district courts have enforced other copyrighted illegal works and how those legal decisions may help us determine the likelihood of courts enforcing cannabis copyrights.
Under current copyright law, illegal works are often treated similarly to other works. Illegal works are entitled to copyright protection and are eligible for registration so long as the works are:
- Original, meaning that the works are independently created by their authors and possess a “modicum of creativity;” and
- Fixed in a tangible medium of expression, which allows for their reproduction.
A certificate of registration from the U.S. Copyright Office is a prerequisite to initiate a lawsuit for copyright infringement—including lawsuits alleging infringement of illegal works. To establish copyright infringement, a plaintiff must prove two elements: First, ownership of a valid copyright, for which the certificate of registration will provide prima facie evidence; and second, that the defendant copied substantial elements of the copyrighted work.
Copyright law does not require the plaintiff demonstrate the legality of the work’s content. The currently prevailing view is that “even illegality is not a bar to copyrightability.”
Because illegal works are copyrightable, illegality is not generally a defense in an infringement suit. For example, the Ninth Circuit Court of Appeals has held that fraudulent content is not a defense to infringement. The Fifth Circuit Court of Appeals reached a similar decision when it dismissed the defense of obscenity to a claim of copyright infringement. The alleged wrongdoing of a plaintiff only bars relief in rare circumstances where the plaintiff’s transgression is serious and related directly to the subject matter of the infringement action. For instance, the defense of illegality, also known as the “unclean hands” defense, has been recognized when plaintiffs falsified a court order or evidence, or misrepresented the scope of their copyright to the court and the other party.
Favoring the enforcement of copyrighted illegal works is also consistent with their authors’ constitutional right to freedom of speech. If Congress were to impose copyright restrictions on illegal works, it would essentially censor these works, which would likely be deemed unconstitutional.
So, given the that the prevailing view under U.S. Copyright law is that illegality is not a bar to either copyrightability or enforceability, it is very likely most U.S. federal district courts would enforce cannabis copyrights. Therefore, the strong likelihood of a court enforcing cannabis copyrights, combined with the ease and minimal cost of copyright registration, should incentivize you, cannabis businesses, to copyright your work.
The following article Is Your Cannabis Copyright Enforceable? Read more on: FeliciaSullivan.com
Friday, July 20, 2018
If you don't get high for the Capitol Hill Block Party, you're doing it all wrong. These are the 3 strains you should be smoking for it.
The post How to Smoke Your Way Thru Seattle’s Capitol Hill Block Party appeared first on Leafly.
How to Smoke Your Way Thru Seattle’s Capitol Hill Block Party See more on: Felicia Sullivan's Blog
In Alpenglow Botanicals LLC v the United States of America the United States Court of Appeals for the Tenth Circuit just ruled that the IRS has the authority to determine that a cannabis business is trafficking in a controlled substance for purposes of applying IRC §280E. This decision is going to shift how cannabis businesses pay their taxes and how cannabis tax lawyers view cannabis tax obligations. And not in a good way.
Alpenglow Botanicals LLC is a medical marijuana business. The IRS audited Alpenglow’s tax returns and determined Alpenglow was trafficking in a controlled substance and so it denied the company’s business deductions under IRC §280E. Alpenglow paid the tax assessment and filed for a refund, which was subsequently denied by the IRS. Alpenglow then went to federal court to recover its refund claim. In court, Alpenglow made the following three arguments:
- The IRS does not have authority to disallow deductions under IRC §280E unless the taxpayer has a criminal conviction for trafficking;
- IRC§280E violates the 16th Amendment of the U.S. Constitution.
- IRC §280E violates the 8th Amendment of the U.S. Constitution.
The Court rejected all of these arguments.
The Court determined that a criminal conviction is not a prerequisite for the IRS to apply IRC 280E and that the IRS has the authority to determine on audit that a taxpayer is trafficking in a controlled substance. The Court relied on its earlier decision in Green Solutions Retail Inc. where it stated that “the IRS’s obligation to determine whether and when to deny deductions under IRC §280E, falls squarely within its authority under the tax code”. The Court in Alpenglow went further than Green Solutions in ruling that there’s no evidence Congress intended to limit the IRS’s investigatory power here.
Alpenglow cited a line of U.S. Supreme Court cases for the proposition that courts have invalidated regulations involving the taxation of illegal conduct — these cases strike down the imposition of a tax as a violating a taxpayer’s 5th Amendment right against self-incrimination. The Tenth Circuit Court distinguished those cases, noting that Alpenglow is challenging the IRS’s very authority to tax and investigate illegal activity at all and held that this prior line of cases don’t apply to the denial of a tax deduction as opposed to the imposition of a tax.
The Court also determined that IRC §280E does not violate the 16th Amendment which grants Congress the power to tax “income” or the 8th Amendment which prohibits the federal government from imposing “excessive fines.” The Court ruled that IRC §280E is not an unlawful penalty and disallowing a deduction is not a “punishment.”
Most importantly, this court’s decision on IRC §280E is going to have real life implications for many cannabis businesses. Every cannabis business that has filed a tax return challenging the application of IRC §280E should immediately review its tax returns and reevaluate their options.
Cannabis Taxation and Yet Another (BAD) 280E Case is courtesy of FeliciaSullivan.com
Thursday, July 19, 2018
If you don’t like the idea of smoking, try one of these inhalers that deliver the medicinal benefits of cannabis in a method better for you than smoking.
The post A Guide to Cannabis Inhalers for Healthier Consuming in Colorado appeared first on Leafly.
The following blog post A Guide to Cannabis Inhalers for Healthier Consuming in Colorado Read more on: https://www.feliciasullivan.com/
Voters approved full medical cannabis access, not smoking bans and THC limits, the state's Attorney General finds.
The post Oklahoma Officials Defied Will of the People, AG Says appeared first on Leafly.
The following blog article Oklahoma Officials Defied Will of the People, AG Says was initially seen on www.feliciasullivan.com