Week in Review: Marijuana Tax Proposal in CA, Potential New Competition in NY + Cannabis Ad Relief?

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By Omar Sacirbey and John Schroyer

California lawmakers consider implementing new taxes on medical cannabis sales, New York MMJ businesses could see more competition in the near future, and a federal bill seeks to open up cannabis advertising.

Here’s a closer look at several notable developments in the marijuana industry over the past week.

A Taxing Situation

It’s not often that businesses welcome new taxes.

But in California, some dispensaries and cannabis-related professionals are giving the thumbs up to a bill introduced Wednesday that would impose a 15% tax on MMJ as part of the state’s move to regulate its MMJ industry.

“If we’re really going to be serious about regulating the marijuana industry, then it also needs to be taxed,” said Aaron Herzberg, partner and general counsel with CalCann Holdings, a medical marijuana holding company that is building a portfolio of dispensaries and cultivation sites in southern California. “Taxes give the industry legitimacy and give the government tools to build a robust regulatory framework, which is what we’re in favor of.”

Still, the support isn’t unconditional. Some insiders worry that the many unscrupulous dispensaries in California today will continue to operate once the state enacts its new regulations, but they won’t pay the new taxes. That would drive legitimate companies out of business.

This is already a problem.

A fair share of dispensaries don’t pay the standard 7.5% sales and use tax they’re required to pony up on their transactions. They can therefore charge their customers only $35 to $50 per eighth, Herzberg said. To compete with these operations, CalCann’s dispensaries – which do pay the existing taxes – charge about the same, Herzberg said, but as a result often lose money.

So it will all depend on how successful the state is at shutting down dispensaries that don’t meet California’s new MMJ regulations.

“There are competitors that are selling marijuana for less than what it costs us to acquire it from wholesale vendors,” Herzberg said. “We cannot compete against unlawful businesses. It is no different than any other organized crime.”

At the same time, if the tax rate is too high – and many professionals in California likely think 15% is – patients will simply turn to the black market.

So does Herzberg think the state has the will or resources to enforce the new rules and any new taxes?

“Absolutely not. I am extremely concerned,” he said.

New York State of Mind

Given the small number of registered medical marijuana patients in New York – 805 as of Feb. 11 –the market certainly isn’t ready for competition. In fact, the companies licensed by the state to grow and sell cannabis will need a lot more patients to join to make their businesses viable.

But they could face more competition soon regardless.

The Shinnecock Indian Nation, on eastern Long Island, has decided to launch its own grow and dispensary operation, although it will work under the same constraints as current licensees, meaning no smokable medical cannabis is allowed and strict patient screening will be required.

What’s more, Assemblyman Richard Gottfried introduced a bill late last month that would double the number of licensed dispensaries in the state. Currently, the five licensed companies can operate four dispensaries apiece.

The CEO of one of those companies, Ari Hoffnung of Vireo Health of New York, said he agrees with the motivation behind expanding dispensaries – making it easier for patients to access medical marijuana – but believes at this point there are better ways of doing it.

Rather than approve more dispensaries, Hoffnung said he would like to see more physicians become certified to recommend MMJ to patients. Through Feb. 11, only 386 doctors were certified to recommend cannabis. In New York, there are nearly 80,000 professional physicians.

“We think physician enrollment is off to a strong start. But more needs to be done,” Hoffnung said. “We need to increase that number significantly.”

The state does not yet publicly post a list of doctors who are certified to recommend MMJ. But it did recently create a portal that lets doctors find other physicians who are certified, allowing them to refer patients to those individuals.

“I think we will see a significant uptick in the number of patients because of that,” Hoffnung said.

Going Postal

Advertising has traditionally been a big hurdle for marijuana-related businesses, but a new bill in the U.S. Senate is aiming to change that.

A measure introduced on Thursday by a group consisting mostly of Oregon lawmakers – including the state’s two U.S. senators and a pair of representatives – would change federal law to allow cannabis businesses to advertise in newspapers and other publications.

“Our bill updates the federal approach to marijuana, ending the threat to news publications that choose to accept advertising from legal marijuana businesses in Oregon and other states where voters also have freely decided to legalize marijuana,” Sen. Ron Wyden, D-Oregon, said in a statement.

The bill, cleverly titled the Marijuana Advertising in Legal States (MAILS) Act, stems from a December warning from the U.S. Postal Service that mailing any material containing ads for cannabis can constitute a felony.

Unfortunately, the measure probably doesn’t stand much of a chance of passing – at least not until after the presidential election, when business in Washington DC gets back to some semblance of normality. The vast majority of cannabis-related bills over the years in both the Senate and the House of Representatives have been symbolic gestures that have gone nowhere.

But on the off-chance that the measure does get some traction, it could open up a whole new realm of customer outreach for cannabis retailers across the country. It might even take some of the sting out of the ongoing social media closures on Facebook and Instagram, as well as give marijuana vendors a way to let customers know via old-fashioned snail mail when they’re having sales or specials.

So keep your fingers crossed for the MAILS Act.

Omar Sacirbey can be reached at omars@mjbizdaily.com

John Schroyer can be reached at johns@mjbizdaily.com