The cannabis and hemp industries in the U.S. have exploded in recent years due to increased numbers of states allowing businesses to grow, process, and sell cannabis products for medical and adult use. But one may ask: how are these businesses capable of operating if federal laws prohibit them? This series provides an essential foundation for any businessperson or professional looking to get smart about the cannabis industry. In the first episode of this series, our panel of experts will bring you up to speed on the complex and constantly evolving legal framework governing cannabis businesses. With this context, our panelists will also discuss the opportunities and challenges of operating in the cannabis space. To view the accompanying webinar, go to:https://www.financialpoise.com/financial-poise-webinars/cannabis-basics-2021/

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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

3. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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4. Meet the Faculty
MODERATOR:
Jack O’Connor - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Ruth Rauls - Saul Ewing Arnstein & Lehr LLP
Chelsie Spencer - Ritter Spencer PLLC
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5. About This Webinar - Cannabis Basics: Getting up to
Speed with Current Laws, Legislation, & Essential
Business Issues
The cannabis and hemp industries in the U.S. have exploded in recent years due to increased
numbers of states allowing businesses to grow, process, and sell cannabis products for
medical and adult use. But one may ask: how are these businesses capable of operating if
federal laws prohibit them?
This series provides an essential foundation for any businessperson or professional looking to
get smart about the cannabis industry. In the first episode of this series, our panel of experts
will bring you up to speed on the complex and constantly evolving legal framework governing
cannabis businesses. With this context, our panelists will also discuss the opportunities and
challenges of operating in the cannabis space.
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6. About This Series
Cannabis Law 2021
The U.S. cannabis industry has exploded over the past decade. With every emerging industry comes
legislation, rules, investors, and questions. The legalized cannabis industry is no different. And as more
states in the U.S. adopt adult use and medical cannabis laws and regulations, it is incumbent on
businesspeople and professionals to educate themselves about the challenges and opportunities facing
the industry, as well as how to navigate the legal landscape governing cannabis businesses, whether
those businesses “touch the plant,” or not. Thankfully, we’re here to help.
In this series, we provide an essential foundation for any businessperson or professional looking to get
smart about the cannabis industry. In our first episode, we present an overview of the cannabis industry
and the competing legal frameworks at state and federal levels. In our second episode, we will discuss
investment strategies for getting involved in the cannabis industry. Our third episode will discuss specific
legal issues surrounding intellectual property rights in the cannabis space. And we’ll conclude with our
fourth episode, focused on legal and business issues for employers and employees in states where
cannabis has been legalized for both medical and adult use.
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7. Episodes in this Series
#1: Cannabis Basics: Getting up to Speed with Current Laws, Legislation, &
Essential Business Issues
Premiere date: 1/20/21
#2: Cannabis Investment: Successes, Failures, & Strategies for the Future
Premiere date: 2/17/21
#3: Protecting Intellectual Property in the Cannabis Industry
Premiere date: 3/17/21
#4: Cannabis Legal & Business Issues for Employers & Employees
Premiere date: 4/7/21
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8. Episode #1
Cannabis Basics: Getting up to Speed with Current
Laws, Legislation, & Essential Business Issues
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9. Cannabis Basics: Terminology & Jargon
What is “Cannabis,” exactly?
• a plant genus that produces three species of flowering
plants: Cannabis sativa, Cannabis indica, and Cannabis ruderalis
• Cannabis sativa & Cannabis indica are used to produce both adult use & medical cannabis
products
• Native to Asia, but grows almost anywhere and has long been cultivated both for the
production of hemp and to be used as a drug
Source: https://www.leafly.com/news/cannabis-101/glossary-of-cannabis-terms
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10. Cannabis Basics: Terminology & Jargon
Cannabinoids
• Chemical compounds unique to cannabis that on the body’s cannabinoid receptors,
producing various effects. Currently more than 85 known cannabinoids, all with varying
effects.
THC (tetrahydrocannabinol)
• Best known & most abundant available cannabinoid in marijuana plants, responsible for
psychoactive effects or the “high,” of cannabis products.
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11. Cannabis Basics: Terminology & Jargon
CBD (cannabidiol)
• One of many cannabinoids found in cannabis. CBD has gained support for its use as a
medical treatment as research has shown it effectively treats pain, inflammation,
and anxiety without the psychoactive effects associated with THC.
Hemp
• a fibrous product that can be produced from the male cannabis plant (meaning it generally
can’t be used to produce intoxicants), used in the manufacture of rope, paper, clothing,
beauty products, and other goods.
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12. State-Based Legalization of Cannabis in the U.S.
At present (but constantly changing):
• 33 states, 4 of 5 US Territories, & the District of Columbia allow medical cannabis use
• 11 states, the District of Columbia, Guam, and the Northern Mariana Islands allow adult (or
“recreational”) use of cannabis, including: Alaska, California, Colorado, Illinois, Maine,
Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington
• 15 other states have decriminalized cannabis use
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13. State-Based Legalization of Cannabis
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Source: Lokal_Profil, CC BY-SA 2.5, https://commons.wikimedia.org/w/index.php?curid=2370050

14. Federal Criminal Law: the Controlled Substances Act
The Controlled Substances Act (“CSA”), 21 U.S.C. §§ 801-971 criminalize the following with
respect to cannabis:
• Growing;
• Processing;
• Selling;
• Knowingly renting, managing, or using property for the purpose of manufacturing or
distribution;
• Selling or offering to sell drug paraphernalia (including equipment, products, or materials of
any kind which is primarily intended or designed for use in manufacturing cannabis); and
• Deriving profits or proceeds from violations of the CSA
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15. Federal Policies Allowing for State-Compliant
Cannabis Operations
Rohrabacher–Farr Amendment
• 2014 federal law prohibiting the Department of Justice Department from using funds to
interfere with implementation of state-based medical cannabis laws.
• Did not change legal status of cannabis, and must be renewed each fiscal year to remain
in effect
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16. Federal Policies Allowing for State-Compliant
Cannabis Operations
Ogden Memorandum (2009)
• Memorandum issued by the US Department of Justice to US Attorneys across the country
to guide prosecutorial decision-making, allocation of resources, and guidance for US
Attorneys located in states where cannabis is legalized/decriminalized/etc.
• Ogden memorandum prioritizes prosecution of significant traffickers and disruption of
illegal drug manufacturing and trafficking networks.
• Emphasizes that federal prosecutors "should not focus federal resources in States on
individuals whose actions are in clear and unambiguous compliance with existing state
laws. . . .”
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17. Federal Policies Allowing for State-Compliant
Cannabis Operations
Cole Memorandum 1 (2011)
• DOJ Memorandum issued to clarify Ogden Memorandum: Ogden Memo not intended to
protect private, large-scale, profitable cannabis cultivation centers from federal
enforcement or prosecution, even when complying with state law
• Also notes that using federal resources to enforce the CSA against cancer patients or
caregivers may not be efficient
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18. Federal Policies Allowing for State-Compliant
Cannabis Operations
Cole Memorandum 2 (2013)
• Further updates Ogden Memo to address state initiatives to legalize the possession of
small amounts of cannabis and regulate its production and sale.
• Second Cole Memo highlights 8 specific enforcement priorities relating to noncompliance
with other state laws, aimed at preventing:
• 1. distribution of cannabis to minors;
• 2. revenue from being funneled to criminal enterprises/gangs/cartels;
• 3. movement of cannabis from state-to-state;
• 4. state-authorized cannabis activity as a cover for illegal activity;
• 5. violence and the use of firearms in cultivation and distribution of cannabis;
• 6. drugged driving and other adverse public health consequences;
• 7. growing cannabis on public lands and any environmental threat posed by that production; and
• 8. cannabis possession or use on federal property
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19. Federal Policies Allowing for State-Compliant
Cannabis Operations
Cole Memorandum 3 (2014)
• Additional refinement to previous iterations
• Links possible violations of the Bank Secrecy Act (31 USC §§ 5311-5332) and money
laundering statutes to the enforcement priorities listed in the Second Cole Memo.
• Clarifies that prosecution of a person for financial crimes associated with cannabis "does
not require an underlying marijuana-related conviction under federal or state law."
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20. Federal Policies Allowing for State-Compliant
Cannabis Operations
FinCen Guidance (2014)
• Published simultaneously with Third Cole Memo
• Department of Treasury guidance memo that puts the onus on financial institutions to
conduct due diligence to identify customer conduct in violation of the eight priority factors
set forth in Second Cole Memo.
• Financial institutions that act "willfully blind" by failing to conduct appropriate due diligence
are subject to potential prosecution.
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21. Federal Policies Allowing for State-Compliant
Cannabis Operations
Rescission of the Cole Memorandum – Sessions Memorandum (2018)
• A setback for state-legal cannabis industry operators
• Sessions memorandum rescinds previous DOJ guidance on federal cannabis
enforcement
• BUT - does not rescind the FinCen Guidance from 2014. Directs federal prosecutors to
instead "weigh all relevant considerations, including federal law enforcement priorities set
by the US Attorney General, the seriousness of the crime, the deterrent effect of criminal
prosecution, and the cumulative impact of particular crimes on the community."
• Also directs US Attorneys to use their investigative and prosecutorial discretion
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22. Federal Policies Allowing for State-Compliant
Cannabis Operations
Permitted Uses of Cannabis by the Federal Drug Enforcement Agency (DEA)
• DEA has stated that Schedule I controlled substances may only be used for legitimate
medical, scientific, research, and industrial purposes.
• DEA policy statement notes that "consistent with the purposes and structure of the CSA,
persons who become registered to grow marijuana to supply researchers will only be
authorized to supply DEA-registered researchers whose protocols have been determined
… to be scientifically meritorious.
Permitted Uses of Cannabis by The National Institute on Drug Abuse (NIDA)
• NIDA supplies researchers with cannabis from its farm at the University of Mississippi
through tightly controlled channels
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23. Capital Constraints: Access to Banking & Taxation
Issues
Banking
• Because the CSA criminalizes nearly all cannabis-related business activity, cannabis
businesses cannot bank with traditional lenders who are FDIC-insured (nor will these
lenders agree to bank these businesses, especially in light of FinCen Guidance)
• Result: lots (LOTS) of cash flowing through cannabis businesses with very few places to
keep it;
• Private investment tends to be main source of capitalizing cannabis businesses
• Some state-based credit unions will bank cannabis businesses, but solutions are limited
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24. Capital Constraints: Access to Banking & Taxation
Issues
Taxation
• Additional tax and accounting challenges presented because cannabis businesses are
federally illegal
• Internal Revenue Code Section 280e: businesses that traffic in controlled substances
cannot deduct any expenses incurred in carrying on the production, distribution, and sale
of controlled substances.
• This means that businesses operating within the cannabis industry cannot deduct certain
expenses, many of which are deductible for businesses operating within a legal industry
• The marginal tax rate for cannabis businesses is therefore – HIGH (pun! We only put one
in the materials!)
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25. Additional Challenges: Restricted Access to
Bankruptcy Relief
• Bankruptcy relief (Chapter 7, 11, 13, etc.) is a federally-based form of relief
• Since cannabis businesses and individuals working within the cannabis industry are
deemed to be violating federal law, the courthouse doors are effectively closed to debtor-
companies and individuals seeking bankruptcy relief while engaged in a cannabis business
or employed by a cannabis business
• Notably: this restriction is far-reaching, and extends to ancillary businesses (most
commonly landlords) and not just “plant-touching,” businesses
• The Office of the U.S. Trustee (the bankruptcy division of the Department of Justice) has
taken a hard line on these issues, and seeks dismissal of these cases when filed
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26. The 2018 Farm Bill (Hemp Farming Act of 2018)
• The 2018 Farm Bill legalized production of hemp as an agricultural commodity & removed
hemp from the list of controlled substances.
• Also requires Secretary of Agriculture to conduct study of hemp-related agricultural pilot
programs implemented under prior 2014 Farm Bill,
• Does not create a system for producers to grow hemp as freely as other crops: caps THC
content for industrial hemp plants at 0.3%
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27. Proposed Federal Legislation
STATES Act
• Introduced in 2018, the “Strengthening the Tenth Amendment Through Entrusting States”
(STATES) Act, would recognize legalization of cannabis and the U.S. state laws that have
legalized it through their legislatures or citizen initiative.
• Proposes amending the CSA to exempt individuals and companies from federal
prosecution if possessing/producing cannabis in compliance state law
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28. Proposed Federal Legislation
SAFE Banking Act
• Proposed and passed the House of Representatives in 2019 (not passed in the Senate) to
govern disposition of funds gained through the cannabis industry in the US
• Generally prohibits federal banking regulator from penalizing a depository institution for
providing banking services to a legitimate cannabis business; and protects lending
institutions’ access to federal deposit insurance, among other protections
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29. About the Faculty
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30. About The Faculty
Jack O’Connor - joconnor@sfgh.com
Jack is partner in the Chicago office of Sugar Felsenthal Grais & Helsinger LLP. Jack’s practice covers a
range of healthy and distress business engagements. Jack leads Sugar Felsenthal’s “Vice,” practice,
working with business clients in the Beer, Spirits, and Cannabis industries.
Jack is also widely recognized for his excellent work as a restructuring attorney including recognition by
various organizations for his strategic thinking and tactical expertise, including SuperLawyers Magazine,
Leading Lawyers Magazine, and the Turnaround Management Association.
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31. About The Faculty
Ruth Rauls - ruth.rauls@saul.com
Ruth concentrates her practice on complex commercial litigation, employment litigation, real
estate litigation and litigation involving closely-held corporations. She has extensive
experience litigating matters at the trial and appellate levels in state and federal court in New
Jersey and New York, as well as in private mediations and arbitrations. She has litigated
claims arising under the New Jersey Consumer Fraud Act, the New Jersey Law Against
Discrimination, and various other federal and state statutory and common law causes of
action.
To read more about Ruth, please visit: https://www.saul.com/attorneys/ruth-rauls
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32. About The Faculty
Chelsie Spencer - cspencer@ritterspencer.com
Chelsie Spencer is a cannabis and hemp attorney. She is a founding member of Ritter Spencer PLLC.
Chelsie practices in the areas of medical marijuana and hemp and represents clients across those
industries for their business law and compliance needs. Chelsie represents all facets of the cannabis and
hemp industries, including dispensaries, growers, processors, manufacturers, retailers, and more. Forbes
Magazine dubbed Chelsie the “rare friendly face in the midst of a cutthroat CBD hurricane, the person you
want on speed dial when things turn sour” for her work in the cannabidiol (CBD) industry. In addition to
navigating complex issues and transactions in these highly regulated industries, she frequently writes,
speaks, and presents on issues affecting these industries at conferences and forums across the United
States.
To read more, go to https://www.financialpoise.com/webinar-faculty/chelsie-spencer/
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33. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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34. About Financial Poise
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