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

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5. Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
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6. Meet the Faculty
MODERATOR:
Jack O’Connor - Sugar Felsenthal Grais & Helsinger LLP
PANELISTS:
Jonathan Havens - Sauly Ewing Arnstein & Lehr
David Ritter - Ritter Spencer PLLC
Jonathan Loiterman - Green Star Growing, Inc.
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7. About This Webinar - Cannabis Basics: Getting up to
Speed with Current Laws, Legislation, & Essential
Business Issues
The cannabis and hemp industries in the U.S. have exploded in recent years due to increased
numbers of states allowing businesses to grow, process, and sell cannabis products for
medical and adult use. But one may ask: how are these businesses capable of operating if
federal laws prohibit them?
This series provides an essential foundation for any businessperson or professional looking to
get smart about the cannabis industry. In the first episode of this series, our panel of experts
will bring you up to speed on the complex and constantly evolving legal framework governing
cannabis businesses. With this context, our panelists will also discuss the opportunities and
challenges of operating in the cannabis space.
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8. About This Series
Cannabis Law 2020
The U.S. cannabis industry has exploded over the past decade. With every emerging industry comes legislation,
rules, investors, and questions. The legalized cannabis industry is no different. And as more states in the U.S.
adopt adult use and medical cannabis laws and regulations, it is incumbent on businesspeople and
professionals to educate themselves about the challenges and opportunities facing the industry, as well as how
to navigate the legal landscape governing cannabis businesses, whether those businesses “touch the plant,” or
not. Thankfully, we’re here to help. In this series, we provide an essential foundation for any businessperson or
professional looking to get smart about the cannabis industry. In our first episode, we present an overview of the
cannabis industry and the competing legal frameworks at state and federal levels. In our second episode, we will
discuss investment strategies for getting involved in the cannabis industry. Our third episode will discuss specific
legal issues surrounding intellectual property rights in the cannabis space. And we’ll conclude with our fourth
episode, focused on legal and business issues for employers and employees in states where cannabis has been
legalized for both medical and adult use.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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9. Episodes in this Series
#1: Cannabis Basics: Getting up to Speed with Current Laws, Legislation, &
Essential Business Issues
Premiere date: 1/29/20
#2: Cannabis Investment: Successes, Failures, & Strategies for the Future
Premiere date: 2/26/20
#3: Protecting Intellectual Property in the Cannabis Industry
Premiere date: 3/25/20
#4: Cannabis Legal & Business Issues for Employers & Employees
Premiere date: 4/22/20
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10. Episode #1
Cannabis Basics: Getting up to Speed with Current
Laws, Legislation, & Essential Business Issues
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11. Cannabis Basics: Terminology & Jargon
What is “Cannabis,” exactly?
• a plant genus that produces three species of flowering
plants: Cannabis sativa, Cannabis indica, and Cannabis ruderalis
• Cannabis sativa & Cannabis indica are used to produce both adult use & medical cannabis
products
• Native to Asia, but grows almost anywhere and has long been cultivated both for the
production of hemp and to be used as a drug
Source: https://www.leafly.com/news/cannabis-101/glossary-of-cannabis-terms
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12. Cannabis Basics: Terminology & Jargon Cont’d
Cannabinoids
• Chemical compounds unique to cannabis that on the body’s cannabinoid receptors,
producing various effects. Currently more than 85 known cannabinoids, all with varying
effects.
THC (tetrahydrocannabinol)
• Best known & most abundant available cannabinoid in marijuana plants, responsible for
psychoactive effects or the “high,” of cannabis products.
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13. Cannabis Basics: Terminology & Jargon Cont’d
CBD (cannabidiol)
• One of many cannabinoids found in cannabis. CBD has gained support for its use as a
medical treatment as research has shown it effectively treats pain, inflammation,
and anxiety without the psychoactive effects associated with THC.
Hemp
• a fibrous product that can be produced from the male cannabis plant (meaning it generally
can’t be used to produce intoxicants), used in the manufacture of rope, paper, clothing,
beauty products, and other goods.
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14. State-Based Legalization of Cannabis in the U.S.
At present (but constantly changing):
• 33 states, 4 of 5 US Territories, & the District of Columbia allow medical cannabis use
• 11 states, the District of Columbia, Guam, and the Northern Mariana Islands allow adult (or
“recreational”) use of cannabis, including: Alaska, California, Colorado, Illinois, Maine,
Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington
• 15 other states have decriminalized cannabis use
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15. State-Based Legalization of Cannabis Cont’d
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Source: Lokal_Profil, CC BY-SA 2.5, https://commons.wikimedia.org/w/index.php?curid=2370050

16. Federal Criminal Law: the Controlled Substances Act
The Controlled Substances Act (“CSA”), 21 U.S.C. §§ 801-971 criminalize the following with
respect to cannabis:
• Growing;
• Processing;
• Selling;
• Knowingly renting, managing, or using property for the purpose of manufacturing or
distribution;
• Selling or offering to sell drug paraphernalia (including equipment, products, or materials of
any kind which is primarily intended or designed for use in manufacturing cannabis); and
• Deriving profits or proceeds from violations of the CSA
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17. Federal Policies Allowing for State-Compliant
Cannabis Operations
Rohrabacher–Farr Amendment
• 2014 federal law prohibiting the Department of Justice Department from using funds to
interfere with implementation of state-based medical cannabis laws.
• Did not change legal status of cannabis, and must be renewed each fiscal year to remain
in effect
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18. Federal Policies Allowing for State-Compliant
Cannabis Operations Cont’d
Ogden Memorandum (2009)
• Memorandum issued by the US Department of Justice to US Attorneys across the country
to guide prosecutorial decision-making, allocation of resources, and guidance for US
Attorneys located in states where cannabis is legalized/decriminalized/etc.
• Ogden memorandum prioritizes prosecution of significant traffickers and disruption of
illegal drug manufacturing and trafficking networks.
• Emphasizes that federal prosecutors "should not focus federal resources in States on
individuals whose actions are in clear and unambiguous compliance with existing state
laws. . . .”
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19. Federal Policies Allowing for State-Compliant
Cannabis Operations Cont’d
Cole Memorandum 1 (2011)
• DOJ Memorandum issued to clarify Ogden Memorandum: Ogden Memo not intended to
protect private, large-scale, profitable cannabis cultivation centers from federal
enforcement or prosecution, even when complying with state law
• Also notes that using federal resources to enforce the CSA against cancer patients or
caregivers may not be efficient
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20. Federal Policies Allowing for State-Compliant
Cannabis Operations Cont’d
Cole Memorandum 2 (2013)
• Further updates Ogden Memo to address state initiatives to legalize the possession of
small amounts of cannabis and regulate its production and sale.
• Second Cole Memo highlights 8 specific enforcement priorities relating to noncompliance
with other state laws, aimed at preventing:
• 1. distribution of cannabis to minors;
• 2. revenue from being funneled to criminal enterprises/gangs/cartels;
• 3. movement of cannabis from state-to-state;
• 4. state-authorized cannabis activity as a cover for illegal activity;
• 5. violence and the use of firearms in cultivation and distribution of cannabis;
• 6. drugged driving and other adverse public health consequences;
• 7. growing cannabis on public lands and any environmental threat posed by that production; and
• 8. cannabis possession or use on federal property
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21. Federal Policies Allowing for State-Compliant
Cannabis Operations Cont’d
Cole Memorandum 3 (2014)
• Additional refinement to previous iterations
• Links possible violations of the Bank Secrecy Act (31 USC §§ 5311-5332) and money
laundering statutes to the enforcement priorities listed in the Second Cole Memo.
• Clarifies that prosecution of a person for financial crimes associated with cannabis "does
not require an underlying marijuana-related conviction under federal or state law."
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22. Federal Policies Allowing for State-Compliant
Cannabis Operations Cont’d
FinCen Guidance (2014)
• Published simultaneously with Third Cole Memo
• Department of Treasury guidance memo that puts the onus on financial institutions to
conduct due diligence to identify customer conduct in violation of the eight priority factors
set forth in Second Cole Memo.
• Financial institutions that act "willfully blind" by failing to conduct appropriate due diligence
are subject to potential prosecution.
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23. Federal Policies Allowing for State-Compliant
Cannabis Operations Cont’d
Rescission of the Cole Memorandum – Sessions Memorandum (2018)
• A setback for state-legal cannabis industry operators
• Sessions memorandum rescinds previous DOJ guidance on federal cannabis
enforcement
• BUT - does not rescind the FinCen Guidance from 2014. Directs federal prosecutors to
instead "weigh all relevant considerations, including federal law enforcement priorities set
by the US Attorney General, the seriousness of the crime, the deterrent effect of criminal
prosecution, and the cumulative impact of particular crimes on the community."
• Also directs US Attorneys to use their investigative and prosecutorial discretion
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24. Federal Policies Allowing for State-Compliant
Cannabis Operations Cont’d
Permitted Uses of Cannabis by the Federal Drug Enforcement Agency (DEA)
• DEA has stated that Schedule I controlled substances may only be used for legitimate
medical, scientific, research, and industrial purposes.
• DEA policy statement notes that "consistent with the purposes and structure of the CSA,
persons who become registered to grow marijuana to supply researchers will only be
authorized to supply DEA-registered researchers whose protocols have been determined
… to be scientifically meritorious.
Permitted Uses of Cannabis by The National Institute on Drug Abuse (NIDA)
• NIDA supplies researchers with cannabis from its farm at the University of Mississippi
through tightly controlled channels
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25. Capital Constraints: Access to Banking & Taxation
Issues
Banking
• Because the CSA criminalizes nearly all cannabis-related business activity, cannabis
businesses cannot bank with traditional lenders who are FDIC-insured (nor will these
lenders agree to bank these businesses, especially in light of FinCen Guidance)
• Result: lots (LOTS) of cash flowing through cannabis businesses with very few places to
keep it;
• Private investment tends to be main source of capitalizing cannabis businesses
• Some state-based credit unions will bank cannabis businesses, but solutions are limited
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26. Capital Constraints: Access to Banking & Taxation
Issues Cont’d
Taxation
• Additional tax and accounting challenges presented because cannabis businesses are
federally illegal
• Internal Revenue Code Section 280e: businesses that traffic in controlled substances
cannot deduct any expenses incurred in carrying on the production, distribution, and sale
of controlled substances.
• This means that businesses operating within the cannabis industry cannot deduct certain
expenses, many of which are deductible for businesses operating within a legal industry
• The marginal tax rate for cannabis businesses is therefore – HIGH (pun! We only put one
in the materials!)
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27. Additional Challenges: Restricted Access to
Bankruptcy Relief
• Bankruptcy relief (Chapter 7, 11, 13, etc.) is a federally-based form of relief
• Since cannabis businesses and individuals working within the cannabis industry are
deemed to be violating federal law, the courthouse doors are effectively closed to debtor-
companies and individuals seeking bankruptcy relief while engaged in a cannabis business
or employed by a cannabis business
• Notably: this restriction is far-reaching, and extends to ancillary businesses (most
commonly landlords) and not just “plant-touching,” businesses
• The Office of the U.S. Trustee (the bankruptcy division of the Department of Justice) has
taken a hard line on these issues, and seeks dismissal of these cases when filed
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28. The 2018 Farm Bill (Hemp Farming Act of 2018)
• The 2018 Farm Bill legalized production of hemp as an agricultural commodity & removed
hemp from the list of controlled substances.
• Also requires Secretary of Agriculture to conduct study of hemp-related agricultural pilot
programs implemented under prior 2014 Farm Bill,
• Does not create a system for producers to grow hemp as freely as other crops: caps THC
content for industrial hemp plants at 0.3%
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29. Proposed Federal Legislation
STATES Act
• Introduced in 2018, the “Strengthening the Tenth Amendment Through Entrusting States”
(STATES) Act, would recognize legalization of cannabis and the U.S. state laws that have
legalized it through their legislatures or citizen initiative.
• Proposes amending the CSA to exempt individuals and companies from federal
prosecution if possessing/producing cannabis in compliance state law
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30. Proposed Federal Legislation Cont’d
SAFE Banking Act
• Proposed and passed the House of Representatives in 2019 (not passed in the Senate) to
govern disposition of funds gained through the cannabis industry in the US
• Generally prohibits federal banking regulator from penalizing a depository institution for
providing banking services to a legitimate cannabis business; and protects lending
institutions’ access to federal deposit insurance, among other protections
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31. About the Faculty
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32. About The Faculty
Jack O’Connor - joconnor@sfgh.com
Jack is partner in the Chicago office of Sugar Felsenthal Grais & Helsinger LLP. Jack’s practice covers a
range of healthy and distress business engagements. Jack leads Sugar Felsenthal’s “Vice,” practice,
working with business clients in the Beer, Spirits, and Cannabis industries.
Jack is also widely recognized for his excellent work as a restructuring attorney including recognition by
various organizations for his strategic thinking and tactical expertise, including SuperLawyers Magazine,
Leading Lawyers Magazine, and the Turnaround Management Association.
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33. About The Faculty
Jonathan Havens - jonathan.havens@saul.com
Jonathan Havens the co-chair of both the Cannabis Law Practice and the Food, Beverage & Agribusiness Practice
at Saul Ewing Arnstein & Lehr LLP. He counsels state cannabis license applicants and awardees, ancillary service
and product providers, investors, management companies, and various other entities that are affected by federal
and state cannabis laws. In addition to his cannabis law practice, Jonathan maintains an active food and beverage
and topical products practice, particularly with regard to cannabidiol (CBD) products, in which he counsels
manufacturers, importers, distributors, and retailers of conventional foods, dietary supplements, beverages, and
topicals on product development, claim substantiation, labeling, promotion, registration, reporting, and recall issues
to ensure compliance with U.S. Food and Drug Administration (FDA), U.S. Department of Agriculture (USDA),
Federal Trade Commission (FTC), and state and local requirements. Jonathan was listed in Chambers USA 2019:
America's Leading Lawyers for Business for his nationwide cannabis law practice and named to the National Law
Journal's Cannabis Law Trailblazers list in 2018. He is regularly interviewed by mainstream and trade press outlets,
alike, and has been quoted by or authored pieces for CNBC, The New York Times, The Los Angeles Times, WIRED,
MarketWatch, Engadget, Law360, High Times Magazine, Cannabis Business Times, Hemp Industry Daily, and
HEMP Magazine. Jonathan currently serves on the Food and Drug Law Institute’s Cannabis-Derived Products
Committee. Before entering private practice, Jonathan served as a regulatory counsel with FDA, where he focused
on compliance and enforcement related to promotion, advertising, and labeling. Prior to law school, Jonathan
served as a legislative aide in both the U.S. Senate and U.S. House of Representatives.
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34. About The Faculty
Jonathan Loiterman - jonathan.loiterman@gmail.com
Jonathan Loiterman is the Chairman & CEO of Green Star Growing, Inc., a licensed cannabis
grower, processor, and wholesaler in Oregon. Mr. Loiterman is licensed as an attorney in
Illinois and Oregon and has served as a past Chairman of the Illinois State Bar Association’s
Health Section Council as well as a member of the Oregon Liquor Control Commission’s
Cannabis Advisory Board.
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35. About The Faculty
David Ritter - dritter@ritterspencer.com
David Ritter has over 24 years of legal experience in commercial and business litigation, business
restructuring and bankruptcy, and creditors’ rights. David is known as an aggressive litigator and creative
problem-solver. David enjoys being the attorney of choice for small businesses and entrepreneurial minded
individuals. David strives to anticipate the end game early for the client.
David has represented clients across the nation including individuals, family owned businesses, trustees,
receivers, community banks, large national banking associations, well financed private equity entities, and
Fortune 500 companies. His clients span a variety of industries including oil, gas, and energy, banking and
financial services, construction, retail and wholesale distribution, defense industry, insurance, hospitality,
entertainment, restaurants, real estate, technology, trademark, copyright, health care, transportation and
logistics, automotive, and telecommunications. David takes a holistic view of a client’s needs and
endeavors to provide for full client satisfaction.
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36. Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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