Primer on Cannabis | The Stoler Report-New York's Business Report
♪ [Theme Music] ♪ ♪ [Theme Music] ♪ >>> Michael: Boo! This product called cannabis is legal in New York, legal in New Jersey, perhaps being legal in Connecticut. But what do we know about it? Not too much. You hear about cannabis, you hear about hemp. I have no idea. So today with the help of my executive producer, Charles Messina, I've assembled this group of professionals to talk about a Primer on Cannabis. As I said, my guests include Leslie Hoffman, who is the Cannabis Industry OG. And she'll explain what OG means in a second. And then we have Ngiste Abebe, who is the vice president of Public Policy Columbia Care, and also the president of the New York Medical Cannabis Industry Association. And last but not least, the professor, the
professor of a law class at New York Law School on Cannabis and also the partner and the partner in charge of the cannabis industry group at Genova Burns, Charles Messina. So, Leslie, you are the OG. What is OG? And also tell me about 420. I like these different phrases. >>> Leslie: OG often refers to original gangster and I sort of don't just adopt that because I am no gangster. In fact, I've had a diverse career over many years. But I've been in, in the
industry for a long time. I started by coming to know the maligned history of the cannabis plant. OG is used on strains and for people. So, it's, it basically refers to been in the game for a long time. 420 is a sort of celebratory moment, daily and annually, in the cannabis industry, and I think the original story goes back to Palo Alto High School kids getting released at 420 and running out back into the hills to share a joint. And these days, April 20th, 420 is the big holiday in the cannabis industry.
>>> Michael: Ngiste, tell us how you got into this business. >>> Ngiste: Well, I can tell you if you had told my parents or even me, when I started college that I would end up -- doing cannabis policy, I don't think any of us would have even known that that was coming. But my first foray into cannabis policy was in grad school, where we did an analysis of Prop-19 for the office of national drug control policy and our it, they were a client for the class. And the top takeaway we had was, legalization was coming. It was going to come at the state level
first and the federal government needed to figure out how it was going to interact. And so now a decade later, it's interesting to be working on exactly [chuckles] these issues as my full-time job, having previewed them a decade ago in grad school. And for me, I came here through a career in international affairs first and then politics in my home state.
But really cannabis to me is the intersection of so many different types of policy that I got to work on throughout my career. It's healthcare policy, it's criminal justice reform policy, it's community engagement and organizing. And it's so many different areas layered into one. And I think what makes it really exciting is, what we can do here with cannabis, where we're really centering social equity and really thinking about what does equitable policy look like. And quite frankly, in America, we've never seen an equitable policy implemented. And now we get to start working on that in a way
that starts with cannabis, but starts to branch out into all of those other intersecting areas of policy that, that touch cannabis. And that to me is what makes this, this job so exciting. >>> Michael: For, for my viewers who don't know what Columbia Care is, would you tell me a little bit about Columbia Care? >>> Ngiste: Sure. Columbia care is a national medical cannabis company, where adult use in states where that is as legal. We operate in them. I believe we're at 17 or 18 states right now, and New York -- we're headquartered in New York and New York was one of our first states, where we were one of the first dispensaries to open about five years ago.
>>> Michael: Now, according to your website, unless I'm incorrect, it said that you have one location in New York on 14th. Am I correct? >>> Ngiste: We have one location in Manhattan on 14th street, Brooklyn off of Court Street. >>> Michael: Is there any reason why you have Manhattan and Brooklyn? I know that certain of the other legal medical cannabis companies are in the Bronx and Queens. Any specific? >>> Ngiste: That was before my time, but I imagine it was where we could find both the zoning and landlords who would rent to us. [chuckles]
>>> Michael: Okay. >>> Ngiste: And, and be accessible to patients as well. >>> Michael: Which we get into speaking to Charles, because this is the question of legality. It's legal in New York and New Jersey. But it's not legal on the federal level. What is all this? And you pay additional taxes. First of all,
tell us how you got involved with this Charles. And then we'll try to do explanation on some of these questions that I just posed. >>> Charles: Yeah, sure. Look, I think they kind of go hand in hand. You're right. I mean, right now cannabis, marijuana is
still scheduled as a schedule one drug by the federal government. That means it has no medicinal value the way the federal government has classified cannabis right now. Then you have these state medical regimes that are set up for patients specifically because they presumably have medical value. Right? So, for me, I mean that sort of
interplay fascinated me, similar to Ngiste. I think if you asked me in high school, if I'd be in the cannabis industry, people would be surprised, right? You know, six years ago when I started doing work in this space, it wasn't for social justice reasons at first that's something I care a lot about now. I didn't personally know anyone suffering from a condition that cannabis could cure. Although I know so many people now that have been healed by the plant, you know? Even my dad's mom -- I heard this story probably just a few months ago for the first time. My grandma Grace, who had never tried marijuana before, when she was suffering at the end of her life from breast cancer in the eighties, her doctor actually recommended she gets some help from getting cannabis from the "kids" of the family, to help with nausea and enjoy a better quality of life before she passed. So, you know, you hear about so many of those stories. Now I have clients and friends
suffering from a condition that is scaring, but, but for me, it just kind of was a matter of happenstance, Michael. I started off with several clients in the space years ago, I saw the industry during that time as an opportunity for me and our firm to jump into it. And I started just with the first client, let's call him Jack. And he worked at a big corporation, started a side business selling cannabis gift boxes. Right? So,
Jack had a law degree. I did, of course, early in my career -- the two of us along with one of the most reputable ABC lawyers in the state who was at our firm at that time, we were scratching our heads at first about all the hurdles just to make that little business compliant. And the bottom line is that there was so much legal gray area, you know, for a company just selling cannabis accessories -- figuring that out, fascinated me. You know, you fast forward to now, we'd launched a group, probably one of the first firms at least based in New Jersey, that did so prior to Murphy getting elected. Now I'm teaching a cannabis
course, which is really fun, where I went to law school. And we're doing really everything or most of what can be done in the industry from soup to nuts as a firm. So, it's been a rollercoaster, a nice compliment to the litigation work that I've been doing my whole career and still doing. >>> Michael: What is the taxation situation? You can't, you can't get deductions for variety of things. You can't do banking. Columbia Care even has their own credit card, I noticed, you know, and they have, you can be a member of a club if you have this card. While many people say you have
to use cash and you know, the cash businesses over there, banks still have no idea what to do. So, it's, even though it's been around, it's a, it's a changing place. So, Leslie, since you are the OG, and the guru, longer than all of us sitting here, [Charles laughs] tell us about the legal ramifications that you know about taxation and what you know. >>> Leslie: Well, we have a couple of things. We'll talk about 280e -- 280e is important. It's a burden that is put on to the industry that in my humble opinion has to be addressed. And
it's obviously, it will be as federal legalization gets addressed. What we've found in the industry is that in states that marijuana is legal, state charter banks will often wait into the space and provide banking services to legal cannabis companies. Of course, in the illicit market, it has traditionally been done underground and that's where these thoughts of no banking come from. But in legal states, typically you can find banking. And there are a couple of banks popping up that are focused on cannabis business only. I love
the idea that Columbia Care has created a credit card, because the credit card problem really stems from the fact that they're owned by the big national banks. And those folks do not yet do cannabis business. So often you'll see a cash machine in a dispensary, so that you can, you know, use your bank to get your cash, to go up to the counter and spend it. I personally feel very strongly that over-taxation, either to the customer or patient, as the case may be, in the form of sales tax is burdensome and frankly makes it difficult for the legal industry to compete with an illicit market. Right? Nobody in
the illicit market is charging sales tax. But 280e is addressed at the corporate level and it's onerous and Charles that I'm trying to tee you right up there. >>> Charles: Without getting too granular, just to break it down simply, I mean, businesses can deduct usually ordinary business expenses. What 280e of the tax code does is prohibit prohibit
businesses from deducting those ordinary tax expenses. Think your rent, you know, marketing or advertising costs. So, you already have barriers to entry in the industry right now. I mean, trying to get insurance for a cannabis company is nearly impossible. And when you get insurance, it's mired with exclusions, right? Banking and, you know, Leslie touched on that too. We should, I think, touch briefly on the more act and the
safe banking act, which is being reintroduced at the federal level, and that will have an impact on all these things, assuming they eventually pass. >>> Michael: That's the act that Nadler is working on? >>> Charles: Correct. Yeah, it was re-- it was reintroduced this year. I mean, just to kind of explain to where the industry stands as a whole right now. Right? You, you hear about cannabis and hemp. A lot of people still get them confused.
I have partners that still get confused. Like what's the difference? Basically, compounds coming from the same basic plant and commonly known chemical compounds. You hear about THC, stands for tetrahydrocannabinol, and then you have cannabidiol, CBD. So, cannabis contains a higher levels of THC. That's the
compound responsible for causing the psychoactive effects of getting high. Whereas hemp contains only trace levels of THC and can be rich in CBD. So, CBD is a compound, right? It's said to be helpful, treating a range of symptoms and ailments.
It's still in its relative infancy. So, you can't market that CBD, you know, actually cures or helps with certain ailments, although it does. You just can't -- So, it says these companies and users of it, right? You have the 2018 U.S. farm bill that effectively decriminalized the production or use of hemp and cannabis derivatives with a lower than 0.3% THC concentration on a -- basis. So, cannabis, you have cannabis or marijuana still schedule one drug with no-- additional benefit at the federal level as it stands right now. But you know, hemp CBD, you know, legal at the
federal level, still subject to oversight with the FDA, the department of that, you know, so the bottom line is, we're looking at the same plant grown under different agricultural circumstances, they share many of the same strains or different strains, but many of the same chemical compounds. >>> Michael: Which states besides Colorado was Columbia Care very active in? >>> Ngiste: Illinois, California, New Jersey now, New York and actually Virginia, which has partially legalized some [chuckles] aspects of cannabis -- where DC was actually where we first opened up and when we first licensed, many years ago. So, -- we get to see a lot of different policy and a lot of different transitions. And I think that evolution of how different states have approached legalization is really, really key. I mean, California and a lot of the states in the west were really forward-leaning and the first to implement this, and that created different opportunities, but also different legacy problems and challenges that we've seen in other states. And now with Illinois, New York, New Jersey and Virginia is the most recent traunch -- I know I'm leaving some out -- Alabama just legalized medical, Connecticut, is obviously on the, on the verge of legalizing as well. But with all of these states, we've
started to see a shift from this is federally illegal, how can we minimize criminality, diversion, all of these things -- which inherently left up people who had previous cannabis convictions of any sort. And a lot of those journeys didn't address the longstanding effects of cannabis prohibition around things like expungement, re-sentencing, you know, changing criminal codes and things like that. Whereas when you look at Illinois, New York, Virginia, and New Jersey, now you have equity in this concept of how do we restore and repair the harms of cannabis prohibition going forward? And a lot of the states that are legalizing adult use have legalized the medical first. And so, the other pillar here it's how do we make sure patients continue to have access? And don't just have continued access, but see improved access.
Because a lot of folks are using this as a, as a medicine, and as Charles has mentioned, despite the fact that the federal government has, has not reconciled that, frankly, its own policies. Because the federal government also has a patent on cannabis for medical research purposes. Those two, I think, parallel tracks of how do we use this to restore the past harms and how do we ensure patients continue to have, and see improved access and affordability are, are really some of the policy underpinnings and some of these transitions.
>>> Michael: I've read the read a number of articles, which basically said that it's better for the consumer to buy from the black market than buy from a legal place due to the excise taxes and other charges. Who wants to explain that point? >>> Leslie: I'll jump in for a minute because I was referencing that very point earlier over to -- I see the political realm being very eager to jump in and impose a lot of control and regulation often of something they don't understand very well. I mean, even the legacy market has been unable to do a lot of serious scientific research. So, we all have a lot to learn, let's say. But also the big money grab and when you put a
30% tax on top of the base cost of a product -- I mean, the gap is too big. I personally believe that we need to lower the bar of both entry into the industry and access to the plant. And pricing is one of the things that provides access. Obviously, testing is key, if you're selling it. >>> Michael: What, what is proposed for New York and New Jersey with regard to taxation on the products? Because right now you only have the medical marijuana in the states, but both states have approved it.
>>> Leslie: And we'll even start with the fact that in New Jersey, at least, which I have worked in, medical patients are paying sales tax. Like that's not the way we do it. Right? You go buy medicine or any other ailment, you don't pay sales tax. >>> Ngiste: And I think it's even more important than medical context, because none of this is covered by your insurance. And patients are using this for medicine and it's an incredibly high cost for patients to bear. Which is why in New York, one of the things we really pushed for, it was called flower, because it's the most affordable product we can make. But I think I just
want to echo what Leslie said, there's a lot of, there's a big push around these taxes. And I think California is a great example of how, when you have very high, very complicated tax structures, all you do is set up the illicit market to continue thriving, because the legal market can't compete and that's bad, not just for the community level, because you're missing out on tax revenue that you could be collecting to fund, you know, community reinvestment and other priorities, it's not great for the consumer because they're continuing to participate in, in the illicit market where they might not be able to have access to tested or tested products. And it's not great, frankly, for social equity applicants, because now they have to compete with an illicit market. And not only do they have all of these taxes that they have to account for which rice-- raises their prices, they have a regulatory burden that makes it incredibly difficult to stand up these operations. And I think one thing that it has been exciting to see in some of the New York conversation as folks like the Dasheeda Dawson and assembly member Crystal Peoples-Stokes, hosting events around legacy illegal, and helping to get folks from the legacy market into the legal market. And this perhaps for me, hearkens back to my time in international affairs, where when we leave people and on the fringes of an economy or a formal system, and we do not provide an on-ramp, then we cannot be surprised when they continue to choose to stay on the fringes. And when it
comes to cannabis legalization, this has really direct impact on being able to have a functional adult use economy and achieve all of those economic and community and justice related goals, you know, policymakers are striving for. So, I think I would love to start seeing more cannabis policy that focuses on a slow ramp up of taxes. Right? And increasing them over time as you have new market entrance coming in. And honestly, I would also love to see safe banking passed and some of these other changes that would relieve to ADE, especially for the new market entrance. Right? We've got Illinois, New Jersey, New
York and Virginia that have clear plans to roll out social equity programs and with the focus on small and minority owned businesses and it's hard enough for a company like Columbia Care, which has access to capital and has been able to stand up in multiple states to navigate some of these financial complications and this regulatory burden. It is even more difficult when you are just starting up and you have just your one shop that you are trying to get up and running to both access to capital and have to deal with these really financial burdens that are just because of legacy policy that Washington hasn't gotten to fixing yet. There's no logical reason to put these burdens on a new cannabis entrepreneurs. >>> Michael: Since I wasn't around when prohibition was repealed, why don't we look at prohibition? Okay? And cannabis in a similar way? There are excise taxes on liquor there. Excise taxes on wine. Why don't the people in the government say, look in 1930, ‘32, at least we accomplished something. Why
don't we try to policy that like that? Leslie, OG, tell me your thoughts. >>> Leslie: I consider cannabis a health and wellness product. And so, a sin tax doesn't sound exactly equitable to me. I think fair taxation is sales tax, normal sales tax -- fine. Maybe
some licensing hurdles that have some financial commitment attached to them and no taxation for medical use and how one separates health and wellness and medical uses, another question mark. But I think to me, that's, you know, sales tax is where it should stop. Now. I probably am sort of out on the fringe on that. A lot of people think that over and above sales
taxes appropriate. I'd prefer that it not be the case. >>> Charles: It's complicated, right? In terms of the methods of taxation for taxing-- taxing cannabis, you have most states with an ad valorem tax. That's a typical sales tax based on the value of the product, right? At the federal level, it's just, it's harder. Just wouldn't have worked. There'd be a huge
diversity in prices. New York's doing it by, by THC content, right? So that varies depending on a ton of factors with the amount of THC, including how young or old the plants are, whether they're dry or wet. For example, you know, there's so many different ratios of cannabinoids in a product that affect potency. So, if I were to buy like a 25 milligram, super Stoler cannabis cookie, that might be different, completely different than Leslie's OG gummy. Right? So, like it's,
it's tough, THC contents tough. Then you have a gross weight tax that would place a percentage of tax and -- at based on weight. Also complicated. The weight of cannabis can seriously vary
depending on if they're stems, whether the cannabis is dried. I think you'd see a lot of companies trying to make their products as potent as possible. And that's not a good thing for a number of reasons. I mean, who do you think big slap of a
federal tax rate is going to hurt most, Michael, right, or anyone? It's a smaller businesses with less capital, right? >>> Michael: You know, with regard to that, we only have like two minutes left. Some of the banks that I deal with in New York, would like to lend to landlords who have cannabis over there, but they don't understand, they're not comfortable with that. I mean, part of the fact that the illegality, okay? Is it illegal to rent to them? Can, you could get a mortgage on that? There are so many questions out there, which I will say, which is great for the lawyers and the accountants, because it's something that nobody really knows about and, and the rules change all the time. >>> Charles: Yeah, we're dealing with that, especially right now, in terms of getting into the industry in New Jersey, New York. I mean the number one thing, if you want to go for a license, you need to lock up real estate right now. Site
control of your location was, like a really important factor in these competitive licensing medical routes. But that's, you know, Leslie mentioned the safe banking act. That would basically provide a safe harbor for banking institutions to service cannabis clients. You know, without banks or without real good access to banks, many dispensaries operate with cash. I have CBD clients and you'll hear just to get a credit card processing company to process transactions is a nightmare right now, in the CBD industry where you have the 2018 farm bill that makes it legal. So, it's definitely a problem, but you know, these new introduced pieces of legislation will help, but, you know, as we've talked about, I think you're going to see, you know, also some negatives in terms of impact on smaller businesses and the consumers ultimately, and, and patients, for the price.
>>> Michael: And for that reason, you know, people now understanding this it's really good, that New York Law School has a course by Mr. Messina. It's good that people like Leslie participate in these programs and you've been involved with some new-- new programs in New Jersey. And Ngiste, it's good, that public policy has gone to Columbia Care to follow up. And I'd like to say, I'm definitely going to have you back in September or October for the new season, because we didn't really touch the basics of this discussion.
So, I'd like to thank Leslie and Ngiste and Charles. I'll see you next week. >>> Charles: Thank you, Michael. ♪ [Theme Music] ♪