The Connecticut Department of Consumer Protection approved nine licenses for dispensaries to commence adult use sales on Tuesday, January 10. While nine were approved, just seven began adult use sales today. Connecticut also launched its “Clean Slate & Cannabis Erasure” website, as the state’s Clean Slate bill went into effect on January 1, effectively erasing thousands of cannabis convictions.
Governor Lamont at a press conference on January 9, discussing the Clean Slate bill.
Connecticut’s legislature voted to legalize cannabis back in 2021. On June 17, 2021, Governor Ned Lamont signed the bill into law, marking the beginning of the state’s journey of building a legal adult use cannabis market that culminates today.
In a speech he delivered on January 9, 2023, Governor Lamont told reporters that the bill eliminating past convictions makes a big difference. “Under a new state law that went into effect on January 1, our administration has marked 43,754 low-level cannabis convictions as erased,” the Governor tweeted, alongside a video of his speech. “An old conviction for possession should not hold someone back from pursuing their career, housing, professional, and education aspirations.”
Lt. Gov. Bysiewicz speaks to an audience Tuesday morning outside of the ZenLeaf Meriden dispensary.
At the ZenLeaf Meriden dispensary, one of the nine retailers authorized to commence sales, politicians, stakeholders, the press and customers met outside of the store for a news conference at 9 a.m., shortly before the store opened for business an hour later. Lieutenant Governor Susan Bysiewicz delivered a speech at the news conference where she celebrated the occasion, shared details on the launch and emphasized the importance of “not losing sight of a very robust medical program.”
In a video shared by WFSB, Lt. Gov. Bysiewicz said they are requiring all businesses to have a “medical preservation plan” to ensure safe, adequate and fair access for patients continues as the adult use market opens up. Part of that plan is a state-mandated cap of ¼ ounce of cannabis for all adult use purchases to make sure inventory remains available for patients.
Cross Contamination – noun – “inadvertent transfer of bacteria or other contaminants from one surface, substance, etc., to another especially because of unsanitary handling procedures. – (Mariam Webster, 2021). Cross contamination is not a new concept in the clinical and food lab industries; many facilities have significant design aspects as well as SOPs to deliver the least amount of contaminants into the lab setting. For cannabis labs, however, often the exponential growth leads to a circumstance where the lab simply isn’t large enough for the number of samples processed and number of analytical instruments and personnel needed to process them. Cross contamination for cannabis labs can mean delayed results, heightened occurrences of false positives, and ultimately lost customers – why would you pay for analysis of your clean product in a dirty facility? The following steps can save you the headaches associated with cross contamination:
Wash (and dry) your hands properly
Flash back to early pandemic times when the Tik Tok “Ghen Co Vy” hand washing song was the hotness – we had little to no idea that the disease would be fueled mostly by aerosol transmission, but the premise is the same, good hand hygiene is good to reduce cross contamination. Hands are often the source of bacteria, both resident (here for the long haul; attached to your hands) and transient (easy to remove; just passing through), as they come into contact with surfaces from the bathroom to the pipettor daily (Robinson et al, 2016). Glove use coupled with adequate hand washing are good practices to reduce cross contamination from personnel to a product sample. Additionally, the type of hand drying technique can reduce the microbial load on the bathroom floors and, subsequently tracked into the lab. A 2013 study demonstrated almost double the contamination from air blade technology versus using a paper towel to dry your hands (Margas et al, 2013).
Design Your Lab for Separation
Microbes are migratory. In fact, E. coli can travel at speeds up to 15 body lengths per second. Compared to the fastest Olympians running the 4X100m relay, with an average speed of 35 feet per second or 6 body lengths, this bacterium is a gold medal winner, but we don’t want that in the lab setting (Milo and Phillips, 2021). New lab design keeps this idea of bacterial travel in mind, but for those labs without a new build, steps can be made to prevent contamination:
Try to keep traffic flow moving in one direction. Retracing steps can lead to contamination of a previous work station
Use separate equipment (e.g. cabinets, pipettes) for each process/step
Separate pre- and post-pcr areas
Physical separation – use different rooms, add walls, partitions, etc.
Establish, Train and Adhere to SOPs
Design SOPs that include everything- from hygiene to test procedures and sanitation.
High turnover for personnel in labs causes myriad issues. It doesn’t take long for a lab that is buttoned up with cohesive workflows to become a willy-nilly hodgepodge of poor lab practices. A lack of codified Standard Operating Procedures (SOPs) can lead to a lab rife with contaminants and no clear way to troubleshoot the issue. Labs should design strict SOPs that include everything from hand hygiene to test procedures and sanitation. Written SOPs, according to the WHO, should be available at all work stations in their most recent version in order to reduce biased results from testing (WHO, 2009). These SOPs should be relayed to each new employee and training on updated SOPs should be conducted on an ongoing basis. According to Sutton, 2010, laboratory SOPs can be broken down into the following categories:
Quality requirements
Media
Cultures
Equipment
Training
Sample handling
Lab operations
Testing methodology
Data handling/reporting/archiving
Investigations
Establish Controls and Monitor Results
Scanning electron micrograph shows a colony of Salmonella typhimurium bacteria. Photo courtesy of CDC, Janice Haney Carr
It may be difficult for labs to keep tabs on positivity and fail rates, but these are important aspects of a QC regimen. For microbiological analysis, labs should use an internal positive control to validate that 1) the method is working properly and 2) positives are a result of target analytes found in the target matrix, not an internal lab contamination strain. Positive controls can be an organism of choice, such as Salmonella Tranoroa, and can be tagged with a marker, such as Green Fluorescent Protein in order to differentiate the control strain. These controls will allow a lab tech to discriminate between a naturally contaminated specimen vs. a positive as a result of cross-contamination.
Labs should, in addition to having good QC practices, keep track of fail rates and positivity rates. This can be done as total lab results by analysis, but also can be broken down into customers. For instance, a lab fail rate for pesticides averages 4% for dried flower samples. If, during a given period of review, this rate jumps past 6% or falls below 2%, their may be an issue with instrumentation, personnel or the product itself. Once contamination is ruled out, labs can then present evidence of spikes in fail rates to growers who can then remediate in their own facilities. These efforts in concert will inherently drive down fail rates, increase lab capacity and efficiency, and result in cost savings for all parties associated.
Continuous Improvement is the Key
Cannabis testing labs are, compared to their food and clinical counterparts, relatively new. The lack of consistent state and federal regulation coupled with unfathomable growth each year, means many labs have been in the “build the plane as you fly” mode. As the lab environment matures, simple QC, SOP and hygiene changes can make an incremental differences and drive improvements for labs as well as growers and manufacturers they support. Lab management can, and should, take steps to reduce cross contamination, increase efficiency and lower costs; The first step is always the hardest, but continuous improvement cannot begin until it has been taken.
References
Margas, E, Maguire, E, Berland, C. R, Welander, F, & Holah, J. T. (2013). Assessment of the environmental microbiological cross contamination following hand drying with paper hand towels or an air blade dryer. Journal of Applied Microbiology, 115(2), 572-582.
Milo, M., and Phillips, R. (2021). How fast do cells move? Cell biology by the numbers. Retrieved from http://book.bionumbers.org/how-fast-do-cells-move/
Robinson, Andrew L, Lee, Hyun Jung, Kwon, Junehee, Todd, Ewen, Perez Rodriguez, Fernando, & Ryu, Dojin. (2016). Adequate Hand Washing and Glove Use Are Necessary To Reduce Cross-Contamination from Hands with High Bacterial Loads. Journal of Food Protection, 79(2), 304–308. https://doi.org/10.4315/0362-028X.JFP-15-342
Sutton, Scott. (2010). The importance of a strong SOP system in the QC microbiology lab. Journal of GXP Compliance, 14(2), 44.
World Health Organization. (2009). Good Laboratory Practice Handbook. Retrieved from https://www.who.int/tdr/publications/documents/glp-handbook.pdf
This piece is intended to provide some considerations that current and potential license holders should think about as they work with advisors to make entity selection decisions or consider potential tax elections. Please note that this article is a high-level overview and is not intended to declare the best type of entity structure for a license holding entity. Although there are numerous tax variables that should be contemplated, tax issues are not the only concerns relevant to determining entity type. In addition, some states may tax entities differently than how the entity is taxed for federal purposes.
First, let’s look at the legal entity types that may be set up to hold a license, operate a business and what that may mean for how an entity is taxed. Often, entities are set up as either limited liability companies or corporations.
If a limited liability company is organized and the entity is owned by only one owner, a single member LLC, the default tax treatment would be that the entity is disregarded for tax purposes. In other words, it would not file a separate federal income tax return, except in some states including CA, TX, TN and RI. All the tax consequences of the activities within the legal entity are reported on the tax return of the owner of the entity.
If a limited liability company is set up and the entity is owned by more than one owner, a multiple member LLC, the default tax treatment would be that the entity is taxed as a partnership. An entity taxed as a partnership reflects the tax consequences of the activities within the legal entity on a partnership return. The partnership generally does not pay tax on the activity, but rather the taxable income and loss are passed through to the owners of the LLC. The owners of the LLC reflect the taxable income or loss on their tax return and are responsible for paying any resulting tax. In the rare instance of an entity being audited, there is a possibility that the entity may have to pay tax on the partners behalf, depending on the ownership structure. Either a single member LLC or a multiple member LLC may elect to treat the LLC as a C-corporation or an S-corporation for tax purposes.
The Taxation of C-Corporations & S-Corporations
The default treatment for an entity set-up as a corporation is the entity will be taxed as a C-corporation. An entity taxed as a C-corporation, including an LLC electing to be taxed as a C-corporation, pays the tax on any taxable income generated by activities within the entity. Additionally, any distributions of earnings from the C-corporation to the owners of the entity are generally considered dividends which are required to be reported as taxable income by the owners when received. In other words, the earnings of an entity taxed as a C-corporation are potentially taxed twice. Once, as they are earned within the entity, and then again upon distribution to the owners of the entity.
An entity set-up as a corporation, a single member LLC or a multiple member LLC may elect to be treated as an S-corporation. Like an entity taxed as a partnership, an S-corporation does not pay tax at the entity level, but rather passes the taxable income and loss through to the owner or owners. Additionally, like a partnership, distributions from an S-corporation are not taxable as dividends to the owner when received.
Since we covered how different entities are taxed based on how they are set-up, and what elections they may or may not make, we will explore some of the issues that should be considered when making an entity selection. We will also address potentially electing to treat an entity one way or another for tax purposes.
S-Corporations
Advantages: The advantages of an S-corporation are limited to the avoidance of double taxation associated with C-corporations, as well as some potential benefits of lower Social Security and Medicare taxes.
Disadvantages: The primary disadvantage of an S-corporation for a license holding company is any non-deductible expenses resulting from 280E are passed through to the owner(s), which then reduces the ownership’s tax basis in its investment in the entity. A reduction in tax basis is determinantal to owners of an entity because the basis is used to reduce taxable income when/if the owner liquidates ownership in the entity.
Other disadvantages of S-corporations include but are not limited to restrictions on ownership of the entity, a requirement for reasonable compensation paid to owners and a lack of flexibility in the allocations of earnings among owners.
Partnerships
Advantages: The advantages of a partnership include but are not limited to the avoidance of double taxation associated with C-corporations, flexibility in the allocation of earnings and losses among owners, and flexibility in the type of owners of the entity.
Disadvantages: Like S-corporations, the primary disadvantage of a partnership is any non-deductible expenses resulting from 280E are passed through to the owner(s).
Other disadvantages of partnerships include potential self-employment taxes on earnings allocated to active owners, potential complexity in the allocations of taxable income and losses among partners in entities with many owners or different classes of ownership.
C-Corporations
Advantages: In contrast to S-corporations and partnerships, the tax basis resulting from the ownership’s investment in the entity is not subject to reductions from non-deductible expenses being passed through to owners. This protection of tax basis is particularly important to owners of license holding entities.
An additional advantage of C-corporation tax treatment may be a lower tax rate applied to taxable income.
Disadvantages: The most significant disadvantage of C-corporation tax treatment is the potential double taxation of earnings that might be applicable if the entity does have earnings that are distributed.
In addition to the items address above, the advantages and disadvantages of the entity type and related tax elections, additional considerations include:
How much of the 280E nondeductible expenses will the taxpayer be subject to?
How much earnings will the entity be distributing to the owners?
How complex is the entity’s ownership?
The lack of certainty regarding whether or not the qualified business income deduction (QBID) enjoyed by pass-through entity owners is allowable as a deduction by owners receiving pass-through income from an entity subject to 280E.
Are there plans for selling the entity and if so, what is the time horizon for doing so?
At Bridge West, we advise taxpayers to consult with cannabis advisors who have experience in the industry, can help navigate the complexities of tax compliance and Code Section 280E and are experienced with entity structures.
During the COVID-19 pandemic, most testing laboratories have been classified as relevant for the system or as carrying out essential activities for national governments. Therefore, it is crucial to maintain activities and optimally assess the changes that are occurring, framed within the spread of the SARS-CoV-2 virus. Analytica Alimentaria GmbH, a testing laboratory with its headquarters in Berlin, Germany and a branch office in Almeria, Spain, decided to focus its management on the analysis of events and the options available, at the legal and employment level, to ensure continuity of activities and reducing, as much as possible, the damage for the parties involved: employees and company. Accredited by the International Accreditation Service (IAS) to ISO/IEC 17025:2017, Analytica Alimentaria GmbH is required to implement risk-based thinking to identify, assess and treat risks and opportunities for the laboratory. Since March 12, 2020 a crisis committee was established, formed by the six members of the company’s management, covering general management, human resources, direction of production, finance and IT. The committee meets every day and it intends to:
Minimize the risks of contagion
Be able to continue providing the service required by our clients
ensure that the company as a whole will survive the economic impact of the crisis
Take measures that are within the legality of both countries where the laboratory operates (Spain and Germany),
Manage internal and external communication related to the crisis
To achieve correct decision making, daily meetings of the committee were established, to review the situations that were presented day after day and the actions that should be carried out. Each decision was analysed in a prioritized, objective, collaborative and global way.
The basis of the lab’s action plan was a well-developed risk assessment. In addition to the risk of getting a droplet or smear/contact infection with the coronavirus SARS-CoV-2 (risk I) by contact with other people, psychological stress caused by changing working conditions (home office), contact options and information channels were also identified (risk II).
As a result of the risk assessment, the conclusion was that a mix of various measures is the best form of prevention:
Keep distance
Avoid “super spreader” events
Personal hygiene
Regular communication between managers and personnel about the current situation and possible scenarios
The risk assessment took both areas into account. The following assessment was developed together with an external specialist and focused on risk I:
Risk I
Assessment
Protective measures / hygiene plan
Organisation
Working hours and break arrangements
High
Limit the gathering of people and ensure a minimum distance:
Relocated work, break and mealtimes
Create fixed groups of shift-working staff
Time gap of 20 min. between the shifts
Enable home office wherever it is possible
Third party access
Moderate
Few but “well-known” visitors:
Reduce the number of visits and keep internal contacts to a minimum
Ensure the contact chain
Inform visitors about the internal rules and obtain written consent
Dealing with
suspected cases
High
Isolation and immediate leave of the company:
Contactless fever measurement (in case of typical symptoms)
Leave the company or stay at home
If the infection is confirmed, find contact persons (including customers or visitors) and inform them about a possible risk of infection
Contact with other persons
Traffic route from home to work
Moderate
Avoid public transportation:
Take a car, bicycle or go by foot
Enable mobile work and teleworking
At work
High
Always keep a sufficient distance of 2.0 m from people:
If minimum distances cannot be maintained, wear protective masks or install physical barriers (acrylic glass)
Organize traffic routes so that minimum distances can be maintained (one-way routes, floor markings indicating a distance of 2 m)
Use digital meetings instead of physical ones
Sanitary facilities
Moderate
Remove virus-loaded droplet as often as possible:
Provide skin-friendly liquid soaps and towel dispensers
Shorten or intensify cleaning intervals
Hang out instructions for washing hands at the sink
Include instructions for proper hand-disinfection
Canteens, tea kitchens and break rooms
High
One person per 10 m² = minimum:
Reduce the number of chairs per table
Informative signs in every room, indicating the maximum number of permitted persons
Ventilation
High
Diluting or removing bioaerosols (1 µm virus-droplets):
Leave as many doors open as possible
Regular and documented shock ventilation every 30 minutes or more frequently, depending on the size of window
Operate ventilation and air-conditioning systems, since the transmission risk is classified as low here
Use of work equipment
Moderate
Use tools and work equipment for personal use:
Regular cleaning with changing use (PC, hand tools, coffee machine, …)
If possible, use gloves when using equipment for a larger number of users
Protective masks
Moderate
Use of protective masks as an additional measure, indicating that this does not replace keeping distance
Recommend wearing masks in commonly used areas and explain that they do not protect yourself, but help to protect others
Give clear instructions (written and oral) on how to use a mask correctly and explain the use and purpose of different mask-types
Distribute masks freely
A number of guidelines and concrete measures addressing the risks related to health issues are already in place. Those health issues in risk group II are more closely related to the psychological effects of the crisis, however, are also more complex to mitigate. The key strategy is communication and, in particular, actively listening to all employees of the company.
Analytica’s robust company culture, based on values established in coordination with the whole staff, has been of significant help during the crisis. The some 150 staff members are organized by over 22 team coordinators. During the crisis, active communication has been intensified significantly. The crisis management team set up regular alignment meetings with all the coordinators and with individual persons with particular situations. This way, not only was it possible to explain the development of the crisis and the subsequent measures, the conversations with coordinators were also the most important source of information enabling the appropriate decisions. The coordinators, closely aligned and in sync with management, were then able to communicate with their team members with a high degree of confidence. One outcome of the communication was a measure that proved very effective in fortifying trust within the company: all measures and evaluations, as well as a chronological review, are published in a dynamic internal report and are made available, with full transparency, to all staff members. Besides the many individual and group alignment meetings (usually held by video conference), this has been a key measure to establish confidence and security within the company.
On the other hand, the company made a great effort to balance the effect of the general closure of kindergartens and schools in Spain and Germany. Each case where staff members were required to care for children at home was studied individually and agreements were established, adapting shifts and making use of time accounts, to allow childcare at home without significant loss of income.
The success of the measures is shown by the continuous work of both laboratories during the crisis. Besides the personal tragedy of a possible infection, the identified risk to the company has the consequence of a (partial) quarantine due to an infected person in contact with the staff and the consequent loss of work-power which might lead, in extreme cases, to a closure of the laboratory. According to the governmental regulation in Germany, if an infection occurs (confirmed by the health department), contact persons cat. 1 (more than 15 min. contact face to face) are identified and sent to quarantine. Other contact persons, e.g. contact persons cat. 2 (same room without face to face) must be identified quickly with the collaboration of the infected person and notified and, if necessary, sent in quarantine. In this case, there is a confirmed emergency plan that maintains the laboratory’s ability to work, defining replacements and alternative work-flow strategies.
It has been part of our strategy to validate all our measures with the relevant guidance documents made available by the official competent institutions. The German Federal Office for Public Safety and Civil Protection (Bundesamt für Bevölkerungsschutz und Katastrophenhilfe) has published a guide, “Crisis Management in Companies, 9-point Checklist” especially for critical infrastructure companies in the CoVid-19 crisis.
Having been classified as a core business enterprise (Spain) and “relevant to the system” (Germany), we consider it important to use them as a reference to confirm our level of alignment with your proposal for crisis management.
An important effect, relevant to any leader in times of crisis, is that the confirmation of all points of such a checklist provides certain peace of mind regarding the question: Have we done everything we could?
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