Top Ten Misconceptions in the Marijuana Industry

We previously listed out the top ten red flags in the marijuana industry. It’s now time to discuss the top ten myths in the marijuana industry. The below are the most common myths we have been hearing in multiple states regarding marijuana businesses:

1. The Cole memo from August 29, 2013 changed federal marijuana laws. False. Though helpful in showing states how they should be regulating marijuana within their borders, it does nothing to change or nullify federal marijuana laws. Marijuana is still federally illegal and the Cole memo has had no impact on that. For more on this, check out Marijuana and the New Attorney General: Why You Should Care.

2. My marijuana business can take regular business tax deductions. Not true. Since marijuana is a Schedule I controlled substance, marijuana businesses are illegal. This means that IRS code 280e allows marijuana businesses to deduct the costs of good sold, but that marijuana businesses are prohibited from deducting all other business expenses.

3. I can take my marijuana company public. This idea demonstrates ignorance of federal and state laws. Though there are some publicly traded “marijuana” companies, all of those companies provide either ancillary products or ancillary services. None of them cultivate, manufacture, and/or distribute marijuana. The Securities and Exchange Commission has made clear that businesses handling marijuana cannot go public. Most state laws also prohibit marijuana companies from going public.

4. Investors cannot be held criminally liable for investing in marijuana businesses. This one makes so little sense we are not even sure how it got started, but it is particularly prevalent (along with a whole host of other misconceptions) in Florida and Nevada. The federal Controlled Substances Act is vast, aggressive, and all-encompassing when it comes to those involved with illegal drugs, including marijuana. Under the federal Controlled Substances Act, investors can be arrested and prosecuted by the Department of Justice by virtue of their financial contribution to a marijuana business — in any state, whether regulated or not.

5. My marijuana business can locate anywhere, in any city or county, in a state that has marijuana laws on the books. False. Cities and counties have the power to regulate activities taking place within their jurisdiction unless their state has removed that power, which it seldom does. Marijuana businesses must comply with both state and local laws if they want to survive. For more on this, check out Cities and Counties Banning Cannabis: Why Not Let The People Decide?

6. Marijuana businesses cannot obtain bank accounts. Though once true, this is no longer always the case, as things are slowly changing in states with “robust” regulatory regimes. FinCEN issued a memorandum in February 2014 that provided guidance to financial institutions wanting to bank with the marijuana industry. As a result of that memo, some banks and credit unions in Colorado, Nevada, and Washington are quietly providing marijuana banking services. For more on this, check out Marijuana Banking. Still Very Much Alive.

7. I can get a federal trademark for my marijuana products and marijuana-related activity. This is a troubling myth because there are many lawyers new to cannabis and to trademark law who believe this. You cannot obtain a trademark for direct marijuana activity like strain names or dispensary names so long as marijuana remains illegal under federal law. Marijuana businesses can, however, typically secure state trademarks for their marijuana related products and services. For more on this, check out Marijuana Trademarks.

8. My marijuana business can file for bankruptcy. Wrong. Bankruptcy is controlled by federal law and marijuana’s federal illegality prevents the federal courts from liquidating and re-structuring marijuana businesses. In turn, marijuana businesses (and their creditors) need to contemplate different exit strategies (perhaps state law receivership) if they cannot meet their debts. For more on marijuana bankruptcy, check out Marijuana Bankruptcy? Think Again.

9. Finding property for my marijuana business is going to be a breeze. Though we wish this were true, it simply is not. Finding a landlord who will rent property to a marijuana business is still staggeringly difficult. This is because federal prohibition means that landlords can be prosecuted and lose their property just for renting their property to a marijuana business. In addition, with seemingly ever-changing local land use laws, along with onerous state distance laws (typically, marijuana businesses must be 1,000 feet as the crow flies from schools, playgrounds, and day cares (at a minimum)), finding eligible property is usually very difficult at best. For more on marijuana real property, check out Marijuana Commercial Leaseholds: Any Resemblance to Regular Leaseholds is Purely Coincidental.

10. Decriminalization and legalization are the same thing. They are not. Legalization is the mechanism that produces lawful marijuana businesses under a lawful marijuana system. Decriminalization only dictates that criminal penalties no longer apply to certain activities, like possession of marijuana. For more on this, check out Marijuana Decriminalization Versus Legalization: A Difference That Matters.