By Jordan Zoot, CPA, CGMA, CITP, CISM, CGEIT. Managing Director & CEO, aBIZinaBOX Inc.
On Wednesday, March 20, 2019, the California Cannabis Industry Association (“CCIA”) will host its 4th Annual Policy Conference in Sacramento, California. The conference has a notable line-up of representatives from the legislative and administrative branches of California government, including Nicole Elliott, Senior Advisor on Cannabis, Governor’s Office of Business and Economic Development; Hon. Wendy Carrillo, Assembly, District 51; Hon. Reggie Jones-Sawyer, Assembly, District 59; Hon. Scott Wiener, Senator, District 11; Hon. Scott Wilk, Senator, District 21; Hon. Ricardo Lara, Insurance Commissioner; Lori Ajax, Chief, Bureau of Cannabis Control; Christina Dempsey, Manager, California Department of Public Health; Nicolas Maduros, Director, California Department of Tax and Fee Administration; and Richard Parrott, Director, California Department of Food and Agriculture.
The conference also has an impressive line-up of keynote Speeches, Presentations, and Sessions. There are keynote speeches from government representatives as follows: Hon. Ricardo Lara, California Insurance Commissioner; and Nicole Elliott, Governor’s Office. There is another keynote speech of particular interest to us for the reasons discussed below: Importance of Associations: Taking a Closer Look, Saphira Galoob, The Liaison Group.
There are a couple of Panels that are certainly timely in view of the description of California’s regulation of its cannabis industry by those who claim to be most knowledgeable regarding the cannabis industry as maladroit: State of Cannabis Regulations, moderated by Sean Luse, Berkeley Patients Group; and 2019 Policy Development & Legislation, moderated by Amy Jenkins, CCIA.
There are also a couple of Sessions that should prove interesting: Challenges and Opportunities in Cannabis Testing, moderated by Emily Richardson, CW Analytical Labs; and Distribution: The Gateway or Cog to Stability, moderated by Elizabeth Conway, Surterra Wellness.
There are four Workshops that should prove helpful for some attendees: Ensuring the Cannabis Industry, moderated by Stacey Jackson, Golden Bear Insurance; Compliance: An In-Depth Look at What You Need to Know, moderated by Henry Wyckowski, Wykowski Law; Branding – The Experts Weigh in on What You Need to Know, moderated by Robert O’Shaughnessy, The Higher Ground Agency; and The President Signed the 2018 Farm Bill, Legalizing Hemp – What Next for Cannabis Businesses?, moderated by Kristin Nevedal, International Cannabis Farmers Association.
The preceding summarizes the apparent coverage of CCIA’s 4th Annual Policy Conference. Most of our readers will have seen one or more advertisements for this conference so the preceding provides nothing new. We have written this note, however, to question why it appears so many significant policy issues for California’s medical and adult-use cannabis industry are not being addressed at this conference.
Let us start with some broad policy questions that we believe should be asked. Why has California’s roll-out of its regulatory structure been described as “maladroit” in s recent financial analysis of the cannabis industry? Why have so few individuals who have involved California’s cannabis industry prior to the first steps toward regulation not been able to become incorporated into a regulated industry? Why did California fail to collect millions of dollars in tax revenue that it projected it would collect? Why do California’s cannabis regulatory agencies so frequently appear to be working at cross purposes to California’s cities and counties? Why does it appear neither CCIA nor California’s cannabis regulatory agencies are interested in developing more effective coordination of the cannabis industry with California’s cities and counties?
There is a keynote speech – Importance of Associations: Taking a Closer Look – but both the interests of independent cannabis businesses and associations of California cannabis businesses appear to be unrepresented at the conference. Where is the California Association of Independent Dispensaries? Where is the Association of Los Angeles Dispensaries? Where is the Sierra Foothills Growers Association? Where is the California Growers Association? Where is the Southern California Growers Association? Where is the Association of Delivery-Only Dispensaries?
Let us return to the missing tax dollars. The simplistic answer given by many is that cannabis taxes are too high and California’s cannabis regulations are too onerous. The failure of the California Department of Tax and Fee Administration (“CDTFA”) to require financial record-keeping and tax return reporting that ties into such financial record-keeping is a far more significant cause of the failure of CDTFA to collect the taxes it should have collected from licensed businesses. California cannot reasonably expect to collect the taxes it should collect if it does not require California cannabis businesses to keep accurate and complete financial records. California has also made it unnecessarily difficult to become a licensed and regulated cannabis business. California cannot expect cannabis businesses to become taxpayers if it does not make it easy to become a regulated cannabis business.
Let us turn to another topic. Have California’s legislative and administrative policymakers forgotten that Proposition 64 preserved all of the rights granted to Californians under Proposition 215? [See Keeping the Promise of Proposition 215] Most of the policymakers who are molding California cannabis industry at the present time have forgotten, or never knew, that former Governor Brown very likely did more to shape California’s cannabis industry with his 2008 memorandum when he was Attorney General than any single policymaker. The principles expressed in that memorandum remain valid today. The Proposition 215 rights granted Californians were preserved in Proposition 64. Medical cannabis distribution will begin making a comeback in California as soon as the financial advantages of medical cannabis over adult-use cannabis again come to the forefront.
Let us close by positing a broad policy question that cuts across all of cannabis regulatory agencies and cannabis regulations that have created such confusion and turmoil throughout California’s cannabis industry. Did California’s cannabis regulatory agencies err in failing to follow two underlying principles in their approach to regulation? We believe California should have adopted the two principles that follow. First, California’s cannabis regulatory agencies should have deferred all issues relating to land use and public health and safety to local jurisdictions to the maximum extent possible. Second, to the maximum extent possible California’s cannabis regulatory agencies should have made it as easy as possible for California’s existing cannabis businesses that were locally acceptable to become California licensed cannabis businesses.
Mr. Zoot is licensed as a CPA in CA, FL, IL, NY, and TX. He has a national reputation of technical and transactional taxation of pass-thru entities [Partnerships, LLC’s and S Corporations], private equity and alternative asset funds primarily in distressed mortgages and assets, professional services, real estate, venture-funded tech start-ups, and the commercial cannabis industry in California. He is engaged at numerous points of contact in a lead role with AICPA senior executives in the process of developing policy, advocacy and education for CPA’s serving the legal cannabis industry. He has been involved with OPR in connection with the cannabis industry, Title 31 [FinCEN] matters, and the cannabis regulatory agenciesin California, Bureau of Cannabis Control “BCC” [Retail, Retail-Delivery, Distribution – Packaging], California Dept. of Public Health “CDPH” [Manufacturing, Processing, Extraction], California Dept. of Food and Agriculture “CDFA” [Cultivation] and the California Dept. of Tax and Fee Administration [“CDTFA”].
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