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California Marijuana Sales Climbing Despite Coronavirus, State Report Shows

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California took in more than $208 million in marijuana tax revenue during the last quarter, slightly exceeding figures from the first quarter of the year, the California Department of Tax and Fee Administration (CDTFA) announced on Wednesday.

While numerous industries are suffering amid the coronavirus pandemic, the report from California is another example of how the cannabis market seems to be riding out the storm.

“Total tax revenue reported by the cannabis industry is $208.4 million for 2nd Quarter returns due by July 31, 2020. This does not include tax revenue collected by each jurisdiction,” the department said in a press release. “Previously reported revenue for 1st Quarter 2020 returns was revised to $205.9 million, which included $107.4 million in cannabis excise tax, $26.9 million in cultivation tax, and $71.6 million in sales tax.”

All told, the state has seen $1.45 billion in marijuana tax revenue since retail sales were implemented in 2018. That’s from a combination of excise, cultivation and sales taxes.

According to a recent study, that revenue could be significantly stronger if local bans on cannabis businesses were lifted. Currently, 75 percent of cities and counties in the state have implemented marijuana market bans despite the 2016 statewide vote to legalize the plant for adult use.

CDTFA is also working to hold illicit marijuana operators in the state accountable and announced last month that it had issued tax warrants for twelve cannabis retailers that were doing business illegally in Los Angeles and San Bernardino counties.

While the department’s analysis shows an increase in revenue, the state Legislative Analyst’s Office (LAO) took a different approach and determined in a separate report released on Wednesday that there was actually a seven percent decline over the same time period. However, they decided against factoring in sales tax and focused exclusively on excise and cultivation tax revenue, accounting for the discrepancy in the two agencies’ findings.

Seth Kerstein, the analyst behind the LAO report, told Marijuana Moment that there are a number of reasons they omitted the sales tax data, including problems with the precision of the methodology to obtain that information and potential complications related to the timing of reporting sales tax.

He said the office has two theories about why excise and cultivation tax revenue might have declined: “The administrative rate adjustments and consumer stockpiling in the early days of the COVID-19 crisis.”

“We can’t say for sure whether the strong growth was due to one of these things, both of them, or something else we haven’t thought of,” he said of the increase in sales during the previous quarter earnings. “That said, there are some indications of an ‘all of the above’ story—these two factors, plus potentially others.”

Another state that’s seeing notable upticks in legal cannabis purchases is Illinois, which launched retail marijuana sales in January. The state experienced another record-breaking month of recreational cannabis sales in July, totaling almost $61 million. That smashed the previous record set in June of nearly $47 million.

Over in Oregon, officials have been witnessing a similar sales trend amid the global health crisis. Data released in May showed sales of adult-use cannabis products were up 60 percent.

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Kyle Jaeger is Marijuana Moment's Los Angeles-based associate editor. His work has also appeared in High Times, VICE and attn.

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Federal Workplace Drug Testing Proposal Could Discriminate Against People Of Color

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A newly proposed federal rule would expand workplace drug testing programs by allowing certain employers to collect and analyze samples of workers’ hair, a move critics say would lead to disproportionate job-related punishments for people of color.

Federal agencies can already test workers’ urine and saliva, which provide evidence of more recent drug use, but “hair testing potentially offers several benefits when compared to urine, including directly observed collections, ease of transport and storage, increased specimen stability, and a longer window of drug detection,” the Substance Abuse and Mental Health Services Administration (SAMHSA) argued in a notice of proposed rulemaking published in the Federal Register on Thursday.

If adopted, the change would affect thousands of government employees as well as private workers in certain federally regulated industries such as those who work in transportation or at nuclear power plants.

Drug reform advocates are skeptical about the move.

“It’s shameful that these harmful federal drug testing guidelines are even being considered again,” Rep. Barbara Lee (D-CA), co-chair of the Congressional Cannabis Caucus, told Marijuana Moment. “Not only is hair follicle testing discriminatory against people of color due to its sensitivity to melanin and darker hair, it gives no indication of someone being impaired on the job. This just goes to show how far behind the federal government is on cannabis policy.”

Paul Armentano, deputy director for the advocacy group NORML, said it is “mind-boggling that, in 2020, SAMHSA is considering expanding federal drug testing guidelines.”

“Hair follicle testing is highly problematic,” Armentano said. “A positive test, even when confirmed, provides neither evidence of behavioral impairment nor recent drug exposure. Moreover, the sensitivity and accuracy of the test is highly variable.”

Because hair exists outside a person’s body, for example, it’s more vulnerable to contamination—including secondhand smoke and other chemicals—than other sample types. That can put workers at risk of false positives unless results are checked through another testing method.

“Arguably most problematic,” Armentano said in an email, “is the reality that these tests discriminate against certain ethnicities because it is influenced by melanin content and is thus more sensitive to those with darker hair—while far less sensitive to those with gray hair.”

Other factors, such as humidity and hormones, could also affect test outcomes, Armentano added.

SAMHSA in its proposal acknowledges that numerous studies “provide scientific evidence that melanin pigments may influence the amount of drug incorporated into hair,” as well as that hair products more commonly used by people of color could lead to false positives. “As noted,” the filing says, “the Department wishes to solicit feedback on scientific studies comparing drug results and hair color and comparing urine to hair.”

The proposal is the latest effort by SAMHSA to expand federal drug screening to include specimens besides urine, including hair, saliva and even sweat. SAMHSA initially floated the idea of hair-based testing in 1997, and the agency put forward a rulemaking proposal along those lines in 2004. Regulators ultimately rejected that proposal amid concerns over accuracy, but SAMHSA has pursued the plan ever since. In recent years, the agency expanded testing to include saliva.

Unlike urine and saliva, hair can take up to a week to show evidence of drug use, rendering it especially useless as a measure of a worker’s immediate impairment. SAMHSA is proposing that hair testing be used only in pre-employment drug screening and random testing—not in cases where workers are suspected of recent use.

In an effort to protect workers from false positives and ensure that hair tests hold up in court, the proposal includes a directive that an alternate specimen, such as urine or saliva, be collected in order to verify a positive hair-test result. “This two-test approach,” SAMHSA’s summary says, “is intended to protect federal workers from issues that have been identified as limitations of hair testing, and related legal deficiencies.”

Marijuana-related cases, however, may not qualify for that additional layer of scrutiny. “The Department is specifically requesting comments, including support from the recent scientific literature, on whether hair tests that are positive for the marijuana analyte, delta-9-tetrahydrocannabinol-9-carboxylic acid (THCA), should be excluded from the requirement to test an alternate authorized specimen,” the proposal says.

Workers, some labor unions and even a Federal Drug Testing Advisory Board (DTAB) member have criticized the SAMHSA proposal as misguided, warning that the proposal is getting away from the science.

As reported in the trade publication Freight Waves, which covers the shipping and logistics industries, independent truck drivers are opposed to the rule, citing bias toward hair color and texture as well as a general lack of evidence that hair testing would improve driver safety. Major trucking companies, however, generally support the change.

DTAB member Michael Schaffer criticized the rulemaking process as “fatally flawed” because the board was left out of discussions.

“This means that these proposed guidelines were developed without the expertise needed to ensure that they are scientifically accurate and defensible,” said Schaffer, a toxicologist at a drug-testing lab, according to a Freight Waves report. “I fear that these proposed guidelines are going to unnecessarily restrict the use of hair drug testing, an incredibly effective tool at detecting drug use, for reasons which have no scientific basis.”

Armentano at NORML said that doubling down on a testing procedure that could exacerbate racial disparities simply doesn’t make sense, especially given today’s political climate.

“Given the heightened awareness surrounding the need for social and racial equity,” he said, “the idea of proposing a testing procedure that will inherently deny more people of color opportunities than it would others who have engaged in exactly the same activities is beyond tone deaf and counterproductive.”

SAMHSA estimates that about one percent of the 275,000 drug tests it expects federal agencies to do every year will be for hair specimens. When it comes to workers in jobs regulated by the Department of Transportation, the agency anticipates that 1.53 million of a total 6.1 million drug tests will be hair-focused. For nuclear workers, 15,000 of 150,000 total tests would be of hair specimens.

“These projected numbers are based on existing annual pre-employment testing that currently occurs in the regulated industries and current hair testing being conducted,” SAMHSA wrote

The agency is accepting public comments on the proposal through November 9.

This story was updated to add comment from Lee.

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Congressional Bill Would Allow CBD And Other Hemp Compounds To Be Sold As Dietary Supplements

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A pair of congressmen on Friday introduced bipartisan legislation to allow cannabidiol (CBD) and other hemp-derived compounds to be marketed and sold as dietary supplements—a change that could clear up legal confusion at retailers across the country.

The proposal, sponsored by Reps. Kurt Schrader (D-OR) and Morgan Griffith (R-VA), is part of an ongoing effort by the federal government to find a path forward on hemp and its derivatives after they were broadly legalized under the 2018 Farm Bill.

The new bill would make clear that Congress wants to see federally regulated CBD and other hemp products made available to American consumers.

“Hemp was historically an important crop for Virginia farmers, and dietary supplements made from it do not possess dangerous addictive qualities,” Griffith said in a press release. “Nevertheless, the current state of regulation creates confusion about its legal uses. I joined this bipartisan bill to provide certainty for hemp farmers that their crop may find legal uses.”

While the 2018 agricultural legislation allowed the production and sale of hemp under state-approved programs, the federal regulatory framework for products derived from the low-THC version of the cannabis plant has lagged, frustrating businesses and law enforcement. In a letter sent last year to the head of the Food and Drug Administration (FDA), bipartisan lawmakers complained that the agency’s “current regulatory posture on CBD has created significant regulatory and legal uncertainty for participants in this quickly evolving industry.”

Though the regulatory landscape could soon change—FDA earlier this year reopened a public comment period around how CBD should be regulated, and last month the agency submitted draft enforcement guidelines to the White House—the new bill from Schrader and Griffith would make clear that Congress wants to see action on CBD and other hemp products sooner rather than later.

The legislation, titled the “Hemp and Hemp-Derived CBD Consumer Protection and Market Stabilization Act of 2020,” would mandate that “cannabidiol derived from hemp, and any other ingredient derived from hemp shall be lawful under the Federal Food, Drug and Cosmetic Act (21 U.S.C. 301 et seq.) as a dietary ingredient in a dietary supplement.”

Hemp-derived dietary products would still be required to comply with federal requirements on packaging and labeling under the proposal, as well as FDA rules regarding new dietary ingredients.

Industry advocates, who have pushed hard to clear a federal path for hemp-derived CBD, say the measure would boost consumer confidence in CBD products and help businesses that poured money into hemp production early, expecting markets to open quickly.

After the 2018 Farm Bill’s passage, thousands of farmers and small businesses invested in what was widely seen as a CBD boom, the U.S. Hemp Roundtable, an industry group, said in a press release on Friday. “However, public announcements by the FDA questioning the legality of ingestible hemp-derived products have hindered the progress of the industry and put at risk the livelihoods of many hemp farmers. Not only did the lack of clarity spell economic disaster, but also resulted in a lack of regulations around quality, leaving consumers unprotected,” the organization said.

“Enabling CBD to be lawfully marketed as dietary supplements and mandating that manufacturers comply with the entire existing regulatory framework for dietary supplements would create immense confidence in hemp and CBD products, and would provide great opportunity for hemp farmers across the nation,” added Jonathan Miller, the organization’s general counsel. He predicted the market for products extracted from hemp would exceed $10 billion within a few years.

The group is asking supporters to encourage Congress to pass the legislation.

It’s not the first time such a bill has been introduced. A different group of bipartisan lawmakers introduced a similar measure in January that would have included CBD in the definition of dietary supplements under the Food, Drug and Cosmetic Act. The House, however, hasn’t held any hearings or votes vote on the proposal.

Separately on Friday, the U.S. Department of Agriculture (USDA) announced that it will reopen a public comment period on hemp production and testing, seeking additional feedback on topic areas such as interstate commerce, breeding and testing methodology. The public comment period first closed in January, but the agency said the initial round of more than 4,600 comments identified a handful of crucial issues. Industry advocates hope the agency’s decision to seek further input could mean revisions to some of the agency’s more onerous restrictions, such as one that requires hemp be tested only at laboratories certified by the Drug Enforcement Administration, which critics have warned could create a production bottleneck.

Miller at the U.S. Hemp Roundtable told Marijuana Moment that the group is “hopeful” that after the new comment period, USDA will arrive at a “final rule that hemp farmers and industry can embrace.”

Hemp and Hemp-Derived CBD C… by Marijuana Moment

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As California Legislative Session Ends, Lawmakers Advance Some Marijuana Bills But Stall On CBD

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As California’s legislative session drew to a close this week, lawmakers approved measures to reform marijuana taxes, expand industry access to banking and launch a state-regulated appellation program to help identify where cannabis is grown. A hotly contested proposal to regulate hemp and CBD, however, failed to make the cut.

The handful of successful bills, some of which weren’t decided until the legislature’s final hours Monday night, now head to Gov. Gavin Newsom’s (D) desk. With his signature, they’ll shape the next phase of one of the nation’s most dynamic marijuana markets.

Most of the changes are more modest than industry advocates had hoped for when the year began, said Amy Jenkins, a lobbyist and senior policy director for the California Cannabis Industry Association (CCIA).

“We at CCIA were looking at this as a potentially transformative year,” she told Marijuana Moment in an interview on Tuesday, with many businesses hoping the state would consolidate a number of regulatory departments. “All of that really came to a halt in March, with the COVID pandemic and need to essentially shelter in place and mostly shut down business as usual.”

“We went from, as an industry, talking about these really exciting, transformative reform concepts to really post-pandemic preservation,” she added.

Perhaps the biggest victory for the industry in 2020, Jenkins said, had nothing to do with the legislature at all: As the pandemic set in, regulators deemed the marijuana industry essential, allowing businesses to continue operating. “Really progressive areas, like San Francisco, were poised to shut down,” she said. “I think a lot of people discount the significance of that.”

Some of the newly passed bills that will make their way to Newsom’s desk, such as those involving banking and appellations, result from years-long efforts by advocates. Others, such as tax and testing changes, represent more mechanical adjustments to the market.

Here’s a quick rundown of the measures passed by lawmakers:

Appellations

Senate Bill 67 would help establish a long-awaited appellation program to allow producers to designate the physical origin of their marijuana, much like how wine regions are regulated. It would also prevent companies from misrepresenting where cannabis is grown, for example by misleadingly using the popular names of Humboldt or Mendocino counties in advertising and labeling. Under the bill, marijuana must be grown—either indoors or outdoors—in a designated city or county in order to qualify to use that name.

“People were really excited about this bill, because I think it solved two issues,” Jenkins said. “From the craft, sun-grown cultivator’s perspective, this kind of preserved the integrity of terroir, which is something that is really really meaningful to them, factoring in the sun and the soil and the topography.” At the same time, she said, it allows growers in regions less conducive to outdoor cultivation—Jenkins pointed to Los Angeles and the Coachella Valley as examples—to still represent and capitalize on their respective regions.

“I was so pleased to see this bill pass last night and that it’s heading to the governor’s desk,” Jenkins said Tuesday. “All indications are that he’ll sign it.”

Tax Relief

California marijuana businesses have been complaining about taxes, which in parts of the state are among the highest in the nation, since the plant first became legal. While reforms in Assembly Bill 1872 are more restrained than many in the industry had pushed for, Jenkins at CCIA still describes them as a win. Among other changes, the bill essentially freezes potential increases on tax rates on marijuana, which lawmakers have said is an acknowledgement of the pandemic’s financial effects—and the fact that cannabis businesses don’t qualify for federal relief.

“We thought it was important to give these companies tax certainty over this next year because they are not getting much of the relief that other small businesses are getting through the federal government,” Assemblymember Phil Ting (D), chair of the chamber’s Budget Committee, said in an interview with Cannabis Wire.

Banking

Another thorny industry issue has been access to financial services. Many big banks, being federally regulated, have avoided working with marijuana operators due to cumbersome regulations about doing business with clients engaged in what remains federally illegal activity. While California lawmakers can’t change the federal landscape, Assembly Bill 1525 removes state penalties for working with marijuana clients.

“This bill would provide that an entity, as defined, that receives deposits, extends credit, conducts fund transfers, transports cash or financial instruments, or provides other financial services, including public accounting, as provided, does not commit a crime under any California law solely by virtue of the fact that the person receiving the benefit of any of those services engages in commercial cannabis activity as a licensee,” a Legislative Counsel Digest description of the bill says.

Advocates are hopeful the bill’s adoption by California lawmakers will send a message to Congress about the need for federal reform. Beyond that symbolic support, Jenkins at CCIA said the bill’s passage is meant to reassure financial institutions that work or are considering doing work with the marijuana industry.

“We talked to the banking community, and they said they wanted this and needed this,” Jenkins said. “If that bill can serve to encourage more banks to bank the industry, then that was something we wanted to take very seriously.”

On the federal level, talks about marijuana banking are ongoing. A vote on federal descheduling expected this month could open the door to financial services for the entire legal industry if the bill is enacted into law. The House passed a standalone cannabis banking measure last year and included the reform in its latest version of a federal COVID relief bill, but so far the Senate has not adopted the change.

Testing

Lawmakers sent along a few product-testing tweaks for the governor’s approval, including a measure that would allow manufacturers to submit unpackaged product—rather than a product in its final retail packaging—to testing labs. Industry advocates said the change will remove a needless expense for producers, making state-mandated testing more affordable. Another bill would require more precise measurement of THC content in edibles, while a third would allow state-licensed cannabis testing labs to provide testing services to local law enforcement or prosecuting agencies. That law enforcement work wouldn’t be considered “commercial cannabis activity” overseen by the Bureau of Cannabis Control.

Hemp CBD Regs Fall Short

One widely anticipated piece of legislation that didn’t clear the finish line this legislative session had to do with hemp-derived CBD. For the second consecutive year, an effort to pass a bill that would regulate hemp CBD in food, beverages, cosmetics and dietary supplements was scuttled at the last minute as stakeholders failed to reach an agreement before the legislative deadline. A proposal still being hammered out in the session’s final weeks would have finally regulated CBD in food and beverages, which have been sold for years amid legal uncertainty.

A pervasive sticking point, however, was the draft versions’ proposed ban on CBD products intended for smoking and vaping. Jenkins said she and CCIA repeatedly attempted to strike smoking and vaping products from the suggested ban, though she acknowledged the matter is a “controversial issue” from both a political and industry standpoint.

Another industry group, the U.S. Hemp Roundtable, was frank in its disappointment about the failure to cross the finish line. “This weekend, our political system let us down,” the organization said in an email newsletter. “Due to intra-party fights that had nothing to do with our legislation, the state Senate leadership refused to allow a vote on our legislative language.”

While legislation action will have to wait for future sessions, Jenkins at CCIA said, work on the proposal is expected to continue with urgency. “The conversation is not going away,” she said, “and I think there’s going to be additional stakeholder discussions that will inevitably occur throughout the fall.”

All in all, Jenkins said, California’s 2020 legislative session was one of “modest wins” for the industry, which isn’t too bad given COVID’s abrupt halt to regularly scheduled programming. “We went from about 36 bills down to about ten. That was the lowest number of bills I’ve seen since I’ve become a cannabis lobbyist” in 2015, she said.

Still, Jenkins said, the results are heartening in terms of signaling the normalization of an industry long regarded as politically taboo. Of the bills that passed, she noted, many sailed through on unanimous or near-unanimous votes.

“I think that’s a great testament to everything the industry has been doing to educate the legislature,” she said. “They passed overwhelmingly with bipartisan support, and I think that is something that we shouldn’t overlook. It’s a testament to how far we’ve come.”

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