Tag Archives: legalization

280E and Recreational Cannabis: It Keeps Coming Back to This

As California nears a ballot vote on legalizing recreational cannabis, the Ninth Circuit has ruled on the very important issue of whether cannabis businesses may deduct their business expenses. While the case, Olive v. Comm’r, dealt specifically with a medical cannabis business, it has far-reaching implications for future cannabis businesses (regardless of whether they’re medical or recreational). Deductions allowed for business expenses are the keystone tax benefits and incentives for taxpayers to run their own businesses. Without these deductions, running and owning a business becomes an even more cumbersome and costly endeavor. This, in turn, diminishes incentive for current black-market participants to enter the legal sphere. (See my previous post for a discussion on why these consequences should matter to all Californians, proponents and opponents of legalization alike).

On July 9, 2015, the Ninth Circuit affirmed a previous Tax Court decision denying a medical cannabis dispensary the typical tax deductions afforded for ordinary and necessary business expenses. Petitioner, herein referred to as Taxpayer, owned a medical marijuana dispensary and was denied deductions for his business expenses because his particular business fell under one very consequential exception of the Federal Tax Code: section 280E. Despite months of speculation as to whether Section 280E applies to cannabis businesses, it is now clear that it does apply to medical cannabis businesses, and, based on the rationale of the Court, will apply to recreational cannabis businesses as well.

For those unfamiliar with section 280E, it specifically prohibits deductions for business expenses incurred where the  “trade or business” consists of trafficking controlled substances prohibited by federal law. The Controlled Substances Act classifies cannabis as such a substance and federally prohibits its use or sale. Marijuana businesses are required, like all other businesses, legal or illegal, to adhere to both state and federal tax laws. 280E changes liability substantially: cannabis businesses have to capitalize the cost of the business expenses and have to wait until the product is off the shelves to report the “Cost of Goods Sold” (COGS). The items that constitute COGS are much more limited than the plethora of expense types typically allowed under the business expense deduction. COGS, for example, include the cost of purchasing inventory (or product such as cannabis flower), and storage. In contrast, the business expense deduction includes rent, employee wages, and insurance, among others.

In Olive v. Comm’r, Taxpayer argued that 280E should not apply and he should be allowed to deduct his business expenses. His argument relied on recent federal directives (e.g., the Cole Memorandum, 2015 Appropriations Act (128 Stat. 2217), etc.), which cumulatively give states the latitude to implement legalized cannabis systems without federal interference. The Court disagreed and pointedly explained that the applicability of section 280E to cannabis businesses is wholly separate from recent federal directives regarding the enforceability of federal preemption of statewide legalized cannabis systems. The Court’s opinion rested on the statutory interpretation and authority within section 280E, and the meaning of “trade or business” as used in the tax code.

First, the Court opined that recent federal directives regarding cannabis do not preempt or reverse the current statutory law governing tax deductions for business expenses. The determination of whether section 280E applies to cannabis businesses is a matter of statutory interpretation of section 280E and the Controlled Substances Act (CSA). To date, Congress has not amended or repealed the CSA. Thus, the sale and use of cannabis remains prohibited by the CSA, i.e., federally prohibited. And, as mentioned above, section 280E specifically precludes deductions for businesses whose “trade or business” consists of activities that are federally prohibited. The language of both federal provisions is simple and easy to interpret. The Court found that the first prong, as to whether the “trade or business” was federally prohibited, applied, and therefore prohibited the taxpayer from deducting his business expenses.

Next, the Olive Court defined “trade or business,” saying an activity constitutes a “trade or business” where the activity was entered into with the dominant hope and intent of realizing a profit. 792 F.3d 1146 at 1149 (citing 477 U.S. 105) (emphasis added). The Court was clear that Taxpayer’s sale of medical cannabis was the only activity that met the “trade or business” standard as it was the only one that generated income. The Taxpayer’s business offered patrons other services including, but not limited to, yoga, counseling, and food and drink. However, all of those activities were offered free of charge to patrons. Thus, the Court concluded that the free services were clearly not offered with the dominant hope and intent of realizing a profit. In the Court’s view, Taxpayer’s only “trade or business” was the sale of medical cannabis.

The Court recognized that the taxpayer’s business was legal on the state level. However, federal law still controls where the issue being litigated deals with federal tax law. Despite federal directives that have eased or eliminated enforcement of the CSA, the law is still the law in this court’s eyes. And unlike other tax codes, section 280E uses clear and plain language. There is no other way for the Court to interpret such a statute. Unfortunately, recreational cannabis also clearly falls under the CSA prohibition and therefore to section 280E. Thus, the analysis used here will remain the same. Section 280E will continue to pose a costly problem for cannabis businesses.

Although the Ninth Circuit’s ruling is legally sound, it is a disappointing outcome for cannabis businesses held in the states comprising the circuit. It also sets a strong precedent for other circuits to follow. For California, however, this ruling comes at an opportune time as it and a number of its sister states prepare for the so-called inevitable legalization of recreational cannabis. Armed with the knowledge that 280E will apply to cannabis businesses, California can take a more proactive approach and establish a state tax model that considers the effects section 280E will have on its local businesses.

States embarking on legalizing recreational cannabis should recognize the 280E problem and realize that it will continue to cost cannabis businesses more than those in other industries. Implementing a new recreational cannabis system with high State taxes will win votes and may draw in high revenues initially, but such a system will only make it more challenging for small businesses and new business owners to remain profitable and open for business. High taxes also do not help educate users on safety or help diminish the social harms associated with cannabis use. (See “Cigarettes and Booze” for the full discussion on this topic). Lower taxes or incentive programs that include state tax credits for compliance, on the other hand, are great options to relieve recreational cannabis businesses from the cumbersome consequences of 280E. Incentive programs and State tax credits can also be especially useful for encouraging “best practices,” or compliance with regulations that are specifically designed to lower specific social harms. (See my earlier post for examples from the tobacco and alcohol industries). From a business and economic perspective, they could also lead to a more stable industry by allowing businesses to flourish and thereby remain in the legal market. Above all, such options incentivize market participants to enter the legal sphere, and will help small businesses grow within California.

Advertisements

Gambling with Tribal Marijuana

For this post I will look at the application of state criminal jurisdiction to non-tribal members while on tribal lands; first at the jurisdictional framework in general, and then at a brief history of federal Indian gaming regulations to better understand the legal limitations of tribal marijuana cultivation. In my last post I discussed Federal Public Law 280 (PL-280) and the delegation of criminal jurisdiction over tribes and their members to state agencies and courts. State criminal jurisdiction does not apply to tribal lands where the alleged crime is regulated—and not strictly prohibited—by states. This raises the question: Does state criminal jurisdiction under PL-280 extend to the activities of non-members of the tribe while on tribal lands? For example, if a tribe opens a “cannabar” for non-tribe members to purchase and imbibe marijuana while on tribal lands, would the actions of those non-members be within the criminal jurisdiction of California, the U.S., or the tribe? The answer to this question depends on whom we ask. The current U.S. Supreme Court case law and lower court statutory interpretations find that federal criminal jurisdiction (or state criminal jurisdiction in PL-280 states) over non-members extends to their activities on tribal lands. Which, continuing from the earlier example, non-members would be subject to federal or state criminal jurisdiction for acts committed on tribal land, and could be prosecuted for violating the state or federal law by purchasing marijuana for recreational use at a cannabar located on tribal lands. But a group of constitutional theorists argues that these activities are beyond the reach of state, and perhaps even federal, criminal jurisdiction in PL-280 states. What does this jurisdictional quagmire mean for tribes seeking to sell marijuana to non-tribal members for use on tribal lands? Is “casino”-style marijuana consumption and sale possible?

Does PL-280 extend state criminal jurisdiction to activities of non-members while on tribal lands? In Oliphant the U.S. Supreme Court ruled that tribal criminal jurisdiction does not apply to non-members, noting that “[n]on-Indians are not subject to the jurisdiction of Indian courts and cannot be tried in Indian courts on trespass charges. Further, there are no Federal laws which can be invoked against trespassers.”  Mark Oliphant was a non-tribe member residing on the Suquamish reservation in Port Madison, Washington. During the tribe’s annual Chief Seattle Days celebration, Oliphant was arrested by tribal police and charged with assaulting a tribal officer and resisting arrest. He was arraigned before a tribal court, and after bailing out; he filed for a writ of habeas corpus in Ninth Circuit relying on the claim that the Suquamish court did not have criminal jurisdiction over non-members. The Ninth Circuit found in favor of the Suquamish, and Oliphant appealed to the Supreme Court. The Court found that tribal sovereignty is not strictly geographical, and thus the tribal court’s criminal jurisdiction does not automatically extend over non-members while they are present on tribal lands. Rather, non-members are subject to the federal (or in PL-280 states, the state) statute that would apply if the crime had been committed outside of tribal boundaries. The Court did not question the tribe’s power to arrest, and in fact found that the tribal agencies must turn over and “not to shelter or conceal offenders against the laws of the United States, but to deliver them up to the authorities for trial.” It also noted that the basis for this policy was to provide protection for tribal members “from the violences [sic] of the lawless part of our frontier inhabitants,” or to put it another way, to protect the American Indians from non-members entering tribal territory and committing what would be considered crimes by the federal government had it occurred on non-tribal soil. Oliphant further elucidated that tribes have sovereignty over their members, and the right to assert jurisdiction where no Congressional jurisdiction has been asserted (or asserted and then delegated to states via PL-280).

Cohen’s Handbook of Federal Indian Law, the preeminent source for understanding the intricacies of U.S. tribal law, also lends clarity to the convoluted point of tribal jurisdiction over non-members while on tribal lands. Citing Oliphant as authoritative precedent, Cohen’s Handbook notes that even a regulatory PL-280 state law, which would normally not be enforceable in Indian territories, may be enforceable on tribal lands where it “affects non-Indians and survives the Court’s infringement/preemption test.” The test, as explained by the Court in Mescalero Apache Tribe is that “if [the state regulation] interferes or is incompatible with federal and tribal interests reflected in federal law [it is preempted], unless the state interests at stake are sufficient to justify the assertion of state authority.”

There are some critics that question whether the federal government acts within the scope of its constitutional powers by delegating inherently federal jurisdiction to states; an issue which has never been addressed by the U.S. Supreme Court in regards to the application of state law to tribal lands.

The lower courts that have addressed this issue have set aside the issue with minimal or circular analysis. In Anderson, James Anderson, a member of the Klamath tribe residing on the Klamath reservation, appealed his conviction of second-degree murder in Oregon state court to the Ninth Circuit. He appealed to the Court on the basis that Oregon state courts did possess criminal jurisdiction in this case as the homicide had occurred on Klamath land, and the defendant is a member of that tribe. The Ninth Circuit did not agree, and found that, “[t]he [Congressional] power over Indians was deemed not so inherently or exclusively federal as to apply beyond the extent to which the federal government has preempted the field, and the federal government could thus withdraw from the field and turn the subject matter back to the states when it chose to do so.” However, the presumption that the states possessed original jurisdiction over tribes, and that the federal government had preempted the state powers on those lands, is unsupported by statute, treaty, or constitutional amendment. Tribes, recognized in the U.S. Constitution as falling under the same umbrella of federalist powers as states and foreign countries, never entered into treaties with state governments to cede jurisdiction, but rather made treaties with the federal government to cede their jurisdiction in a limited manner. As Cohen’s Handbook notes, “[U.S.-Indian t]reaties must be understood as grants of rights from Indian people who reserve all rights not granted.”

The false presumption first promulgated in Anderson was relied on in other cases reviewing the PL-280 for its constitutionality. In Agua Caliente the District Court noted that, “Public Law 280, like other similar laws in recent years, is a withdrawal by Congress from its preemption in this field. It has done so in this case by express grant to the state of authority…to the extent that any further withdrawal by the Federal Government occurs, the sovereignty of the state becomes enlarged to that extent.” Again, there is no existing evidence or support of this presumption, except that this is the relationship between federal powers and state jurisdiction outside of tribal lands. The express purpose of federalism is for federal jurisdiction to extend to “certain enumerated objects only, and leaves to the several States a residuary and inviolable sovereignty over all other objects.” But this only exists where original state jurisdiction would otherwise exist. Keeping in mind that this issue has never been argued before the Supreme Court, it is possible that the Court would find in favor of the federalist principles, and rule that where the federal government has withdrawn from a jurisdiction, the sovereignty of tribes would become enlarged to that extent.

How does this relate to marijuana sales on tribal lands? Which criminal jurisdiction applies on tribal lands matters to non-members seeking to imbibe or purchase marijuana from tribe-operated dispensaries? Under the majority view, it appears that non-members cannot commit acts on tribal lands that are considered crimes in state or federal court. This is due in part to existing statutes and Supreme Court decisions, and seems to be the most largely accepted interpretation of the law. However, a splinter group of theorists among the minority view argues that the federal government cannot delegate its criminal jurisdiction to states. Under one interpretation of the principles of federalism this could mean that where the federal government has withdrawn from the field of criminal jurisdiction (i.e. via attempting to delegate this power to states) that jurisdiction is restored to the tribes. The tribes would have the criminal jurisdiction that would otherwise be granted to the states under PL-280, and could determine whether non-members could purchase or imbibe marijuana on their land. Of course, this is not a view supported by the existing case law, but since the Supreme Court has not addressed the question, it remains an argument to be made.

When first hearing of the interaction between PL-280 and the CSA for tribes, it may seem natural to conclude that the state criminal jurisdictional exception extends to non-members in such a way that “casino”-style marijuana sales (i.e. tribal dispensaries providing marijuana for on-site consumption by non-members) seem inevitable. To better understand why this not the case, an examination of the history of American Indian gaming is necessary. From the outside, it may seem a rather straightforward matter; tribal sovereignty in conjunction with PL-280 allows for casino and gaming in states that do not completely prohibit gaming (i.e. operating a state lottery). However, the power to organize casinos and gaming on reservations is still within the jurisdiction of the federal government. This is because the Federal Indian Gaming Regulatory Act of 1988 (IGRA) re-asserted federal jurisdiction to regulate the conduct of gaming on Indian Lands, established the National Indian Gaming Commission (NIGC), as well as a regulatory structure for Indian gaming in the United States, essentially closing the jurisdictional loophole left open under PL-280 by the Cabazon decision.

Based on Cabazon, which held that in PL-280 states where gaming is a regulated activity and not a prohibited activity (e.g., states with a state-operated lottery), tribal gaming was determined not to fall within the state’s jurisdiction to regulate. The Court further elucidated that only Congress “could effectively place limits on the Indian Gaming industry.” For precedential support, the Court relied on the Mescalero Apache Tribe preemption test mentioned earlier in this post. Within a year of the Cabazon decision, Congress passed the Indian Gaming Regulation Act (IGRA). The stated purpose of the IGRA includes the establishment of Federal Regulatory powers over Indian gaming and a Federal commission to oversee and apply such powers (NIGC). Cohen’s Handbook notes that although the IGRA does not mention PL-280, it operates to supersede state jurisdiction because it is a more recent statute asserting exclusive federal control over violations of Indian gaming. Under the IGRA, tribes are required to enter into compacts with the states in order to participate in Class III gaming, which includes all gaming not covered in Class I and II, specifically anything not closely resembling bingo or “social games solely for prizes of minimal value or traditional forms of Indian gaming engaged in by individuals as a part of, or in connection with, tribal ceremonies.” Tribes retain jurisdiction over Class I and Class II gaming; subject to any “prohibitive” limitations placed by states (very similar to the tribal jurisdiction limitations mandated by PL-280).

In those states where tribes have sought Class III compacting agreements, the state has not granted criminal jurisdiction as a result of the IGRA legislation, rather states have a per se veto power over Indian proposed regulation of such activities, as iterated in
§ 2710(d)(3) of the IGRA:

“Any Indian tribe having jurisdiction over the Indian lands upon which a class III gaming activity is being conducted, or is to be conducted, shall request the State in which such lands are located to enter into negotiations for the purpose of entering into a Tribal-State compact governing the conduct of gaming activities.”

The IGRA included a provision for tribes to file suit in U.S. District Court against states failing to enter into negotiations or that negotiate in bad faith these compacts with tribes. However, in Seminole Tribe the Supreme Court ruled that this provision was not within the constitutional power of the federal government, and that states were immune to suit by tribes under the Eleventh Amendment. Despite the fact that the language of the IGRA seems to be a broad grant of jurisdiction to the District Courts over suits brought by Indian tribes against States that had not consented, the language was held as “insufficient to constitute a clear statement of an intent to abrogate state sovereign immunity.”  Thus, tribal sovereignty was limited by the passage of the IGRA, but state sovereignty (under the Eleventh Amendment) was not.

This is important because there has been some recent discussion of state legislation in Washington essentially re-asserting state jurisdiction over marijuana cultivation or sale on tribal lands. However, any resulting legislation would be open to legal challenge. This is because while the federal government can re-assert federal jurisdiction via federal statute in states where PL-280 applies, such as it did with the IGRA, the principles of federalism do not allow for states to assert their criminal jurisdiction without direct delegation by the federal government. Those states either have criminal jurisdiction over drugs (where that drug has been strictly prohibited) or they don’t (where there is existing regulatory state legislation). In PL-280 optional states, or states that were offered the opportunity to claim state criminal jurisdiction under PL-280, but were not mandated to accept that jurisdiction, such as Washington, Arizona, and Montana, further analysis is necessary to determine whether PL-280 is applicable. Several of these optional states have state constitutional disclaimers that prevent PL-280 from applying (according to the McClanahan decision), and cannot claim criminal jurisdiction until these constitutional disclaimers were nullified. Cohen’s Handbook notes, “[i]f a state has not assumed jurisdiction under Public Law 280, it may not acquire jurisdiction over Indians independent of that Act.”  This is especially true in Washington, which is blocked from fully asserting criminal jurisdiction over tribes by its own constitutional disclaimer, and so would lack PL-280 jurisdiction on two counts; first it would lack jurisdiction under PL-280 because it has not fully assumed that jurisdiction, and secondly, because if PL-280 were to fully apply, the state regulates but does not prohibit marijuana sales and cultivation, and so would not have jurisdiction over the tribes that chose to engage in those activities.

As recently as March of this year, tribes were granted the ability to prosecute non-Indians for certain crimes under Special Domestic Violence Criminal Jurisdiction, including criminal violations of protective orders. While this federal action may partly overturn Oliphant, it is not clear whether this opens the door for greater tribal jurisdiction over crimes committed on reservations. If it did and tribes were able to determine for themselves what recreational drug use was allowed on their lands by non-members, the risk of investing in the marijuana industry would be largely alleviated.

Monopolistic Competition: Napa Valley Wine Industry As A Model For California Cannabis Cultivation

historical_photo_sign_napa

In response to Ohio’s new recreational marijuana ballot initiative Keith Stroup, founder of NORML recently wrote, “Big money has entered the [marijuana legalization] picture, and we will have to deal with that. I prefer to keep the focus on personal freedom and stopping the arrests, but in some states we may have to swallow hard and accept legalization that is profit driven.” He said this in reply to Ohio’s new marijuana bill ResponsibleOhio. While I agree that big money will drive legalization, it is my opinion that Mr. Stroup is overstating the inevitability of the oligopoly market structure. I advocate for a middle ground that has been successful in other agricultural markets similar to cannabis, the Napa valley model of monopolistic competition. Monopolistic competition allows the little guy to compete with the big guy so long as his or her product is valued and therefore marketable. An oligopoly that allows a few key players to both persuade with their financial contributions, and dictate market structure, is not setting good precedent. If the government insists upon a monopolistic competition structure, big money will flow and small growers will be able to compete with larger growers. This model also promotes economic stability by keeping small growers viable, therefore increasing participation in the legal market for current cannabis famers. There is an answer out there to these goals and the Ohio Oligopoly is not it. California cannabis legalization can adopt the Napa model being advocated by growers in the Emerald Triangle that will encourage big money to align with small sustainable growers in a market dictated by the government, not big money.

In monopolistic competition there are many sellers with differentiated products on the supply side and many buyers creating demand based on preference, letting the market determine price and quantity. This is different from a monopoly where there is only one supplier and the buyers are subject to price fixing. The wine industry is an excellent example of monopolistic competition; the market is determined by many varieties, differentiated by growing regions, and consumer preference/demand for taste, price and advertising. There isn’t one market for wine, but many different ones depending on your price, tastes and brands. People select within reds or whites, or even within chardonnays or pinot noirs. This is why “wine” is a bundle of monopolistic markets, not a single undifferentiated market.

In contrast, ogopolistic markets are less competitive because several large firms have disproportionate control of the market. The cell phone industry is an example of an oligopolistic market in the U.S. where AT&T, Verizon, Sprint and T-Mobile determine price and we the consumers do not have any meaningful choice. To quote T-Mobile “[t]his is an industry filled with ridiculously confusing contracts, limits on how much data you can use or when you can upgrade, and monthly bills that make little sense,” and yet over 91% of American adults own a cell phone.

ResponsibleOhio would establish an oligopolistic market. According to the ResponsibleOhio website:

“There are ten initial commercial growing sites. They will be operated by separate companies and have to compete with each other on price and quality, which is the exact opposite of a monopoly. There is no coordination between them, they will be trying to make money by selling the best goods at the best prices to stores, dispensaries and manufacturers.”

Although ten cultivation licenses would not qualify as a monopoly, the amendment was introduced and paid for by the ten companies who will receive the ten cultivation licenses, making it look a lot like an oligopoly. We do not know enough about the marijuana market to be sure, but based on the fact that Colorado has approximately 800 cultivation licenses, it would stand to reason that 10 competitors, compared to 800, would have disproportionate control of the market and therefore the upper hand on cannabis price determination in Ohio.

After substantial pushback, the ResponsibleOhio Amendment added adult at home, non-commercial cultivation of four plants so long as that adult obtained a license. In short, if you are an adult marijuana user in Ohio, you can obtain a license to grow four plants that may or may not produce the amount of cannabis you need, or be at the mercy of the ten companies who proposed, paid for, and now own the cannabis cultivation market. Based on the above discussion of oligopolies, you can see why citizens of Ohio may not want this Amendment to pass.

On the other hand, if this is the only way to obtain access for medical marijuana users in some states and protect them from being criminalized for using medicine, we may have to accept “big money” and oligopolies as the lesser of two evils.

California is not Ohio, however. It is a progressive state when it comes to medical marijuana as demonstrated by being the first state to decriminalize and legalize medical marijuana all the way back in 1996. Because of this, California already has a cannabis cultivation industry supplying both medical marijuana retailers and illegal dealers. Some say that the lack of strict regulation on cultivation and other aspects of the medical marijuana market in California is genius; some say it is the worst medical marijuana legislation in the country. Irrespective of these opinions, California is known for its high quality and locally produced cannabis.

Recent polls in California show support for legal recreational marijuana use at 53%. Transitioning illegal growers into legal growers will be a determining factor in the success of any legislation with the goal of stamping out the black market. Trying to bring black market growers into a legal market is better because you’ll discourage other forms of crime that may happen if these people are simply pushed out. For California, the real question becomes what kind of legal recreational marijuana market can legislators, big money, and growers agree upon to ensure compliance and promote legality. One way to do this is to ask the growers.

As I talked about in my last blog post, at least 25% of Humboldt County’s economy is based on dollars from the illegal cannabis market. Because of that fact, this region faces a disparate impact with the predicted 2016 legalization of their illegal cash crop. However, the black market notoriety Humboldt has for its ability to produce large quantities of high value cannabis could provide a mutual benefit for local growers and state legislators. Both want to maintain their respective constituencies and to create rational and effective cannabis policies. The great news is California Cannabis Voices- Humboldt (CCVH) and Emerald Growers Association (EGA) have a solution- protect small cannabis farmers.

Cultivation and policies that provide a pathway to regulation for the states robust network of diverse cannabis farms was the focus of last month’s State of Cannabis Growing in 2015 conference hosted by the EGA. Simultaneously, EGA and the Mendocino Cannabis Policy Council (MCPC) are collaborating and working with Jeremy Daw of ForteFive Consulting to produce an economic white paper to highlight the importance of the cannabis market in Mendocino County. Mr. Daw is in the middle of his research but has already come to some important conclusions. According to Willits News, Mr. Daw believes marijuana has “low cross price elasticity and is fungible and that this quality will make it difficult for boutique growers competing in a market where large central valley farms are producing the product very cheaply.” Most products in monopolistic competition markets share these qualities. “However, if the state enforces regulations concerning regional and appellation, as with wine, it would create a way for growers to clearly signal the value-added nature of their product to consumers. Then small boutique cannabis growers, like Napa valley wineries, could be competitive.”

Perhaps in response to Mr. Daw’s call for state support of small cannabis farmers, Mendocino County CEO Carmel Angelo, 3rd District Supervisor Tom Woodhouse, and 2nd District Supervisor John McCowen participated in the first Northern California Regional Summit on the Economic Impacts of Legalized Cannabis on March 5, 2015. Representatives from the California State Association of Counties (CSAC) and the Rural County Representatives of California (RCRC) also attended the Summit. The goal of the Summit was to develop a regional and unified position statement to help shape state legislation. While the primary focus of the Summit was on the potential economic impacts on the region, additional critical topics included environmental impacts, regulatory framework and other local government issues.

CSAC provides a variety of lobbying and advocacy services for all 58 California counties. With regard to cannabis, CSAC’s medical marijuana policy supports the right of individual counties and their supervisory bodies to determine how to enact regulations, prohibitions and guidelines regarding all aspects of the cannabis industry.

The RCRC is a 34-county membership organization which also provides advocacy and services, but with a more focused mission of addressing issues that pertain to rural areas. The RCRC supports a statewide regulatory program which would include licenses to grow, transport, distribute and sell cannabis products, uniform standards for cannabis potency, proper labeling and an allowance for “appellation” or branding. It strongly supports environmental enforcement and believes that the composition of a state cannabis oversight board should include several rural county supervisors or representatives.

The Napa model is the height of the monopolistic competition market structure coupled with state enforced regulation. The Napa model creates an environmentally friendly as well as economically salient world-renowned smaller growers market. Both CCVH and the EGA are advocating making regions of the Emerald Triangle the next Napa Valley. Monopolistic competition is necessary to create the Napa Valley model. In order to create competition between smaller cannabis farms, the state will have to protect and enforce regulations concerning region and appellation of cannabis. The current California law regarding wine labeling could act as a model. Wine labeled “Napa” or “Napa Valley” must be made from 75% grapes from Napa and be produced within the state of California. (Bus. & Prof. Code §25241, Bronco Wine Co. v. Jolly). Napa Valley wines sell for between $50-$100 a bottle. California law prohibits wine companies like Charles Shaw from labeling their two dollar wine as being “from the Napa Valley” without meeting the above criteria.

CCVH proposed legislation mirrors Napa land use ordinance in three ways. First, the ordinance recognizes the unique appellation of Humboldt County cannabis and recognizes rural agriculture of the plant as cultural heritage. Second, it proposes a local commission to regulate the quality and environmental impact in order to hold the label “Humboldt Grown” cannabis in the same esteem as Napa’s registry. And third, it designates four different types of farms based on square footage and the regulation and licensing needed for those farms. The smaller the farm the less regulation is needed, which incentives smaller farms over larger farms. It appears as if the authors of CCVH land-use ordinance are teeing up to be the next Napa Valley.

In conclusion, a big money and oligopolistic model of cannabis legalization is not a foregone conclusion. By utilizing the framework of regulation and competition in the highly successful wine market in California, our legislators have a road map to follow which can lead to economic stability in the Emerald Triangle. A mode of legalization that promotes small business, encourages healthy competition, and keeps small farmers afloat is low hanging fruit well within our reach.

Excise Tax: What is it good for?

A recent Huffington Post headline read “Legal Marijuana Has Already Generated $15 Million For Schools”. The funds are appropriations from Colorado’s marijuana tax revenue. The appropriations weren’t the result of magic, but were instead the result of specific terms in Colorado’s Amendment 64 that levied an excise tax on recreational marijuana and specifically dedicated that revenue to schools. An excise tax is a tax on the sale or use of a particular good or service. It is more commonly known as a sin tax and is typically attached to goods or services deemed to be harmful or otherwise discouraged (e.g., alcohol, tobacco, and gambling).

An article from the Canna Law Blog outlines four government purposes for levying excise taxes: “1) generating revenue; 2) tailoring the tax burden to those that benefit from the services the excise tax funds; 3) controlling externalities; and 4) discouraging consumption of potentially harmful substances individuals might over-consume absent taxation.” The third and fourth purposes are the most relevant to an excise tax on marijuana, with the primary focus on controlling externalities such as youth use, prevalence of illicit markets, and marijuana abuse.

At first glance, levying an excise tax seems to be an obvious choice. But, as I argued in my last post, there are a lot of “unknowns” about how the marijuana market will respond to legalization. There is also an issue with whether the marijuana market is well-suited to an excise tax. While market research is limited, current research shows marijuana to be largely inelastic in demand. That means that market demand doesn’t change dramatically with price changes, so raising the price via taxation won’t decrease demand. Teens aged 12-17 are the only group showing any relative price sensitivity. If these numbers are true, an excise tax on marijuana won’t help control many externalities and won’t discourage consumption because people will be happy to pay more, not consume less. Even if consumption didn’t decrease, however, revenue generated from an excise tax would benefit California and could be earmarked for programs that aim to improve social welfare such as, education, youth substance use prevention, and more. This article explores some of the ways a marijuana excise tax revenues can improve social welfare and also explores some of the important drawbacks that an excise tax would have on California’s overall marijuana market.

California has experience levying excise taxes on alcohol, gasoline and tobacco products. An excise tax on marijuana is likely next in line given our familiarity and the precedents among states with recently legalized marijuana. Colorado, Oregon and Washington all implemented excise taxes on marijuana. As mentioned earlier, Colorado implemented a marijuana excise tax that specifically reserved the first $40 million raised each year for school infrastructure. Oregon and Washington, on the other hand, dedicated their excise tax revenue to a variety of different programs including, but not limited to, school funding, research on marijuana’s health impacts, youth education, enforcement of new regulations, and similar programs focused on reducing externalities. California should prioritize funding research with tax revenue given the lack of reliable data currently available. There is great need for scientific research that analyzes the health and intoxication effects of the 80 plus compounds in marijuana, the development of reliable testing modules for quality control, and also DUID. Sociological research is also important because marijuana’s current illegality severely limits our ability to gather reliable data on consumer usage patterns, the true size of the market, user quality of life, and long-term social outcomes (e.g., user productivity, mental health, and increases in overall usage).

An excise tax on recreational marijuana has both positive and negative implications for society. On the positive end, the funds collected from excise taxes can be dedicated to a particularized cause. For Colorado it is school infrastructure; for Oregon and Washington it is a host of various social programs. Either way, the excise tax revenues guarantee funds to specified causes that aim to improve social welfare.

The downside to sin taxes is that, by its nature, the tax is typically associated with the sale and/or use of a particular good or service, which presents a very costly issue for marijuana businesses. Ordinarily, businesses can deduct the costs of doing business—such as materials, rent, advertising, etc.—from revenues, meaning that they pay tax only on profit. Under federal law 280E, however, marijuana businesses cannot claim these deductions. Instead, they have to capitalize those costs and report them as cost of goods sold (COGS) once the product is actually off the shelves. However, COGS only includes direct costs of production and labor: it does not include all costs.

Given the state of federal law, recreational marijuana businesses subjected to a state excise tax will most likely not be able to deduct those taxes from their federal bill—meaning that they will have to pay for it twice. Let’s say the wholesale cost of an ounce is $50 and a retailer has to pay $50 in excise tax when she buys it from the grower. The retailer then passes the cost on to the consumer and adds $50 in profit, making the total cost of the ounce $150 ($50 to he grower, $50 excise tax, $50 markup). But even though the profit is only $50 in this scenario, the retailer cannot deduct the cost of the excise tax and instead has to pay tax on $100 ($150 revenue minus only the cost of the goods from the grower, $50). The retailer pays the excise tax and then, when that cost is passed on to the consumer, the reimbursement for the excise tax has to be reported as income. This is not a problem with excise taxes, but more a problem of excise taxes combined with 280E.

One negative aspect of these federal costs is that they force businesses to impose much higher pre-tax prices. High prices post-legalization could prove to be costly for society by way of preserving the dominance of the black market. Marijuana businesses also suffer huge profit losses due to the combination of the federal tax costs and state imposed tax burdens, such as excise taxes. These combined costs may make it difficult for such businesses to survive tax season, never mind make any profit. There have been suggestions that a potential cure may be as simple as imposing the excise tax on marijuana production so it could be included in COGS, but it is unknown whether the federal government will accept such clever maneuvering. For now, federal deduction exclusions remain a very real detriment to marijuana businesses profit margins and their ability to thrive in this burgeoning market.

Why should we care about whether marijuana businesses profit? For starters, the livelihoods of Californians depend on the state’s economic success. In 2013, California was ranked the 8th largest economy in the world. That makes for a very large pool of employees and individuals dependent on California’s economic health. Moreover, according to the ArcView Group, California’s legal marijuana market is the largest in the U.S., worth an estimated $1.3 billion. Colorado has a smaller market but legalization still created upwards of 10,000 new jobs for Coloradans. Even if California market estimates are optimistically high, the numbers and experience in Colorado reveal that marijuana business failures post-legalization could have crushing results for Californians. Thousands of individuals who invested their lives and money to this burgeoning industry would be thrust into unemployment or, worse, driven to the black market. All things considered, it would be prudent for us to examine the consequences federal deduction exclusions have for California’s economy post-legalization.

The takeaway from today’s discussion is that there are social but also economic harms that a marijuana excise tax can offset or exacerbate if not thoroughly considered in tandem. Additionally, an excise tax is just one mechanism by which the positive outcomes discussed today can come to fruition. The state could also achieve these through other forms of taxation or by funneling a portion of the funds from licensing fees into research or other worthy causes. As my title suggests, the discussion of levying an excise tax on marijuana really boils down to the question, “What is it good for?” Recall the metaphor of the marijuana tax seesaw from my first post. The consideration of a marijuana excise tax has a similar seesaw; this seesaw has competing social interests on either end. On one end we can generate funds for projects that increase social welfare (sociological research, reducing/preventing youth access, elimination of marijuana criminality), and on the other, we can increase socio-economic health (encourage new businesses, move black market participants into legal market) by generating less tax revenue to allow new (local) marijuana businesses to thrive. To remix a Motown hit song, “sing it with me, Excise tax- huh- what is it good for?…” Unlike Edwin Starr, we cannot unequivocally claim “absolutely nothing,” but it is still a worthy question to ask.

Alexa Quinn for Drug Law and Policy

Follow Drug Law and Policy on Twitter @DrugLawPolicy or Alexa @aquinn_dlp.

You can also contact Alexa Quinn by email: aquinn.dlp@gmail.com.

State Registered Cannabis Trademarks: (An) Amoral Dilemma

I called my mother the other day. I figured that, as an adult, it was time we had the talk; I asked her what she thought a trademark was. “It means,” she said, “that nobody else can use the same thing.” Sure, but why would we have laws about that? “Because… oh I don’t know, because somebody cares.” After some discussion, it became clear that my mother had both a normal level of interest in Intellectual Property law and held a common misconception. My mother was under the impression that trademark law is for the benefit of corporations.

Because our government is “for the people,” it follows naturally that trademarks are also for the people. In a previous post I wrote that the government grants exclusive rights if some important public good is served. The exclusive use of a mark is not protected for the sake of business but for the sake of the consumer. This information is invaluable to consumers because it allows us to choose between spending our dollars on local, sustainable, organic, humane farmers and butchers and more affordable alternatives with a glance at a package. Thus, when you go out and purchase some first-rate dance gear the branding lets you know the source. When you’re stuck in the middle of Nowhere, Oklahoma, you can rest assured that your can with the familiar Coca-Cola trademark is still a Coke™ because of trademark law.

A corporation can build goodwill and leverage its reputation to add value to its products. If a consumer knows nothing about watches, it’s possible they may be led to believe a Rolex is a good watch because of Rolex’s reputation. While trademarks may serve a corporation’s financial interest, keep in mind that a bad reputation is equally protected. What we, the people, get out of enforcing marks is clear identification of the source of goods. The quality of that source, or its “branding,” is not part of the deal. There are a number of reasons that the USPTO might deny a trademark, but the “morality clause” is most pertinent to marks related to cannabis.

The Lanham Act, the federal level statutory scheme for trademarks, has a “morality clause.”  In the language of section 1052(a), any mark that is “immoral, deceptive, or scandalous matter” can be denied registration. A deceptive mark clearly undermines the goal of keeping the consumer properly informed as to source. This means marks that misrepresent not only the company name but also geographic source, material composition, or sponsorship of some individual, etc. would be considered deceptive and denied registration.

When it comes to scandalous material, an examiner might “know it” simply when they “see it,” in the manner of Justice Stewart’s famous intuitive approach. A morality judgment is treacherous territory, doubly so with the weight of law behind it. It is no surprise that courts have, as the trademark manual of examining procedure puts it, “included immoral matter in the same category as scandalous matter.” Inevitably, scandalousness and immorality judgments will lead to disagreement, and such a subjective standard is not, in my opinion, useful legislative drafting. Retooling the language is probably best, but that is a legislative prerogative, not the purview of lawyers or courts. For a thorough examination of scandalousness and the caprice of the USPTO, I recommend an excellent (and often amusing) journal article by Anne Gilson LaLonde and Jerome Gilson (for those in the know, yes, those Gilsons). Generally, drug-related marks are denied for scandalousness because of the promotion or association with illegal substances under the Controlled Substances Act. There are some cases, like Cocaine Anonymous (note the circled R indicating a registered mark – not “™” which is for unregistered marks) or Marijuana Symposium, where the context specific use is considered within the gamut of federal drug policy. There are ways around USPTO difficulties with trademarking cannabis products, but I think the apparent contradictions in whether a mark is granted or not can be resolved in a different way, without upsetting the status quo.

See, you can also register a trademark at the state level. The Lanham Act, as mentioned, is the federal scheme. Each state has its own version of the Lanham Act that will give statewide trademark protection. Given the patchwork legal status of cannabis in the United States, a state-by-state approach makes a lot of sense. Unfortunately, the statutory language of 47 of those states replicates the morality clause from the Lanham Act verbatim (for a full list check out footnote 3 in the Gilson article). It’s easier to list the outlying states Colorado, Maine, and Wisconsin — than the majority. Of these, Maine comes the closest to a morality clause, denying any mark that “[c]onsists of or comprises language that is obscene, contemptuous, profane or prejudicial… [or i]nappropriately promotes abusive or unlawful activity” (emphasis added). Setting aside Maine’s oddly detailed trademark legislation on potatoes, oils, and sardines, could a mark for a company whose product is cannabis be an “appropriate” promotion of a federally unlawful activity? I think so.

In a state with a morality clause in its trademark statute (like California), is it scandalous to identify a good that is legal in that state but remains illegal under federal law? My answer looks to the late, great, Judge Traynor. In one of his more famous opinions, Reich v. Purcell, Judge Traynor discusses how the “forum must search to find the proper law to apply based upon the interests of the litigants and the involved states.” Judge Traynor was deciding a conflict of laws problem in torts, but his reasoning can be applied here. More succinctly, scandalousness and morality rejections should be based on the weighed interests of the state and federal governments, not a subjective interpretation of those words as applied to a “substantial composite of the general public.”

In a state where cannabis is totally decriminalized, regulated by the state or where the state participates in the market, the public view about offensiveness of a mark is difficult to ascertain.  While some groups will surely find no moral/scandal objection to cannabis marks, other groups may find cannabis use scandalous but consider regulation a better solution than outright prohibition.  Additionally, the minority may still prefer prohibition and retain scandalousness objections to any cannabis related mark. While scandalousness objections to trademark registration perhaps cannot be resolved, there remain amoral public interest considerations.  A given state’s interests and the effects of granting a trademark in that state should be weighed against the interest of the federal government, especially noting that whole supremacy thing. If a state grants cannabis trademarks and, by extension, allows for companies to potentially build goodwill and brand loyalty, will that promote the use of cannabis?  Will branding push companies to cultivate a more positive reputation through higher quality products, or safer products and safer use environments?

Further, while the public’s subjective reasoning cannot be ascertained, the codified policy (in this hypothetical) would be one that does not criminalize cannabis. Examiners and their supervisors could decide trademark eligibility by looking to established interests instead of subjective review of “scandal.” Admittedly, changing from “scandal” to “public interest” analysis sounds like jumping out of the bog and into the mire. I think that however scandalized someone feels (or doesn’t) about the Redskins trademark, he or she can concede that our public interest has long proscribed racism, prioritized eliminating discrimination, and promoted equality. Revoking the Redskins trademark arguably serves those ends. This approach also clears up how the USPTO ultimately granted a trademark to an apparently scandalous mark. An image that may scandalize the public by depicting our nation’s flag as a condom was acceptable because of the goal of characterizing the fight against AIDS as patriotic.

Luckily, the interests of the federal government have been clearly set forth in the somewhat notorious Cole memo. The eight priorities listed in that memo can easily be satisfied while serving state interests. A state can serve its own decriminalization regime without subverting these priorities, which explains how a mark can be “scandalous” on a federal level but not in a particular state. Further, the federal government has an interest in allowing states to establish their own unique priorities and policies. This “laboratory of democracy” that respects the individualized needs of specific regions is part of why we have a federal system in the first place. The real question then becomes whether granting trademarks serves a given state’s interest.

Among many details I have glossed over, there is a third option for trademarking: simple use of a mark in commerce grants common law protections without any registration at all, state or federal. This protection is limited to the geographic region of use and depends on common law, which varies by state. California is geographically large and if the consumer is to develop some sense of cannabis products, simple common law protection is assumed not to suffice because a northern California company could use the same mark as a company elsewhere in the state and potentially confuse consumers in between, especially if the market expands rapidly, as it has in Colorado.

If a company cannot build goodwill with its brand it can only really market objectively measurable characteristics like potency and price, not quality. Research indicates that price increases discourage kids from using cannabis more than adults. Granting trademarks would allow corporations to more fully leverage their brand, which would increase pricing of their products – and might decrease potential youth possession and use (which would assuredly remain illegal, just as it is for tobacco or alcohol). There are, of course, risks associated with allowing marks that may be targeted at or appealing to children. An interest analysis supports denial of those types of marks as well, since protecting children is an established interest of both the states and the federal government.

California’s interest might best be served with a model like that of wine, where users of cannabis can pay top dollar for some renowned brand rather than merely finding the cheapest and strongest “high” on the market. Trademark granting should not be based on ambiguous ideas like moral and scandal but on the purposes behind trademarks, which rest on the interests of the individual consumers and states involved.

Let’s Go to the Cannabar: On-site Cannabis Consumption in California

Once only a distant dream of social activists and enthusiasts, the reality of completely legal marijuana in California now appears to be a distinct possibility with the upcoming 2016 election. (Recent polls here and here) If California goes the route of an increasing number of Western states, whose ranks swelled to four with the recent 2014 midterms (adding Alaska and Oregon to Colorado and Washington, who officially legalized in 2013), Californians will be able to legally purchase, grow, possess and consume marijuana without the doctor’s prescription currently required under Proposition 215.  Many important questions regarding the specifics of commercial marijuana cultivation and processing have been addressed by the legislatures of those previously enacting states, with more tweaking no doubt in store for California’s bill writers and legislators.

Fortunately for California, Colorado and Washington started their experiments with legalized marijuana markets first. This allows us glean important lessons and determine shortcomings within their regulatory schemes that California can improve upon if it votes to legalize. Specifically, the question of where to consume legal marijuana has dogged citizens and legislators alike in those first two enacting states. This presents an important opportunity for California to make its own mark on the progress of marijuana legalization, or more specifically, to determine the relationship California’s citizens want our state to have with legal marijuana consumption.

With this blog series, I will seek to shine light on the important issues behind that where question. I’ll detail the concept of what I call “retail point of sale consumption” (RPOSC), e.g. the consumption, smoking or otherwise, of cannabis on the site of a commercial venue created to socially enjoy marijuana. What potential forms those commercial entities eventually take is largely dependent upon how California crafts our regulatory schemes for marijuana, and what effects our current state and local anti-smoking ordinances will have on any potential RPOSC businesses; however, we can look to similar business entities (or the lack thereof) in Colorado, Washington (no longer operating as on site consumptions locations), and Amsterdam to gain a feel for what RPOSC could look like in California.

As mentioned, inherent to the where to consume legal marijuana question comes the important discussion of how California’s citizens envision their state’s relationship with marijuana. Do we see it as a “sin” product to be taxed and regulated similar to alcohol and tobacco? Or is there something socially or physically dangerous about marijuana consumption that warrants removal from the social/public sphere to a degree greater than alcohol or tobacco? While my classmates may dig deeper into those particular tax or moral questions, they are salient to addressing the utility versus social cost of allowing marijuana consumption to be brought out of the privacy of the home and into specific use lounges and social establishments.

If Californians decide that RPOSC is a good idea, what forms will it take? California could copy its current commercial marijuana entity, the medical dispensary, and perhaps expand currently existing exemptions for tobacco lounges (under state and local anti-smoking ordinances like AB13 enacted by the CA legislature in 1995) to allow marijuana consumption (via smoking, vaporizing, or eating) on those sites.

Marijuana businesses similar to actual cigar lounges could also be feasible, and do not depart far from currently existing business models. By age restricting access, and maintaining a closed venue with proper ventilation, marijuana enthusiasts could purchase marijuana buds or pre-rolled joints similar to a purchase made at a tobacco or cigar store, and stay to enjoy their purchase.

If Californians desire, they could embrace more commercially advanced forms of RPOSC. Marijuana “lounges” like “The Lazy Lion,” a lounge/social club in Colorado Springs, CO, sell daily or monthly “memberships” to access the private interior of the lounge. Inside, enthusiasts  have access to multiple video games systems and TV’s, an expansive selection of bongs and pipes, a DJ, different marijuana strains available for purchase, and a sophisticated concentrate (“dabs”) bar offering “happy hour” prices from four to five every day. Replace the marijuana sales with craft beer, and the above description could very well be about a well-appointed bar currently found in a California urban area where an individual may go to enjoy an alcoholic beverage.

To extend the bar example, the hypothetical California “cannabar”/ “budpub” could sell marijuana that they or those in their local area grew, noting to customers the particular flavors and production process for different strains in a similar manner as the vintner, brewer, or bartender may do for a wine, beer, or spirit. The “craft” model of beer in California and other states has created a lucrative and growing industry of breweries, gastro-pubs, and restaurants that has revitalized formerly undesirable areas in Oakland and San Diego, usually zoned for industrial/commercial uses; why can’t this same model be applied to marijuana production and sales, with a new generation of “bud-pubs” serving the same upscale, organic, locally-sourced food and marijuana from reputable local farmers and marijuana cultivators (or even the business’s personal grow) that current craft beer breweries and pubs tout?

Questions on the forms and functions that businesses offering RPOSC could take are important to answer if and before we legalize, as having a well-planned legalization scheme can benefit the state by providing firm rules for entrepreneurs and investors to rely on if they intend on investing any sums of money into RPOSC and other cannabis related businesses.

Finally, despite our state’s long social history with marijuana, including the aforementioned Prop. 215, California was not in the first group of states to fully legalize. While placing out of the top four is not ideal if looking for Olympic medals, in California’s case, slow and steady could indeed win the race. But how can California win the race when starting years behind? The answer: create business-savvy marijuana laws that provide the greatest benefit to our state and local communities, while identifying and minimizing social costs. If RPOSC is balanced correctly and intelligently, our regulatory model could serve as an example for states and communities around the country to allow the safe, effective and lucrative operation of retail point of sale marijuana consumption businesses.

-Philip Brody for the Drug Law and Policy Blog

The Ganjapreneur’s Road To Something Bigger

Untitled

Imagine – it’s 2025 in California. Marijuana has been recreationally legal for almost ten years. You leisurely walk into the local gas station and purchase a pack of Marley Natural Special Blend – a brand of marijuana cigarettes. While you stand outside and light up, people walk by you as they file in and out of the store. No one says anything to you. No one calls the police. No one cares what you are doing. Marijuana has taken root in the mainstream American culture. Big Marijuana has risen.

So what exactly is Big Marijuana? Is it the same as Big Tobacco? The answer to this question depends on how “Big Tobacco” is defined.

Generally, Big Tobacco is a derogatory term referring to the industry that consists of the largest tobacco companies in the United States. Big Tobacco reached the height of its power in the early 1960’s and was known for its enormous spending on political influence. Its lobby centered attention on the notion that the science of tobacco was uncertain, and it called into question each medical and scientific finding that was released to the public.

Now on the decline, Big Tobacco corporations such as Phillip Morris, R.J. Reynolds, and Lorillard are credited with a long history of lying to Americans about the dangers of smoking. Their exploits include having doctors promote cigarettes as medicine and deliberately targeting children as “tomorrow’s potential regular customers.” Although Big Tobacco’s glory days have passed, it still remains a powerful entity, and is being used as the model to explain what the rising marijuana industry could one day become.

Will Big Marijuana follow the same path? This question is difficult to answer. However, certain parallels between Big Tobacco and the rise of marijuana in the United States are striking. Take, for example, the strategy employed by Big Tobacco of having doctors promote cigarettes as medicine. Is marijuana currently being promoted as a medicine? The legalization of medical marijuana in 23 out of our 50 states says that it is. What about the strategy employed by Big Tobacco of questioning each medical and scientific finding that was released? There sure seems to be a large variance of opinions about marijuana throughout the scientific and medical communities. Do you see the pattern? Or it is too soon to tell where the marijuana industry is headed? Or maybe you don’t care about the ethics of Big Tobacco, but you smell a business opportunity in Big Marijuana. You might be in luck.

As each year passes, more and more states and municipalities across the country are choosing to decriminalize marijuana and some are going a step further in choosing to legalize and regulate it. Nationwide support to end prohibition is increasing every day and money that was once being lost by enforcing the ban against marijuana is now being found through tax revenue from the regulation of marijuana’s distribution. In states like Colorado and Washington, millions of dollars are flowing from consumer pockets and into the hands of state governments and bold businessmen. In states where marijuana remains illegal, the black market continues to generate an exorbitant amount of untaxed profit for the opportunistic outlaw.

Whatever shape the marijuana industry may take in the future, it is clear that it is not going away. For a country that prides itself on its capitalist foundations, there is simply too much potential profit and opportunity for the marijuana industry to stagnate. As time moves forward, Big Marijuana will inevitably show its face, however beautiful or ugly it may be. If I – the entrepreneur, businessman, visionary – wanted to be that face, how would I get there?

In the hostile and dynamic legal environment that surrounds the marijuana industry, how would I advertise and market my company’s product or service to consumers? How would I expand my business across state boundaries? How would I protect my brand? How would I take on investments and stay on good terms with the IRS? And for all of this, is it even possible to build Big Marijuana?

These questions are daunting, and as the law changes daily the answers to these questions follow suit. But all hope is not lost. There are companies out there that have formed their own answers to these questions. Take Marley Natural, for example: the company that is planning on being the “Marlboro of Marijuana” plans to launch its first product in “Late 2015.”

If they can do it, so can I. In this multi-part series I will envision a potential framework of how a company might overcome some of these obstacles. Stay tuned for more.

Jeff Madrak for Drug Law and Policy – Follow us on Twitter @DrugLawPolicy