Alexandra Hicks posted: " Late last week, the U.S. Drug Enforcement Agency (DEA) released their Interim Final Ruling on hemp extract that, if passed in October, will have devastating consequences for the CBD industry. DISCLAIMER- This is my interpretation on the IFR, if it is "
Late last week, the U.S. Drug Enforcement Agency (DEA) released their Interim Final Ruling on hemp extract that, if passed in October, will have devastating consequences for the CBD industry.
DISCLAIMER- This is my interpretation on the IFR, if it is incorrect or I missed any important update, please feel free to let me know in the comment section below
In typical government fashion, the DEA misinterpreted what was stated in the Farm Bill and ran with it, creating a new roadblock for the cannabis industry that makes no sense whatsoever. In short, the DEA ruling prohibits any hemp extract that reach 0.3% or more tetrahydrocannabinol (THC) at any point during the manufacturing process, by categorizing these products as Schedule 1 Narcotics. Did all hemp extract just become illegal?
At first glance, the law makes sense based on the 0.3% cutoff that, arbitrary as it may be, has been around for quite some time. However, this law doesn't apply to just finished products. If we have a CBD oil for example, that has no THC in the final product and was extracted from legally compliant industrial hemp, it could still be illegal if at some point during the manufacturing process, the THC (temporarily) exceeded 0.3 percent.
Now it makes even less sense, doesn't it? Well, it doesn't get much better.
What do you think? Did most hemp extract become illegal? To voice your opinion on this matter, click here.
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WIPHE and Temporarily Elevated Levels of THC
When creating CBD products, even isolate, they go through a stage referred to as Work-in-Progress Hemp Extract (WIPHE), during which the concentrations of THC temporarily exceed 0.3 percent. Products in the WIPHE stage are only partially processed, and not intended for sale or consumption. Fluctuating levels of cannabinoids is just a normal part of the process and is impossible to avoid. Even during at the most basic levels of production, there will always be a point where the product has more than 0.3% THC.
It is these WIPHE products that are now banned. So, in the process of creating legal products from a legal plant, they briefly enter a stage where they are considered a Schedule 1 controlled substances, and thus are overall illegal. It was always the elephant in the room, but it's honestly illogical to think that any of that matters, the focus should obviously be on the finished product that ends up in the consumer's hands.
There is quite a bit of confusion whether this applies to products in the WIPHE stage or only completely finished, consumer products. According to the National Hemp Association, "this IFR only refers to consumer products to ensure that they are D9 compliant. It does not address mid-process crude or distillate which often exceeds legal THC levels. So moving/selling those materials across state lines remains ambiguous and problematic. However, while this IFR does not alleviate that concerns it also does not make it worse."
However, lawyers from CannaBusiness Law Group say otherwise. I would like to reference the dry vs. wet hemp issue that means, this DEA IFR likely refers to crude, in-process products as well, which would make all hemp extract illegal.
"It is clear that a hemp plant (or part of a plant) with THC levels that do not exceed the statutory 0.3% concentration limit on a dry weight basis is lawful. That plant (or part of the plant) can be chopped, ground, plucked, and otherwise processed dry and remain lawful. This is because the statutory definition directly addresses hemp on a dry weight basis. The issue addressed in this letter arises when hemp is processed for its oil, which necessarily renders the hemp plant and its parts "wet". The statute does not contemplate measuring THC levels of a wet extract. For this reason, in determining whether it is lawful to transport WIPHE we must focus both on both the language and Farm Bill's apparent intent."
Honestly, it's hard to say what it all means. If it holds up in a court of law, which I personally don't think it will, it would be a complete and utter disaster for the CBD industry. Would all CBD products be banned? What would happen to FDA-approved drugs like Epidiolex, which use CBD in their formulations?
There are a lot of unanswered questions at the moment, but the good news is, this ruling isn't set in stone and we have until October 20, 2020 to voice our opinions. Just CLICK HERE and following the online instructions at that site for submitting comments. To ensure proper handling of comments, you should reference "RIN 1117- AB53/ Docket No. DEA-500" on all correspondence.
In addition to potentialy making hemp extract illegal, Delta-8 products have been banned as well, and that has been challenged in court by numerous hemp companies. If you own a hemp company that will be affected by this ruling, talking to a lawyer about your options might be your best bet. CBD Flower
We will update you regularly as we get more information. To learn more about Delta-8 THC, make sure to subscribe to the Delta 8 Weekly Newsletter.
Sarah Friedman posted: " Opening up legal cannabis markets means one very big thing…taxes!! Yes, apart from getting citizens a product they very much want (and will realistically get on their own anyway), the biggest benefit to opening these markets, is the tax revenue collected"
Opening up legal cannabis markets means one very big thing…taxes!! Yes, apart from getting citizens a product they very much want (and will realistically get on their own anyway), the biggest benefit to opening these markets, is the tax revenue collected.
Much like everything else in the world of legal cannabis, every location that has created a market, has its very own setup for how to regulate and tax it. So far, there are no two places that do it exactly the same.
In the US, every state that has a legal market has its own set-up for taxation. There're 10 taxable recreational markets in the US: Alaska, California, Colorado, Illinois, Michigan, Massachusetts, Nevada, Oregon, Washington, and Maine (though Maine is not officially open yet). Vermont, too, is on its way, but will require more time and has not released information yet on its tax structure. It should be remembered that in the States, as there is no federal law legalizing these sales, all tax structures are relevant to state governments, and not federal.
Basically, all the legal states take their pick of: sales taxes - which would be for an entire state; local sales taxes - for a particular city or town; excise taxes - which get absorbed into the price and are paid generally between a manufacturer and vendor; excise sales taxes - an excise tax that gets collected at sale like a sales tax; cultivation taxes - paid by cultivators per the amount they grow; and even a local cannabis business tax meant for businesses that manufacture non-medical products.
Most states collect taxes in percentages, while some like Alaska opt to tax in dollar values. California has the most taxes added on, Washington has the single largest tax with a 37% excise sales tax, and in most of these markets, it's expected that as high as 20+% can be added onto the initial value of the product in taxes.
How each state collects its taxes varies, as does how each state uses the tax money that comes in, which is a topic for a whole different article. It should be remembered though, that California - the biggest market - is having major issues contending with the black market, and that perhaps how taxes are being levied is the main reason why.
Canada is much like the US when it comes to having different locations determine their own tax amounts. The difference, of course, is that the US is still federally illegal, whereas Canada is a federally legal country, meaning the federal government is not left out of the regulating and taxing of products. The 13 provinces and territories that make up Canada, are: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland & Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan, and Yukon.
The federal excise tax is paid by all. Much like excise taxes in the US, it is not generally felt directly by the consumer, but is absorbed into the price. The tax is paid by licensed cannabis producers when products transfer to a retailer or consumer. And this plays into the entire regulatory system.
In Canada, once an excise tax is paid on a product, it receives a sticker, and in fact, all legal products must have them going back to the original cultivator or producer. Cultivators, producers, and packagers must receive licensing from the CRA - Canada Revenue Agency. In order to qualify for this, they must also get a license from Health Canada.
Once these licenses are obtained, it then becomes necessary to buy and apply the cannabis excise tax stamps; to calculate the tax rate according to the given rules for a specific operation, and location; and then to file taxes with payment of excise amounts to the CRA. So, the very process ensures that each participant in the supply chain is licensed, and that the payment of the tax is always visible.
Cannabis is also subject to a standard Canadian federal Goods & Services sales tax of 5%. Plus, the government levies a further 2.3% annual fee on yearly revenue for license holders as a way of offsetting the cost of regulation. This fee is currently being debated in light of damage caused from the corona incident.
On the local side, some provinces, like Manitoba, implemented a Social Responsibility Tax (SRT) (in the case of Manitoba 6% - which gets paid right back to Manitoba.) There's also a Provincial Sales Tax (PST) which varies between provinces, with some provinces like Alberta and Yukon eliminating it altogether.
Provinces that do use it, incorporate the tax into the cost of the item, and it can range from 6-10%. There is also a Harmonized Sales Tax (HST) that takes the place of the 6% Goods & Services sales tax and Provincial Sales Tax, and implements a rate of 13% or 15%. The HST is used in Ontario, New Brunswick, Newfoundland & Labrador, Nova Scotia, and Prince Edward Island.
As was mentioned regarding California, there is a certain amount of backlash due to pricing and quality, issues that if not fixed will do nothing more than bolster the black market.
What about Uruguay?
Medicinal cannabis is taxable as well, but as of yet, free countries/states, have put a much greater tax burden on the recreational markets, which are the markets meant to entice everyone who doesn't fit into the medical category. The recreational avenue provides a much better venue for taxation.
As of right now, and in stark contrast, Uruguay – the longest running legal country - doesn't actually charge taxes on recreational cannabis. Perhaps this is just semantics though, as Uruguay does charge a 'variable fee' which is meant specifically to help fund the Institute for Regulation and Control of Cannabis (IRCCA). So it suffices to say that while Uruguay charges something, the general idea around legalization was to keep taxes off, and the reason for this was because of how badly Uruguay wanted to divert from the black market. Undercutting the black market was an actual goal for Uruguay, not trying to tax over it, and so far it has been the only country to put that sentiment into action.
By not making it about taxes, the price has stayed considerably lower, with the latest increase bringing it up to about $1.23/gram of flower. Keeping pricing low is generally the best way to undercut a current market. Of course, there are other supply issues in Uruguay that are affecting price, as well as a requirement for users to be signed-up as users...something that could easily dissuade many people.
Conclusion
The most interesting thing to me is not simply the tax structure put in place, but the whole question of 'to tax, or not to tax'. It's a double-edged sword. In a world of greedy governments with no real ability to see into the future, the idea of not scraping up every penny immediately in possible tax money, seems impossible by the looks of it. It's like the saying 'cutting off the nose to spite the face'. While governments might not be trying to expressly hurt their people, by blatantly disregarding price points and logic, and adding on ridiculous taxes, the only thing they do is push people back to the black market and hurt legal markets.
Uruguay doesn't have the biggest market, and its moving slower, but it does seem to be doing so on a generally better principal. One that could provide a cheaper product, and therefore, much less reason to seek the black market answer in the future. And this could, in the end, provide a much stronger, more durable structure.
