Can marijuana businesses receive federal copyright protection?
Yes. The requirements for registration with the U.S. Copyright Office are that the work is original, creative and fixed in some form of expression. These requirements do not prevent a marijuana business from registering its works, such as pamphlets, instructional videos or even artwork.
Can marijuana businesses receive any patent protection?
Yes. There is no "lawful commerce" provision for patents, so marijuana businesses are not prohibited from seeking patent protections for multiple aspects of their business through either a plant patent, utility patent or design patent.
- Utility patents: This is the most common type of patent in the industry, and businesses often apply for utility patents in the context of product formulations and growth or extraction techniques.
- Plant patents: These patents are very narrow and are granted only to plants that are propagated through asexual reproduction methods, such as grafting and budding.
- Design patents: These patents apply to the ornamental features or industrial design of a product, such as a vaporizer.
Can marijuana businesses receive federal trademark registrations?
No. Because marijuana is still illegal under the Controlled Substances Act, the U.S. Patent and Trademark Office (USPTO) will deny applications for trademarks for marijuana retailers or marijuana products because they are not used in "lawful commerce."
Can marijuana businesses file for bankruptcy?
No. Even if a marijuana business complies with all state regulations for its operation, it cannot file for federal bankruptcy protection because marijuana is still illegal under the Controlled Substances Act.
Is cannabidiol (CBD oil) legal?
No, CBD oil is not legal. In the Federal Register of December 14, 2016, the Drug Enforcement Agency (DEA) announced that it had created a new Administration Controlled Substances Code Number for "marihuana extracts," which includes CBD oil. The DEA also reaffirmed that "[e]xtracts of marihuana will continue to be treated as Schedule I controlled substances."
The DEA specifically addresses CBD, noting that, "[f]or practical purposes, all extracts that contain CBD will also contain at least small amounts of other cannabinoids. However, if it were possible to produce from the cannabis plant an extract that contained only CBD and no other cannabinoids, such an extract would fall within the new drug code."
Hemp oil, sometimes referred to as CBD hemp oil, however, is legal. It is sourced from the hemp seed, which is high in CBD, but is non-psychoactive and contains only trace amounts of tetrahydrocannabinol (THC), so it does not induce a high.
What are the banking concerns when running a marijuana business?
Due to the status of marijuana as a Schedule I drug under the Controlled Substances Act, as well as concerns about money laundering, most banks are reluctant to allow marijuana businesses to open accounts at their institutions. However, the federal government has provided two sources of guidance for financial institutions that, while nonbinding, indicate that banks may service companies in the marijuana industry that comply with state regulations with a lessened likelihood of federal prosecution.
A February 14, 2014, "Memorandum on Guidance Regarding Marijuana Related Financial Crimes," issued by then-Deputy Attorney General James M. Cole (the Cole Memo), outlined the priorities for prosecution of crimes under the Controlled Substances Act. The Cole Memo stated that, "if a financial institution offers services to a marijuana-related business whose activities do not implicate any of the eight priority factors, prosecution for these offenses may not be appropriate."
That same day, the Financial Crimes Enforcement Network (FinCEN) issued guidance on Bank Secrecy Act (BSA) expectations regarding marijuana-related businesses. The guidance aims to "clarif[y] how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and align the information provided by financial institutions in BSA reports with federal and state law enforcement priorities . . . [in order to] enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses."
Practically speaking, marijuana businesses often have difficulties in securing bank accounts and are forced to conduct their business on a cash basis. Even if a business finds a financial institution that will open an account, that account may be revoked at any time. Banks are obligated to file Suspicious Activity Reports (SARs) for transactions with funds that they know or suspect are related to an illegal activity, regardless of whether a business fully complies with state marijuana regulations. However, in that instance, a bank would file a "Marijuana Limited" SAR that indicates the bank believes the marijuana business is not implicating any of the Cole Memo priorities.
What are the banking concerns for non-marijuana companies doing business with marijuana-related companies?
Businesses that engage with marijuana businesses should be aware that those transactions may affect their banking relationships due to money-laundering concerns on the part of their financial institutions.
When do cannabis companies have to pay a 10 percent penalty on payroll taxes?
Marijuana businesses without bank accounts that cannot pay their taxes through the Electronic Federal Tax Payment System (EFTPS) may be subjected to a 10 percent payroll tax penalty.
However, the IRS has implemented guidance for "unbanked taxpayers" in its Penalty Relief Handbook that provides IRS employees with discretion to waive the penalty for taxpayers who can demonstrate that they have made reasonable efforts to secure a bank account, but have been unable to do so.
What types of cannabis businesses fall under the scope of Internal Revenue Code section 280E?
All businesses that engage in the cultivation, sale or processing of marijuana are subject to section 280E, which states that "[n]o deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted."
What types of deductions are allowed under section 280E?
Businesses subject to section 280E are essentially prohibited from taking any deductions except for cost of goods sold. Dispensaries are especially limited with respect to what qualifies as cost of goods sold — typically only the marijuana products purchased to sell fall under that category. Growers and processors have more deductible cost of good expenses, including the cost of seeds, electricity and labor.
What should real property owners be concerned about in leasing to cannabis companies?
Property owners considering leasing property to an entity engaged in activity that is illegal at the federal level should carefully conduct due diligence before entering into such a lease, as it could violate various zoning restrictions, deed covenants, mortgage provisions or the terms of financing, including "bad boy" guarantees.