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New Jersey Moves to Remove State’s 280E Tax Code

By Jason K. Gross, Esq.
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The New Jersey legislature recently approved legislation that would allow licensed cannabis businesses to deduct ordinary business expenses on their state tax return that they are prohibited from deducting on their federal tax return, and such legislation has been sent to Governor Phil Murphy to potentially sign into law. This relates to the universally dreaded (among those in the cannabis industry, at least) Section 280E prohibition. This legislation is important because it would change current law to allow legal cannabis businesses in New Jersey to operate on more of a level playing field with other businesses in the state.

Cannabis operators and applicants are penalized by their inability to deduct certain expenses on their state and federal tax returns. The cause for this frustration is twofold. First, under federal law, cannabis is considered a Schedule I controlled substance under the Controlled Substances Act, 21 U.S.C. § 801 (CSA). Second, under IRS Tax Code Section 280E, cannabis businesses that are legal under state law are still considered drug traffickers for the purposes of federal tax law. While a related issue that is often considered along with Section 280E is whether or not it is sound public policy to continue to classify cannabis as a Schedule 1 drug, that is beyond the scope of this article.

It is important to understand the history and purpose behind Section 280E. The history is unusual in that Section 280E was enacted in 1982 as a reaction to a court case in which a convicted cocaine trafficker asserted his rights under federal tax law to deduct certain business expenses, including a portion of his rent, the cost of a scale and packaging expenses. The court agreed that the cocaine trafficker should be legally able to deduct his ordinary business expenses as part of his criminal enterprise. The federal government then created Section 280E to punish drug traffickers by removing the profit out of drug deals. Section 280E provides, generally, that no deduction or credit will be allowed in running any business that consists of trafficking any controlled substances (within the meaning of schedule I and II of the Controlled Substances Act).1

Fast forward several decades and New Jersey has legalized medical and adult-use commercial cannabis activities. Still, because cannabis remains a Schedule 1 controlled substance, federal law prohibits legal cannabis companies from deducting ordinary business expenses and New Jersey has similarly applied the Section 280E prohibitions. New Jersey’s legislators understand the inequity in having legalized, State-compliant cannabis cultivation, processing and retail businesses, where those same businesses cannot take advantage of standard expense deductions applicable to other legal businesses.

If enacted, this New Jersey legislation would decouple New Jersey’s business tax provisions from the Section 280E rule barring deductions for cannabis businesses. Under the proposed New Jersey tax code revisions, a licensed cannabis business’s gross income would be determined without regard to Section 280E of the Internal Revenue Code.2 The legislation was approved overwhelmingly in both chambers: by the New Jersey Senate in a vote of 32-3; and by the New Jersey assembly in a vote of 69-8. It would apply to tax years beginning on January 1 of the year following the date the Governor enacts the legislation.

The State Capitol in Trenton, New Jersey

Under Section 280E, a business may not deduct expenses unrelated to its costs of goods sold (COGS), which are, generally, the costs to a cannabis business of producing cannabis products and inventory, including transportation costs to purchase the wholesale cannabis. Virtually everything else is subject to the Section 280E prohibition and non-deductible. So, all other typical costs, such as wages and salary, overhead, advertising, insurance, travel expenses and depreciation do not reduce taxable income. These ordinary expenses are still necessary for the operation of all businesses (to varying degrees). If businesses cannot legally deduct such expenses on their tax returns, their tax liabilities will increase and they will have less money to invest in their facilities and equipment, pay higher salaries and expand their operations.

The impacts of Section 280E are dramatic. An example helps to illustrate this. Consider a hypothetical C Corp. with gross sales of $1 million, COGS of $600,000 and other expenses of $300,000. Such business has a gross profit of $400,000 and net income of $100,000. If the business is normally taxed as a C Corp. at the 21% Federal tax rate, it would pay $21,000, or 21% of $100,000 net income and also $9,000 in State taxes (applying 9% State tax rate on $100,000 net income), for a total tax liability of $30,000. However, that same business in the cannabis industry would pay $120,000 in combined Federal and State taxes, with 21% Federal tax on $400,000 gross profit plus 9% State tax on $400,000 gross profit. As this demonstrates, a cannabis business may be taxed on 100% of the expenses a non-cannabis business could write off. Instead of a 30% effective income tax rate, the cannabis business in this example would have a 120% effective income tax rate. Such business that would otherwise have a profit instead would have a deficit.

Section 280E places a significant tax burden on legal cannabis operators that does not exist for other businesses. While New Jersey’s legislators cannot change the Federal tax code, they are taking action to revise New Jersey’s tax code to level the playing field. Let’s hope the Governor signs into law the pending New Jersey legislation to decouple its tax law from Section 280E.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Sills Cummis & Gross P.C.

References

1.  The relevant text of Section 280E provides: No 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.

2. The full text of the legislation provides: In the case of a taxpayer that is a cannabis licensee, there shall be allowed as a deduction an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed because cannabis is a controlled substance under federal law, and income shall be determined without regard to section 280E of the Internal Revenue Code (26 U.S.C. s.280E) for cannabis licensees.

Cannabis Receiverships: A Viable Alternative to Bankruptcy

By Oren Bitan
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Doing business in California’s legal cannabis industry remains a risky endeavor. The majority of the industry is still unlicensed, tax rates at the state and local levels are high (notwithstanding a recent reprieve from California’s cultivation tax) and there are not enough licenses to meet geographic demand throughout the state. Outside financing remains difficult to secure for equipment, tenant improvements, account receivables and working capital because, under the federal Controlled Substances Act (CSA), cannabis remains a Schedule I narcotic. Therefore, entrepreneurs, investors and lenders who have stakes in state-sanctioned cannabis enterprises expect to see returns that justify the higher level of risk, which places additional financial pressure on cannabis businesses. In addition to the industry specific challenges, the United States economy is on the verge of a recession that may further hamper the industry notwithstanding the industry’s resiliency during the pandemic when it was deemed to be an “essential” industry that benefited from consumer spending of stimulus monies.

These outside pressures increasingly lead to ownership disputes and creditor defaults that result in litigation and the need for restructuring. In some instances, business partners cannot agree about control and finances of the licensed businesses and in other instances unpaid creditors file suit to enforce their interest in a company’s assets. And sometimes a local municipality discovers wrongdoing by an operator and initiates a health and safety lawsuit to cease the illegal condition.

Bankruptcy reorganization is an option typically utilized by struggling businesses to shed or restructure debt. Cannabis businesses, however, cannot take advantage of bankruptcy remedies because bankruptcy is a product of federal law and federal law still prohibits the sale of cannabis.

As a result, stakeholders in legal California cannabis enterprises must consider alternatives to bankruptcy to collect what they can on their loans and investments in the event the enterprise becomes insolvent or requires restructuring. A well-established alternative to bankruptcy is a state court remedy – the appointment of a receiver over the assets of a business or over the entire business operations. Through the receivership process, stakeholders may obtain many of the same protections available to them through bankruptcy

A. Federal Illegality Bars Access to Bankruptcy Protection

Over the past ten years, bankruptcy courts have routinely prohibited licensed cannabis businesses from seeking bankruptcy protection because cannabis remains illegal at the federal level under the Controlled Substances Act (CSA). Bankruptcy trustees are typically charged with managing and operating property in the same manner that the owner would be bound to do if in possession thereof. Because cannabis remains illegal at the federal level, trustees are not able to manage and operate licensed cannabis businesses.

B. Receivership as an Alternative to Bankruptcy

Under California law, a receiver is a neutral agent of the court appointed to preserve, control, manage and ultimately dispose of property that is subject to the litigation before the court.1 The receiver, therefore, holds property for the court, not the parties to the litigation.

Appointment of a receiver is a statutory provisional remedy. Other than corporate dissolutions under Code of Civil Procedure section 565, the law does not have a specific cause of action to appoint a receiver. Thus, the proponent of a receiver must have a valid cause of action in an underlying lawsuit.

1. The Appointment of a Receiver

The appointment of a receiver rests within the trial court’s discretion. Code of Civil Procedure section 564 contains the broadest statutory authority to appoint a receiver. Subdivision (b), details twelve possible situations in which a receiver may be appointed, most of which are beyond the scope of this article. The most common of these is a lender’s request to appoint a receiver when a borrower defaults on a loan and the lender seeks the appointment of a receiver over its collateral. The statute, however, clarifies that the situations listed in the statute are not exclusive: a court may appoint a receiver “[i]n all other cases where necessary to preserve the property or rights of any party.”

The receiver’s powers are limited by the statute under which the court appointed the receiver and those conferred by the court. The appointment order should, therefore, detail the duties the receiver owes to the court, and actions that the court authorizes the receiver to take to perform those tasks. The order should also specify the property that will be part of the receivership estate.

2. The Receiver’s Powers

The receiver has general statutory powers.2 The statutory powers include (i) commencing or defending litigation; (ii) taking and possessing property of the receivership estate, (iii) receiving rent, collecting debts, and making transfers, and (iv) acting in accordance with the court’s instruction with respect to the property.3 But the court’s authorization is necessary to sue the receiver and for the receiver to commence litigation.4 In the foregoing scenarios, the receiver is immunized personally from tort liability, but not in his or her official capacity as receiver.5

In addition to taking possession of property, the receiver may dispose of receivership property with the court’s approval.6 If the receiver is an equity receiver, the receiver may take possession and satisfy creditors from all the debtor’s assets.7

The court may further authorize the receiver to issue “certificates of indebtedness” to raise money to administer the receivership estate.8 This device permits the receiver to provide liquidity to the estate and gives the certificate holder an interest-bearing priority claim against the receivership estate.

3. Liquidating Cannabis Assets Through a Court Appointed Receiver

After the court appoints the receiver, the receiver should have sufficient powers to, among other things: (i) take over the management of the company; (ii) open bank accounts; (iii) borrow money by issuing receivership certificates; (iv) manage all of the company’s property; (v) hire counsel and other professionals; and (vi) sell the receivership estate’s assets for the benefit of the creditors. To maximize repayment to the creditors, the receiver may hold an auction to sell the assets and assist in facilitating the cancellation of company’s state license while the buyer of the assets secures its state license after the local license is transferred.

State cannabis licenses may not be sold or transferred.9 Yet, to maximize recovery for the creditors, the receiver may need to participate in the regulatory process to maintain a license during the pendency of the receivership and to assist in the amendment of a license while a prospective buyer seeks to obtain its own license. To do so, the receiver will first need to qualify as a licensee under state law to join as a licensee on the license and further the licensee as a going concern. Next, the principals of the prospective buyer will themselves need to qualify as licensees under the license. Then, once the sale of the company’s assets (including any interest in the license) to the buyer closes, the receiver and the company’s original owners will terminate their capacities as licensees of the license, leaving only the new owners as licensees. Thus, the proposed order should be written with attention to ensure the receiver has powers to further the foregoing and not diminish the value of the receivership estate.

After the conclusion of the sale of all assets, the receiver will need to obtain a discharge from the court of his or her duties as receiver. The receiver may do so by the parties’ stipulation or by motion. Together with the request for a discharge, the receiver should seek approval to pay: (i) any lenders to the receivership estate; (ii) professionals that the receiver hired; and (iii) him or herself for his or her services. Upon the court’s approval, the receivership will be terminated.

The conflict between federal and California law regarding cannabis continues to be an impediment for stakeholders in California’s cannabis market. Because of this conflict, stakeholders in California’s legal cannabis market lack access to vital traditional institutions, such as bankruptcy remedies. As a result, stakeholders must be prepared to consider alternatives such as a court appointed receiver, which can be a useful alternative to both secured creditors and unsecured creditors. Stakeholders who pursue a court appointed receiver will benefit from a long-established body of law and experienced professionals.

References

  1. Cal. Rules of Ct., r. 3.1179(a).
  2. Cal. Civ. Proc. Code §§ 568-570.
  3. Free Gold Mining Co. v. Spiers, 136 Cal. 484, 486 (1902); Steinberg v. Goldstein, 129 Cal. App. 2d 682, 685 (1954).
  4. Vitug v. Griffin, 214 Cal. App. 3d 488, 493 (1989).
  5. Chiesur v. Superior Court, 76 Cal. App. 2d 198, 201 (1946).
  6. Helvey v. U.S. Bldg. & Loan Ass’n, 81 Cal. App. 2d 647, 650 (1947).
  7. Turner v. Superior Court, 72 Cal. App. 3d 804, 812 (1977).
  8. Cal. Civ. Proc. Code § 568.
  9. See e.g., Cal. Code Regs. tit. 16, § 5023(c).
extraction equipment

Starting a Cannabis Extraction Lab? Here Are Some Key Considerations

By Martha Hernández
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extraction equipment

Cannabis sativa contains over 500 different bioactive compounds that can be separated through an extraction process. This is carried out in an extraction lab and the end result is the production of cannabis extracts with a high concentration of specific cannabinoids (such as THC or CBD) with up to 99% purity levels. Cannabis can get easily contaminated with pesticides, heavy metals, residual solvents or other contaminants and thereby pose a risk to the health and safety of consumers. In-house testing allows manufacturers to ensure that the cannabis products they put out to the market are not only potent but also are free of all sorts of contaminants.

The cannabis extraction market worldwide was valued at $9.7 billion in 2020. According to data from Grandview Research, the market size is expected to hit $23.7 billion by 2027, growing at a CAGR of 16.6%. While setting up a cannabis extraction facility can be cost-intensive at the start, the running costs are minimal, making this a profitable venture in the long run. However, you will need to consider these 7 important factors.

1. Location

7 Important Factors to Consider When Setting Up a Cannabis Extraction Facility
A schematic representation of the 7 important factors to consider when setting up a cannabis extraction facility (Figure courtesy of CloudLIMS)

Cannabis is a highly regulated industry, regardless of the country. In the U.S, it is illegal at the federal level, and therefore there’s a need for judicious selection of location to avoid run-ins with the federal government. If you are in the U.S, you will need to check the specific laws in your state. These rules dictate how close an extraction facility can be to a daycare facility, children’s park, school, residential areas, etc. The rules may also spell out how many cannabis facilities can be located in one area and how close to each other they can be. At the end of the day, you also want to ensure that the location that you settle for is readily accessible, secure and close to resources.

2. Regulatory Compliance

A cannabis extraction facility needs to meet regulations that apply to the manufacturing and production of consumable goods to ensure that the safety of workers and end consumers is guaranteed. Here are a few that are of priority:

current Good Manufacturing Practices (cGMP): The CGMP is a regulatory standard enforced by the FDA. It defines the creation, implementation and monitoring of manufacturing processes to meet the quality and safety threshold. It requires manufacturers to use technology and have systems in place to ensure product safety and effectiveness. Cannabis extraction facilities should be GMP certified for operational standardization and for performing transnational business.

National Fire Protection Association (NFPA): Extraction labs use flammable materials which can easily trigger fires. NFPA, which is a non-profit organization, has created standards and codes to minimize injuries, death, and economic losses attributable to fire accidents. The standard describes how labs should be set up and how flammable liquids should be stored and transported to prevent accidental fires.

Local Fire Codes: These are a set of codes/requirements that must be adhered to in all commercial and industrial buildings to prevent fires. They include the availability and proper use of the following:

  • Fire extinguishers
  • Extension cords
  • Smoke detectors
  • Fire exits
  • Fire signage
  • Fire assembly points
  • Sprinkler heads and pipes
  • Fire alarms

Here are some important fire codes that should be followed in a cannabis extraction facility:

  • NFPA 1: The Fire Code Handbook
  • NFPA 30: The National Code for Flammable and Combustible Liquids
  • NFPA 45: Fire Protection for Labs Using Chemicals
  • NFPA 70: The National Electrical Code
  • NFPA 58: The Liquid Petroleum Gas Code

Occupational Standards for Health and Safety (OSHA): Cannabis extraction facilities are compelled by federal law to comply with OSHA requirements for occupational health and safety, and specifically regarding biological and chemical compounds that lab staff may come into contact with during their work. OSHA standard 29CFR1910.1200 requires labs to have a written hazard safety standard for all chemicals, and the standard should be accessible to all employees at all times. Labs are required to have an inventory of all hazardous chemicals with associated details recorded in a Safety Data Sheet (SDS).

3. Staff Management

Lab staff need to train on all hazards in the facility and be given first aid measures in case of an accident. The staff will need to sign that they have received training on the same.

4. Waste Management

Cannabis waste in an extraction facility includes plant trimmings, leftover extraction chemicals, disposed of samples and other debris left behind. Waste needs to be segregated according to hazardous or non-hazardous categories and disposed of accordingly. The lab needs to put measures in place for proper waste segregation so that the waste does not get mixed.

5. Worker Safety

Worker safety in an extraction facility is of paramount importance and should be based on the kinds of risks that each staff gets exposed to in the line of duty. This makes it necessary to have a Job Hazard Analysis (JHA) to assess hazards and put measures in place to avert accidents and injuries.

Laboratory Software for CBD/THC laboratories
A laboratory software for CBD/THC laboratories to schedule staff training and manage staff competency (Figure courtesy of CloudLIMS)

6. Equipment Selection and Management

Cannabis extraction equipment can cost anywhere between $5,000 to $100,000, depending on the type and scale of extraction. When choosing the equipment, you need to factor in the cost efficiency, output, and the final product. All equipment used in an extraction lab should be Underwriters Laboratories Listed (UL-Listed). The equipment also needs to undergo regular maintenance to ensure maximum efficiency and productivity, and to prevent accidents and minimize wear and tear. National Recognized Testing Laboratory (NRTL) certification is necessary to achieve this.

7. Supply Chain Management

Supply chain management refers to the strict monitoring of the entire workflow to ensure effectiveness, eliminate wastage, and boost productivity and profitability. This means tracking raw materials from the time they are received by the extraction facility to when they are released as cannabis extracts. A Laboratory Information Management System (LIMS) comes in handy to support supply chain management in an extraction facility.

Role of a LIMS in Setting Up a Cannabis Extraction Facility

A laboratory software for CBD/THC laboratories, also known as a Laboratory Information Management System (LIMS), helps automate workflows, and thereby improve efficiency and productivity in an extraction facility. A laboratory software for CBD/THC laboratories streamlines in-house testing processes and guarantees that the final extracts produced are potent and free of impurities. A LIMS also comes in handy in managing Standard Operating Procedures (SOPs) and human resources, tracking samples and lab inventory, scheduling equipment calibration and maintenance, and ensuring compliance with the necessary regulations.

When setting up a cannabis extraction facility, sufficient time needs to be allocated to the planning to ensure all-important considerations are in place. This starts with finding an ideal and compliant location, ensuring regulatory compliance, ensuring worker safety, efficiently managing staff, inventory, and waste, and the careful selection of equipment. A laboratory software for CBD/THC laboratories ties these factors together to ensure a smooth workflow and maximum productivity of the facility.

Sports Sponsorships in Cannabis: The Long Legal Road Ahead

By Airina Rodrigues
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If legal cannabis isn’t already a key facet of American culture, it is well on its way. The multibillion-dollar industry is already ubiquitous in politics, and consumers are increasingly seeing various types of marketing from cannabis brands, from billboards to magazine ads to organic content on social media. It may not be long before sports fans see more of their favorite athletes talking up CBD products for pain management or even see a dispensary chain claim naming rights for a stadium.

The next big marketing frontier for cannabis brands is professional sports sponsorships. And in some respects, it makes sense that athletes might be natural brand ambassadors for an industry focused on pain management and mental health relief. But there are obstacles unique to the highly regulated cannabis market that, paired with the already legality-heavy proposition of sponsorship deals, mean a long road ahead. Here are some key considerations for cannabis and CBD brands looking to a future of sports sponsorships.

The Current Climate

Many leagues have already embraced sponsorship deals with CBD brands, from NASCAR to the United Soccer League. The four pillar sports in the U.S.—the National Football League, the National Basketball Association, the National Hockey League and Major League Baseball—have already relaxed their rules and testing protocols related to athletes and cannabis. In 2019, the NFL reached an agreement with the players’ union to study the pain management benefits of cannabis and in 2020, the NFL announced players will no longer be suspended for positive tests and increased the threshold of allowable THC for positive tests. And stars like powerhouse tight-end Rob Gronkowski and former Denver Nuggets Al Harrington in retirement have attached their names to cannabis and CBD brands.

After dismal profits through the COVID-19 pandemic, the “Big Four” sports leagues may want to consider opening an entirely new sponsorship category via cannabis and CBD. Additional pressure might come from athletes themselves, who want alternative treatments for pain and anxiety. As the public looked in from the outside as the MLB negotiated a new collective bargaining agreement and as leagues renegotiate CBAs generally, player pressure could continue to move the needle on league acceptance of cannabis products.

If sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis

As much as this means less stigma for cannabis, it also illustrates the constant fragmentation that makes it difficult for cannabis businesses to operate like other companies. While the NFL, NBA, NHL and MLB have all eased up on players’ use of the substance, they haven’t embraced CBD sponsorships the same way other leagues have and currently won’t allow their athletes to seek CBD or cannabis sponsorship deals as individuals. Piecemeal state legalization, strict advertising rules, enduring federal prohibitions and a lack of FDA approval are the biggest barriers specific to the cannabis industry. And, while the “Big Four” leagues are not signatories to the World Anti-Doping Agency (WADA) Code, applying their own anti-doping policies, don’t look for cannabis sponsorships or endorsements of Olympic sports or athletes any time soon—WADA prohibits in-competition use of cannabis, although it is conducting a scientific review of the status of cannabis in 2022, indicating a softening may be forthcoming.

Paired with the issues typical to sport sponsorships generally, cannabis companies have much more to consider when seeking sponsorship deals.

Threshold Sports Sponsorships Considerations Relating to Cannabis and CBD 

As a threshold matter, if sports leagues are expecting to allow cannabis sponsorships in the future, they are likely waiting for federal approval for cannabis and specifically, FDA approval for CBD products. The agency decided not to allow companies to market full-spectrum CBD as a dietary supplement in August, and formal guidelines may be years away as medical and scientific data materialize either supporting or negating the health claims. In the meantime, companies and their spokespeople cannot claim certain health benefits in advertising without FDA approval.

Cannabis itself is also still a schedule 1 drug under the federal Controlled Substances Act and has historically been listed among most leagues’ anti-doping bans, although as discussed above, it appears attitudes might be beginning to shift. Even in states where adult use and medical cannabis are legal, taxes are high and advertising rules are incredibly strict. They also vary from market to market. When Connecticut legalized cannabis in 2021, state Attorney General William Tong moved to have all billboards advertising Massachusetts dispensaries removed for violating the state’s cannabis marketing restrictions. With a web of intersecting, and at times conflicting, state regulations at play, national marketing campaigns are highly challenging. The crisscrossing markets on game days and the national exposure of most athletes in the Big Four leagues will likely implicate multiple jurisdictions, and multiple sets of advertising regulations that don’t always mesh. And, even if a policy decision were made to allow some territory-restricted sponsorship deals in the cannabis space, it’s unclear if and how cannabis sponsors could exercise even local broadcasting rights—a key value driver for any sponsorship deal.

Specific Sponsorship Considerations Relating to Cannabis and CBD

In addition to the above, the host of legal and business issues generally applicable to sports sponsorships deals will likely take on a different flavor with respect to cannabis and CBD.

From a commercial perspective, one of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category. It’s important that sponsors take a critical eye to how a league may have “sliced and diced” that category. For example, a would-be cannabis sponsor may not be expecting a competitor to take up rights in the CBD space. But without close attention to how the sponsorship category is defined, any oversight here could lead to sharing branding space with unwelcome neighbors.

One of the key issues in any sponsorship deal is whether a sponsor will receive exclusive rights in a category.

In highly regulated industry categories such as gambling/casino and sports betting, league policies mandate strict compliance obligations on the part of the sponsor. We should expect to see a similar approach if leagues approve cannabis sponsorships. For example, in gaming and sports betting, league requirements often demand that sponsors notify the team or league of any compliance issues—no matter how nonmaterial, and no matter if they affect any rights or activities in the sponsorship territory. If there are compliance violations, leagues and teams typically demand immediate termination rights. The compliance and disclosure obligations for a highly regulated sponsor can be onerous, and sponsors risk losing their sponsorship investment even for trivial issues that do not bear on the sponsorship. For example, should a minor casino compliance violation in Las Vegas result in termination of a sponsorship deal in New York? Similarly, if a dispensary in Seattle operating under an interstate brand receives a de minimus fine for an inadvertent sale to a minor, should that result in termination of that brand’s sponsorship deal in Colorado? While these types of compliance and termination provisions are typically negotiable to something approximating fairness, look for leagues to take a hard-line stance on compliance issues, and expect that some teams may mandate deal terms that are take it or leave it.

Similarly, leagues and teams often demand strict morals provisions allowing them to terminate if they determine, in their sole discretion, that the sponsor or its activities might cause reputational harm to the team. Although cannabis is rapidly destigmatizing, one might argue that the industry is at least historically aligned with illegality and perhaps inherently aligned with other “sin” industries like gambling, alcohol and tobacco. Teams and leagues know what they are getting into when they accept sponsorship money from these industries, and cannabis sponsors should demand that any such “morals” provisions be exercised by teams only reasonably, in good faith, and with an opportunity for the sponsor to cure any alleged issues.

Further, just like gaming and sports betting operators, cannabis businesses are restricted from marketing to minors. While state laws are a hodge-podge, sales to individuals under the age of 21 are generally prohibited, and cannabis businesses are also generally restricted from marketing to individuals under the age of 21, or even from publishing marketing materials that appeal to children—a subjective standard. These rules, of course, are likely to restrict the type of signage and activation that can occur in stadia. It also poses issues from a digital marketing and data-sharing perspective. Sponsors and teams often negotiate specific activations via social media, websites and email marketing lists. But the parties must keep in mind compliance issues regarding these activations, including taking care to scrub relevant marketing databases of users under the age of 21 and, possibly, “self-excluded” individuals. The gaming industry is familiar with self-exclusion sign-ups, which permit individuals to opt out of relevant marketing and be disallowed from entering gaming establishments. The cannabis industry may not be far behind. In 2020, the Illinois General Assembly introduced HB4134, which if passed would have permitted self-exclusion from targeting mailings, advertising and promotions and from entry into dispensaries. While this bill died, it’s conceivable that we will see efforts to pass similar bills.

Finally, in 2020-21, sponsors, teams and leagues collectively, and regardless of industry, combed through the thorny issues of the COVID-19 pandemic. We can expect to observe a continuing trend of extra scrutiny paid to force majeure and so-called “make good” provisions for missed games or unavailable benefits.

Mitigating Counterfeiting in the Cannabis Industry

By Norbert Korny
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According to projections, counterfeiting and piracy could reach $2.3 trillion in the US alone, bringing the economic cost to $4.2 trillion globally by 2022. The pandemic made the billion-dollar problem even worse. Products that you directly ingest or place in contact with your body have become a target for counterfeiters introducing some serious side effects.

More than 70% of the CBD products purchased at unlicensed CBD shops in the Los Angeles area failed after-market laboratory testing according to the SC Labs report brought by the United Cannabis Business Association (UCBA). More than half of the tested samples labeled as hemp or hemp-based did not qualify as hemp. Perhaps the biggest concern is the level of contamination which in some cases, were several hundred times the allowed limit.

With the rise of synthetic cannabinoid agonists, some of them having a structure similar to THC, it is hard to keep track of the complete list. The majority of these chemicals are produced in Asia without standards or regulations. The most extreme case has been a version of synthetic cannabis laced with rat poison that led to several deaths.

Last year in Florida, synthetic THC was to blame for daily emergency calls to Poison Control. Poisoning cases linked to counterfeit cannabis edibles tripled between 2019 and 2020.

Vaping is growing rapidly in popularity. An illicit market has emerged and with it a rise in Vaping-Associated Pulmonary Illness (VAPI). Over a hundred cases have been reported in California contributing to over a thousand reported cases nationwide. 

Consumers pay a harsh and unnecessary price with their health, risking long-term damage or even death. If you don’t know the source, it is very difficult to identify counterfeit cannabis products. Still, some telling points can help you identify the fakes:

  • Authentic-looking products available at dubious prices perhaps bought at a gas station or a convenience store.
  • Packaging that matches a reputable brand, without the brand’s logo and missing required details such as an amount of CBD and THC per serving.
  • Missing laboratory testing information
Authentic-looking counterfeits can have labeling that mimics a brand’s look, but could be missing key information.

Legitimate product manufacturers and brand owners suffer financial losses, as well as something even more precious – trust and reputation.

Essential elements of a brand protection program

Are you running a business in the cannabis industry? It is your top-quality product the customers want and not some third-rate knockoff. How can you provide your customers with the means to verify that their product is genuine? Let’s weigh several methods.

1. Provide images and videos of an authentic item on your website

Pros:

  • Customers can visually compare the details of the product.

Cons:

  • Customers need to know your website and navigate to a specific page with product details. You need to capture several details of the product.

2. Label each item with a unique product code. Optionally use a hologram image as an additional anti-forgery

measure

Pros:

  • Customers can verify a single product code instead of several visual details.

Cons:

  • You must be able to generate unique product codes and maintain a database of these codes for later verification.
  • You need to implement a solution for customers to authenticate their product codes.

3. Use a product number authority like ProdNum to issue and validate unique QR product codes for you

Validating a product using QR Code

Pros:

  • Customers don’t need to retype an alphanumeric product code, merely scan a QR code with a camera to get instant verification.
  • The manufacturer doesn’t need to implement and maintain a custom solution.

Cons”

  • You need to arrange printing of the QR codes on the package or stickers you will attach to each product.

The inevitable drawback of a profitable cannabis business is the fact it attracts counterfeiters. Businesses and customers joining forces in the never-ending battle against counterfeiting is a winning scenario for both.

Learning from The First Wave Part 3: Seven Basic Questions About Local Cannabis Ordinances & Real Estate

By Todd Feldman
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Part One of this series took a look at how the regulated cannabis market can only be understood in relation to the previous medical market as well as the ongoing “traditional” market. Part Two of the series describes how regulation defines vertical integration in California cannabis.

If you are considering getting involved in California cannabis, imagine the following sentence in ten-foot-tall letters made out of recently ignited $20 bills:

Before you put any money down on property, carefully examine the local cannabis ordinance and tax rates. 

This article is written in the form of advice to a newbie cannabis entrepreneur in California, but it will discuss issues that are also of significance to investors, as well as (to various degrees) cannabis entrepreneurs in other states.

Here are seven basic questions that you need to ask about local regulations (in order, except for Number 7).

1. What’s Your Jurisdiction?

If you’re in city limits, it’s the city. If you’re outside city limits, it’s the county.

2. Does the Jurisdiction Allow Cannabis Activities?

If the answer is yes, go to the next question. If the answer is no, pick another jurisdiction.

3. Where Does the Jurisdiction Allow Cannabis Activities?

A zoning ordinance will limit where you can set up shop. The limitation will probably vary by license type.

4. How Does the Local Ordinance Affect Facility Costs?

The short answer is: in many ways. Your local ordinance is a Pandora’s box of legal requirements, especially facility-related requirements.1 Read your local cannabis ordinance very carefully.

Generally speaking, the cannabis ordinance will set out two types of requirements – those that are specific to cannabis and those that apply generally to any business.

Looks great but . . . where are the sprinklers? Does it need a seismic upgrade? How about floor drains?
Photo by Wilhelm Gunkel on Unsplash

Cannabis-specific requirements:

  • Typically incorporate state cannabis laws by reference.
  • Have significant overlaps with state cannabis laws. For example, the state requires commercial-grade locks and security cameras everywhere cannabis may be found on a given premises. Local ordinances generally include similar requirements – keep in mind that you will need to comply with a combined standard that satisfies both state and local requirements.2
  • Vary greatly according to type of activity. For example, manufacturers will need to comply with Health & Safety Code requirements that can have a major impact on construction costs.
  • Vary greatly by jurisdiction when it comes to equity programs.

General requirements:

  • Include by reference building and fire codes, which can require very expensive improvements. Note that this means your facility will be inspected by the building department and the fire department.
  • Can include anything from Americans with Disabilities Act (ADA) requirements to city-specific requirements, such as Design Guidelines.
  • Will be zealously enforced because you’re a cannabis business.

5. What is the Enforcement Policy?

It may be that your local jurisdiction will give you temporary local authorization after meeting some, but not all, of the requirements. For example, you may be able to begin operations once you’ve provided your city or county with your cannabis permit application, a zoning clearance and a business permit. In this jurisdiction, you would be able to bring your building up to code sometime after you begin operations.

On the other hand, your local jurisdiction may require you to meet every requirement – from cannabis-specific security requirements to general building code and ADA requirements – before you can begin operations. Depending on the type of cannabis business (and facility condition), this might be inconsequential. Or it might mean that you will have to pay more than a year’s worth of rent (or mortgage) before you can start making money.

6. Can You Choose a Facility That Saves You Time and Money?

Of course, you won’t have to spend much time or money bringing your facility up to code if it’s already up to code. How likely it is that you will find such a facility varies wildly according to the type of cannabis activity in question. In general:

  • Service-side activities (delivery retail, storefront retail, distribution) are in many respects similar to their non-cannabis counterparts. From a facilities standpoint, the major differences come from security requirements. So, it may be possible to save time and money by choosing a facility that is already up to code for a similar use.
  • Manufacturing activities are trickier, since you will need food-grade facilities and equipment. You may be able to save money by setting up shop in a commercial kitchen.
  • Extraction with volatile solvents is a special (and particularly expensive) case, since it is inherently dangerous and requires special facilities.
  • Outdoor cultivation may be relatively unproblematic if it has an appropriate water source.
  • Indoor cultivation is expensive because of climate-control and lighting requirements. Buildings potentially suitable for large-scale indoor grows frequently come with significant problems. Former warehouses will typically require major power upgrades, while former factories may have inconvenient architecture and/or hidden toxic waste. In all cases, internal reconstruction is likely to be necessary, and will trigger all sorts of building and fire code requirements.

7. What Are the Local Cannabis Taxes?

Cannabis tax rates may be determinative. For example, Oakland imposes a 6.5% gross receipts tax on manufacturers that have gross receipts of less than $5M, and 9.5% on manufacturers that have gross receipts over $5M. In comparison, Santa Rosa only imposes a 1% gross receipts tax on manufacturers.

Local cannabis ordinances and taxes can make or break your business, so you need to understand them before you commit to a location. The seven basic questions listed above are designed to get you started.

This article is the opinion of the author and is not intended to be legal or other advice.

References

  1. For example, see Part II of the City of Oakland’s Administrative Regulations and Performance Standards, and The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 3 (A)(14).
  2. For example, compare 16 CCR § 5044 (“Video Surveillance System”) with The City of Los Angeles’s Rules and Regulations for Cannabis Procedures No. 10 (A)(7).

Learning from the First Wave Part 1: How Law Shapes the California Cannabis Industry

By Todd Feldman
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As a cannabis lawyer, I spend a lot of time thinking about the ways that regulations affect a cannabis company’s bottom line. Since I’m in California, the ways are many.

In late 2017 I became the chief compliance officer for an Oakland startup that carried out delivery, distribution, cultivation and six manufacturing operations. A big part of my job was preparing my company, along with several equity cannabis companies, for California’s First Wave of cannabis licenses.

For the most part, First Wave licensees came from California’s essentially unregulated medical cannabis market, and/or from California’s by-definition unregulated “traditional” market. When California began issuing licenses in January 2018, many First Wavers were unprepared because their businesses practices had evolved in an unregulated market. A big part of my job was to help them adapt to the new requirements. As a result, I saw the regulations, and the effects of regulations, in sharp relief.

Regulation touches virtually every aspect of the legal cannabis industry in California. So anyone who wants to understand the industry should have at least a basic understanding of how the regs work. I’m writing this series to lay that out, in broad strokes.

Some key points:

  • The regulated market must be understood in relation to the previous unregulated (medical) market as well as the ongoing traditional market.
  • Regs define the supply chain.
  • Regs are designed to ensure product safety and maximize tax revenue.
  • Many regulations mandate good business practices.
  • Local enforcement of building, health and safety codes tends to be zealous and costly.

A Tale of Three Markets

California’s regulated cannabis market can only be understood in relation to the medical market that preceded it, and in relation to the traditional market (illegal market) that continues to compete with it.

The Before Times

California’s legal medical cannabis market goes back to 1996, when the Compassionate Use Act passed by ballot measure. One fact that shaped the medical market was that it was never just medical – while it served bona fide patients, it also served as a Trojan horse for adult-use (recreational) purchasers.

Another fact that shaped the medical market was a near complete lack of regulation. On the seller’s side, you had to be organized as a collective. On the buyer’s side, you had to have a medical card. That was it.

Meanwhile, the cannabis supply chain was entirely unregulated. This tended to minimize production costs. It also meant that a patient visiting a dispensary had no way of verifying where the products had been made, or how.

The Regulated Times

Licensing under the Medical and Adult-Use Cannabis Regulation and Safety Act (the “Act”) began on January 1, 2018. It was the beginning of legal adult-use cannabis in California. It was also the beginning of the Regulated Times, as the Act and accompanying 300-plus pages of regulations transformed the legal cannabis market.

 For example:

  • The Act defines the cannabis supply chain (as a series of licensees).
  • Across the supply chain, the internal procedures of cannabis companies are subject to review by state agencies;
  • Cultivators and manufacturers cannot sell directly to a dispensary – they must go through a distributor;
  • All cannabis must be tested for potency and a long list of contaminants by a licensed testing laboratory before it may be sold to consumers;
  • And beginning in 2019, all licensees were required to participate in the California Cannabis Track and Trace (CCTT) program, which is designed to track all cannabis from seed to sale.

Just as importantly, the Act establishes a dual licensing system – that is to say, in order to operate, a cannabis company needs a local permit (or other authorization) as well as a state license. In fact, local authorization is a prerequisite for a state license. And your local jurisdiction will have its own rules for cannabis that apply in addition to the state rules, up to and including a ban on cannabis activities.

Needless to say, operating in the Regulated Times is a lot more complicated and expensive than it was during the Before Times.

Especially when you consider the taxes. For example, in the City of Los Angeles, sale of adult-use cannabis is taxed at 10%, which means that any adult-use purchase in L.A. gets a 34.5% markup:

  • 15% state cannabis excise tax, plus
  • 10% Los Angeles Adult Use Cannabis Sales tax, plus
  • 5% sales tax.

Note that the distributors must collect the excise tax from the retailer, so the 15% markup is not necessarily visible to the consumer. Similarly, consumers are generally unaware that there is a cultivation tax of $9.65 per ounce (or about $1.21 per eighth) of dried flower that the distributor has to collect from the cultivator.

Theoretically, all of this might be unproblematic if licensed retailers were only competing with each other. Which brings us to:

The Traditional Market

The traditional market is the illegal market, which is to say, the untaxed and unregulated market.

Legalization of adult-use cannabis was supposed to destroy the traditional market, but it hasn’t. As of early 2020, the traditional market was estimated to be 80% of the total cannabis market in California. This is not surprising, since the traditional market has the advantages of being untaxed and unregulated.

The traditional market has a pervasive negative effect on the legal market. For example, the traditional market tends to depress prices in the legal market and tends to attract talent away from the legal market. Some of these effects will be discussed in the following articles.

This article is an opinion only and is not intended to be legal advice.

How Barcode Labeling Improves Traceability & Security

By Travis Wayne
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One of the biggest challenges that cultivators, processors and distributors face in doing business is the requirement to track the product at every step in the production process, from seed to sale. When you add the wide range of label sizes and requirements across the supply chain, labeling can feel overwhelming. While business systems such as METRC, BioTrack, MJFreeway and others are key, integrating accurate and secure barcode labeling with those systems will streamline the end-to-end process while meeting traceability requirements. Here are some things to consider, no matter what role in the cannabis supply chain you play.

Cultivation: Where Tracking and Labeling Starts

Cultivation is where the tracking process begins – integrating barcode labeling METRC, BioTrack, MJ Freeway from the start will streamline the end-to-end process

It’s crucial to implement accurate labeling processes from the beginning, whether growing for a customer or your own vertically integrated operation. The cannabis industry is faced with strict labeling regulations for a variety of cannabis products. Start with a labeling system that can integrate with METRC, BioTrack, MJ Freeway or other seed to sale software solutions. Your barcode labeling solution should also include label approval requirements, so you have role-based access and transparency with label changes and print history in case of issues or recalls. Whatever cannabis labeling regulations your business faces, label design software helps you create compliant cannabis labels throughout the supply chain, from grower to consumer.

Radio Frequency Identification (RFID) Labeling

Select regulations require growers to leverage RFID technology to track the location of the plants in their grow houses. RFID technology also enables accurate real-time inventory analysis and helps reduce manual labor costs, as well as errors that can occur with manual counting. To accurately encode RFID tags with variable plant data, be sure you are using a barcode labeling system that can enable easy RFID tag encoding that integrates data from all your business systems. Fastening RFID tags to plants across your grow house floor enables quick and easy location tracking, and RFID reading removes the need for a manual line of sight and allows hundreds of tags to be read at the same time, speeding up shipping and receiving.

Lab Testing

After a plant is cultivated, a certain percentage is sent to a lab to be tested to ensure its proper strain, weight and compound makeup. After your product has been lab tested, leverage the data from your certificate of analysis to accurately display on your cannabis product labels, including:

  • Pass/fail chemical testing
  • Final date of testing & packaging
  • Identification of testing lab
  • Cannabinoid profile & potency levels
  • Efficiently display lab testing results on product labels with the use of a QR code for the consumer to review the independent lab’s certificate of analysis

Processing and Production: Tracking and Labeling After the Plant Has Been Harvested

A lot of information needs to go on a cannabis label. Whether you’re producing pre-rolls, packaged flower, edibles, beverages, topicals or cartridges, your labeling software must have the capability to create a wide variety of label sizes with barcodes that encode a large volume of data, while also being fully compliant and showing consumer appeal.

Your cannabis labeling software should do the following for you:

  • Support database integration to populate variable data from METRC, BioTrack, and other systems
  • Import high-resolution artwork and leverage with dynamic barcodes and variable data
  • Contain barcode creation wizards for 1D & 2D barcodes
  • Automate weigh & print
  • RGB/CMYK color matching
  • Feature secure label approval processes, label change tracking and print history
  • Offer WYSIWYG (What You See is What You Get) printing
  • Automatically trigger printing directly from scales and scanners when cannabis is weighed
Automatically integrating data with your barcode labeling software improves regulatory compliance, security and reduces manual processes that can lead to labeling errors

Integrate labeling with your seed to sale software solution to automatically trigger label printing by an action in your seed to sale system or by monitoring a database. By integrating your label printing system with your seed to sale traceability system, you can expect to minimize errors, increase print speeds and maximize your ROI. Your business system already holds the variable data such as product names, license number, batch or lot codes, allergens, net quantity, cannabis facts, warning statements and more. By systematically sending this data to the right label template at the right time, labeling becomes an efficient and cost-effective process.

Distribution: labeling for consumer and industry demands

The ability to manage and distribute inventory efficiently is critical in the cannabis market. Warehouses and distributors need to ensure proper storage, handling and traceability of product, from the warehouse to the truck.

Leverage your labeling software to easily create:

  • Packaging labels
  • Shipping labels
  • Case & pallet labels
  • Inventory labels

If you use the same data for your documents and labels, consider moving document printing into your label design software for greater efficiency. An advanced label creation and integration software enables label and document printing standardization by allowing multiple database records to be on one file. That means when new documents or labels come into your database, your software can seamlessly integrate.

Dispensaries can benefit from integrated seed to sale labeling for traceability, speed to market

Whether you’re a small outlet or a large dispensary, you benefit from integrated barcode labeling that starts from the beginning of the process. How? When barcode labeling software is integrated with seed to sale software, product is fully traced throughout the entire process, from tagging each plant at cultivation to identifying the consumer at point of sale, and accurately communicating that data back to METRC, BioTrack and other critical systems. Some dispensaries do package raw flower onsite, which many times means manually weighing, recording and entering the weight on the label, which is a time consuming and error-prone process. Integrating weigh and print functionality with barcode software enables dispensaries to use the action of weighing raw flower to automatically trigger the label print job. The variable weight is then accurately and automatically populated on cannabis flower package labels, creating an accurate and efficient on-demand labeling process for dispensaries. With efficient labeling processes, time spent creating, correcting, approving and printing labels will be reduced, getting product on the shelves faster.

european union states

Why Europe May Serve as an Important Bellwether for Hempcrete Use in the United States

By Stephanie McGraw
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european union states

Hemp-based construction materials are an attractive option for achieving environmentally friendly goals in construction, including reduced emissions and conservation of natural resources. Hemp construction materials dating back to the 6th Century have been discovered in France and it has long been eyed with interest by hemp growers and manufacturers, as well as environmentalists in the United States and abroad. As the European Union moves forward with its 2019 European Green Deal, United States hemp, construction and limestone industries, as well as regulatory agencies, will be provided with an important preview of the benefits, risks and issues arising out of the use of hemp in construction.

The European Green Deal and Circular Economy Action Plan

Hemp applications in construction are gaining increased interest as the EU seeks to neutralize its greenhouse gas emissions by 2050. Much of the specifics for this transition to zero emissions are outlined in the EU’s “A New Circular Economy Action Plan,” announced on March 11, 2020. According to the EU, “This Circular Economy Action Plan provides a future-oriented agenda for achieving a cleaner and more competitive Europe in co-creation with economic actors, consumers, citizens and civil society organisations.” The plan aims at accelerating the transformational change required by the European Green Deal and tackles emissions and sustainability issues across a number of industries and products, including construction.

Construction in the EU accounts for approximately 50% of all extracted natural resources and more than 35% of the EU’s total waste generation. According to the plan, greenhouse gas emissions from material extraction, manufacturing of construction products and construction and renovation of buildings are estimated at 5-12% of total national greenhouse gas emissions. It is estimated that greater material efficiency could save 80% of those emissions. To achieve those savings, the plan announces various efforts to address sustainability, improve durability and increase energy efficiency of construction materials.

How Hemp Could Help Europe Achieve Neutral Emissions

Hemp, and specifically hempcrete, is being eyed with heightened interest as the EU enacts its plan. Indeed, recent mergers and acquisitions in the European hemp industry signal just how attractive this hemp-based product may be as international, national and local green initiatives gain momentum. But how would hemp be utilized in construction and what types of legal issues will this industry face as it expands?

Image: National Hemp Association

The primary hemp-based construction material is “hempcrete.” Hempcrete is typically composed of hemp hurds (the center of the hemp plant’s stalk), water and lime (powdered limestone). These materials are mixed into a slurry. The slurry petrifies the hemp and the mixture turns into stone once it cures. Some applications mix other, traditional construction materials with the hempcrete. The material can be applied like stucco or turned into bricks. According to the National Hemp Association, hempcrete is non-toxic, does not release gaseous materials into the atmosphere, is mold-resistant, is fire– and pest-resistant, is energy-efficient and sustainable. To that last point, hemp, which is ready for harvest after approximately four months, provides clear advantages over modern construction materials, which are either mined or harvested from old forests. Furthermore, the use of lime instead of cement reduces the CO2 emissions of construction by about 80%.

Watching Europe with an Eye on Regulation and Liability Risks

Hempcrete indeed sounds like a wünder-product for the construction industry (and the hemp industry). Unfortunately, while it may alleviate some of the negative environmental impacts of the construction sector, it will not alleviate the threat of litigation in this industry, particularly in the litigious United States. The European Union’s experience with it will provide important insights for U.S. industries.

Hempcrete blocks being used in construction

Because hemp was only recently legalized in the United States with the passage of the 2018 Farm Bill, it is not included in mainstream building codes in the United States, the International Residential Code, nor the International Building Code. Fortunately, there are pathways for the consideration and use of non-traditional materials, like hempcrete, in building codes. However, construction applications of any form of hemp, including hempcrete, at this point would likely require extensive discussions with local building authorities and an application showing that the performance criteria for the building are satisfied by the material. Such criteria would include standards and testing relating to structural performance, thermal performance, and fire resistance. Importantly, the ASTM does have a subcommittee working on various performance standards for hemp in construction applications. European progress on this front would pave an important regulatory pathway for the United States, as well as provide base-line standards for evaluating hempcrete materials.

Insights into regulation and performance standards are not the only reason to watch the EU construction industry in the coming decades. Introduction of hempcrete and hemp-based building materials in the United States will likely stoke litigation surrounding these materials. Although there is no novel way to avoid the most common causes of construction litigation, including breach of contract, quality of construction, delays, non-payment and personal injury, the lessons learned in Europe could provide risk management and best-practice guidance for the U.S. industry. Of particular concern for the hemp industry should be the potential for product liability, warranty, and consumer protection litigation in the United States. The European experience with hempcrete’s structural performance, energy efficiency, mold-, pest- and fire-resistant properties will be informative, not just for the industry, but also for plaintiff attorneys. Ensuring that hempcrete has been tested appropriately and meets industry gold-standards will be paramount for the defense of such litigation and EU practices will be instructive.

The United States construction industry, and particularly hempcrete product manufacturers, should pay close attention as the EU expands green construction practices, including the use of hempcrete. The trials and errors of European industry counterparts will inform U.S. regulations, litigation and risk management best practices.