Beginning with the 2018 Agriculture Improvement Act (the “Farm Bill”), hemp was removed from the Controlled Substances Act. This critical step paved the way for hemp plants, hemp seed, hemp seed oil, and CBD to enter the market and be regulated by the FDA in the same way that non-cannabis produce is reviewed.
Since marijuana is still illegal at the federal level and subject to a patchwork of competing state laws, the legal landscape is constantly shifting and changing, sometimes week to week. Before entering into this area of agriculture, you should consult a legal team well versed in agricultural and federal law. At Esquivel Law, we can give you the guidance you need.
STARTING AND SECURING YOUR BUSINESS
Growing cannabis or hemp is a tightly controlled industry because recreational marijuana remains illegal. To control the distribution of hemp and hemp-related products, the plant can contain no more than 0.3% THC, the active compound in marijuana. To ensure legal hemp growers remain legal, state agricultural commissions that oversee hemp require growers to obtain licenses and use only state-approved seeds or cloned plants that cannot produce buds with higher levels of THC. Licensees must agree not to use or sell the progeny of their own crop.
When starting up your hemp cultivation business, you need to account for this need to replace your seed base constantly. Since you cannot reserve some of your crop for seed or stock, this needs to be figured into your business plan.
When you come to Esquivel Law, we can help you design your initial plan to conform to the state requirements for licensing and sourcing seeds and plants. Once you have established your license, you can acquire your stock and assemble your cultivation team.
MISTAKES TO AVOID IN GROWING OPERATIONS
A cannabis growing operation is not much different from any agricultural operation. It has a few more regulatory steps and a few more legal pitfalls to avoid. There are some extra steps the cannabis grower needs to watch out for in this new and marginally regulated industry.
Have a good background in your intended product. Just as you wouldn’t set out to grow tomatoes commercially because you have a few tomato plants in the backyard, you shouldn’t believe a cannabis operation is scaling up from a few illicit pot plants. More than a few fully licensed and above-board operations have failed miserably because their owners didn’t have the agricultural or commercial background to make them a success.
Take the time to get good starter plants. In some states, like Florida, clones and seeds can only be obtained through the pilot projects of the Department of Agriculture. In other states, you can buy them wholesale, but they must be vetted through the state. Take time to get quality clones or seeds because you cannot grow a second crop from your own produce.
Train your staff. Again, consider a tomato growing operation. You would want a group of skilled tomato cultivators in your greenhouse to make your tomato operation a success. You also want a team of skilled cannabis growers to make your cannabis operation a success. This means they agree to comply with regulations, are prepared for inspections, and look for signs of infestation or mildew.
Prepare for inspections. Keep your operation, staff, and facility always prepared for inspection. By maintaining a culture of compliance, once you’ve met your first few inspections without comment, you won’t have trouble with later issues.
ESSENTIAL CONSIDERATIONS FOR CANNABIS OPERATIONS
Whether you are operating a cannabis-growing operation or a dispensary in a state with recreational marijuana, you can expect to follow strict regulations. Even in states with the loosest restrictions, such as California, regulations are still maintained so that companies can avoid Federal penalties.
Knowing all the regulations beforehand is daunting and can be impossible for the layperson. Luckily, you have help waiting. Cannabis attorneys like those at Esquivel Law keep abreast of the developments in the changing laws and know what you need to do to stay safe and legal.
As with any business, a business license is required to operate a recreational or medical marijuana dispensary. Some states have relatively relaxed application programs, such as California and Oregon. Other states issue very few licenses, with strict requirements for applicants. In general, you must meet these requirements:
You must have a valid business license.
The business cannot be within 600 feet (or more, depending on the jurisdiction) of a school or youth center.
The owner cannot be a convicted felon.
You must comply with all relevant zoning laws and environmental regulations.
It is essential that you review your state and local laws as well as federal regulations. Having a knowledgeable attorney is vital here. For instance, some states allow marijuana dispensaries and will grant business licenses, but some municipalities have banned them within city limits.
Nothing is changing as rapidly as the tax status of cannabis and marijuana. Although cannabis and hemp are nominally legal to grow under certain conditions, the tax law still considers it “drug trafficking” for purposes of tax deductions. (IRC §280E) Nevertheless, you must pay state and federal income taxes on your growing operations or dispensary; and IRC 280E makes audits likely.
The IRS understands the dilemma of honest hemp growers and dispensary operators and is working to resolve the problem. Unfortunately, the answer to this problem rests with Congress. Until then, your best solution is to work closely with a reliable attorney who understands your difficulties.
In most states, you cannot call your company anything that will appeal to children, like “Cool Cids Cannabis,” or include any medical symbols or terminology that implies you are a doctor’s office.
You may also want to avoid slang terms for cannabis or marijuana that will become dated quickly or make your business a target for federal or state regulators. Also, be aware that some companies have taken advantage of marijuana’s notoriety to name themselves after it, without being involved in the industry. “Chronic Tacos” is a Mexican fast-food franchise in California, not a cannabis dispensary.
The only thing more hazardous than growing and selling marijuana and hemp is transporting it. Marijuana is still illegal under federal law, and transportation across state lines is still considered trafficking. Trafficking and smuggling illegal drugs have some of the most severe criminal penalties on the books.
In 2018, then-Attorney General Jeff Sessions rescinded the Obama Administration’s prior guidance on the enforcement of marijuana enforcement. This return to harsher penalties for possession and cultivation came while states were relaxing penalties and enforcement. It is currently unclear if the Biden Administration has resumed the earlier guidelines.
Transportation of marijuana and hemp within a state depends upon the laws of that state. Transportation will be illegal if marijuana is still illegal within the state. If the drug has been legalized or decriminalized, then transportation may be legal, up to a certain amount.
Washington and California have specific statutes that permit transportation within their states.
Finally, Drug Enforcement Administration can enforce federal laws whenever it wishes. If you want a cannabis operation, you should consult a knowledgeable attorney before transporting any quantity of marijuana, hemp, or hemp-derived product within your state.
A good way to avoid endless bother and audits is to start your business compliant with rules and regulations and stay that way. Rather than opening your doors and then being told all the ways you’re out of compliance, it’s better to have all your paperwork in order in the first place.
Start by finding a good attorney who knows what they’re doing. You should have an attorney you’re comfortable talking to and one who can explain things in layperson’s terms. These regulations are complicated enough; you want your attorney to be able to translate them into English.
Both you and your attorney must be committed to compliance. It’s fine to think of yourself as a rebel, but a business can’t survive too many brushes with inspectors and commissioners. Leave regulatory testing to the ACLU.
Develop a culture of compliance within your business. Once you and your attorney are on the same page, it’s essential that everyone who works for you be equally determined to make the business work before pushing the envelope. You must make it clear that, in this case, laws are not there to be broken.
When in doubt, ask. At Esquivel Law, we are the first to admit we don’t know everything about a rapidly changing field. If you have questions, ask them. If we don’t have answers, we will find them. It’s better to ask and find out than to proceed in ignorance.
Because marijuana is still illegal and at this time is still considered a Schedule I drug (that is, with no known medical or pharmacological uses), growing, selling, and distributing any hemp or marijuana product is a matter of meeting the regulatory loopholes carved out in recent years.
To avoid having those loopholes close on you and your business like a noose, you need expert legal advice from an attorney who is up to date on all the latest information. At Esquivel Law, we can ensure you have the most recent information to keep ahead of regulatory compliance.
FAQs About Cannabis
WHAT IS CBD? IS IT MARIJUANA?
CBD, or cannabidiol, is a compound present in the cannabis plant. CBD derived from hemp is not considered a marijuana derivative if the plant has less than 0.3% THC. CBD may or may not be legal in some states, but it has been removed from the federal Controlled Substances Act.
CAN YOU OVERDOSE ON CANNABIS? IS IT POISON?
Although there have not been any known overdoses on cannabis, the effects can be serious, especially in small children or people not expecting the symptoms. Physical effects can include increased heart rate, high blood pressure, nausea, and vomiting. These side effects can lead to panic, anxiety, and paranoia.
ARE SYNTHETIC CANNABINOIDS THE SAME THING AS MARIJUANA?
Despite the name, synthetic “cannabinoids” (K2/spice) are not cannabis. They are man-made chemicals, sometimes sprayed or infused into tobacco or other plant material and smoked. Because they are not regulated, their actual effects are unknown and appear very toxic.
IS USING CANNABIS SAFE? ARE SOME WAYS SAFER THAN OTHERS?
THC is a drug, and all drugs have side effects. Excessive use of any medication can have long-term negative effects on the body. Smoking, vaping and dabbing all involve inhaling smoke into your lungs, which is never healthy, no matter what product is in the smoke.
WHAT IS THE DIFFERENCE BETWEEN LEGALIZED AND DECRIMINALIZED?
Legalized means that a drug has been made legal by law. For instance, aspirin and acetaminophen are legal drugs. Decriminalization means that a drug is still illegal, but the state will not prosecute you if you’re found possessing below certain amount.
Suppose you are arrested for driving without a license and have a small amount of marijuana in your pocket. In a legalized state, nothing will happen. In a decriminalized state, it will be disregarded if it is below the statutory amount, but you can be charged if it is over that amount.
WHY YOU NEED A CANNABIS ATTORNEY
Despite the slow acceptance of marijuana, hemp, and cannabis into society, cannabis remains an illegal substance federally and fully legal in only about 15 states. The status of commercial growing operations is even more precarious.
At the same time, the demand for hemp products, hemp oil, and CBD as an alternative to petroleum-based products is increasing, meaning large-scale cultivation of hemp may become a reality whether the government wishes it or not.
These knotty questions mean that the would-be cannabis producer must have a knowledgeable attorney ahead of the curve on laws and regulations that affect the possession, growing, and distribution of cannabis, and who understands commercial agriculture and transportation law.
Esquivel Law is uniquely positioned to take you and your business forward through these times. Our principal attorney, Katy Koestner Esquivel, has expertise in all the areas that bracket cannabis litigation and she can help get you through these complicated times and establish your business.
When you need a cannabis attorney, you need Katy Koestner Esquivel and Esquivel Law. Call us at 239.206.3731 or visit our website to request a consultation. We are here to work with you today.