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Cannabis Law Now Podcast: Catalyst Cannabis Takes on the California Department of Tax and Fee Administration Over Cannabis Excise Taxes

 

Published:

March 07, 2024

Related Industry:

Food Systems 

Related Service:

Cannabis 
 
Podcast

    

Since legalizing in 2016, California has experienced rampant rate failure across its licensed cannabis companies. The State of California also has some of the highest and most aggressive cannabis taxes in the nation. In an effort to stave off the California Department of Tax and Fee Administration’s (CDTFA) latest round of rulemaking that would, among other things, extend cannabis excise taxes to cannabis accessories, Catalyst Cannabis Co. (one of the state’s largest cannabis operators) is in a complex challenge with CDTFA over its rulemaking authority, alleged procedural violations, and the overwhelmingly negative impact of such tax rules. In this episode, Husch Blackwell's Hilary Bricken and Anthony Almaz, General Counsel for Catalyst Cannabis, break down and analyze this potential crucial fight between the industry and California’s top tax regulator.

Read the Transcript

This transcript has been auto-generated and may contain technological errors.

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welcome I'm your host Hilary Bricken and

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this is the Cannabis law Now podcast

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where we regularly discuss issues

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related to the Cannabis industry

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including investment day-to-day

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operational issues and potential reform

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on the horizon that will impact all

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cannabis businesses and investors in the

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United

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States hey everybody glad you're here

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with us today on the podcast um I have a

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guest who I consider to be a friend and

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a colleague and he's one of these people

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who I check in with to see what the heck

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is going on boots on the ground in

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California because it's so chaotic when

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it comes to California Cannabis if

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you've been in that market and we have

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the privilege today of having a

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conversation with Anthony Almaz who is

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the general Council of catalyst cannabis

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in California and Catalyst really is a

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force of nature they have 26

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dispensaries in the Golden State which I

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can say personally is no small feat to

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get those licenses and survive and

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succeed but the reason why I have

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Anthony on today is not to talk about

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how great catalyst is although they are

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great it's actually to talk about a

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challenge a specific legal challenge

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that Catalyst has with the California

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Department of tax and fee Administration

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and normally when I say tax or Revenue

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people's eyes just immediately glaze

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over and some of that is warant because

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it is a dry topic and Anthony would

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probably agree with me on tax but the

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reason why this challenge is important

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because we have some very interesting

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administrative legal moves being made by

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a California agency that if they do go

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through they will have an incredible

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impact not in the good way in my opinion

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on the entire California Cannabis

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industry and other states may actually

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look to the model to see if they can

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generate even more revenue on the backs

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of cannabis businesses and the cool

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thing about Anthony is that Anthony is

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not just a GC utility player he has a

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tax background and a tax llm so he very

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much knows what he's talking about

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welcome to the show Anthony thank you

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thank you Hillary great to be on I

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appreciate you inviting me yes very good

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okay so let's just jump right into it

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because I think that this case deserves

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way more attention than it's getting and

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it seems to just be starting to pick up

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some visibility within media within

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circles in California Cannabis as people

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wake up to what cdtfa is doing so can

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you tell me kind of the main facts

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behind catalyst's challenge to cdtfa

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yeah absolutely and I think again this

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is a very intense legal topic I'm going

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to try to keep a high level as much as

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possible but I think the big thing to

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start off with is kind of just what's

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this statutory framework that we're

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dealing with here right and at a high

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level it's really attacking what's

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taxable in California first and foremost

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and so for those who are in the industry

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here they know that when you read the

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tax code it's simple there's three

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definitions cannabis cannabis products

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and cannabis accessories three different

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things and so everybody in this industry

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knows that cannabis and cannabis

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products are everything that comes

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through the pl and cannabis accessories

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is everything that touches you know a

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sold good like a cart or anything like

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that all the plastic all the Machinery

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all the packaging that is what's

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cannabis accessories and so there's

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always been an understanding in the

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industry that only the portion of that

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product that is from the plant directly

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is taxable at the 15% rate that

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California imposes for the last 6 years

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it's been held that way even cdtfa came

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out and said it in the regulations that

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only cannabis and cannabis products are

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subject to the 15% tax there's

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regulation 3700 we don't have to get

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into the specific details they said if

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you separately State the Cannabis

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accessories then you don't have to

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charge 15% tax which is a huge deal this

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is what it's all about so we've been in

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that process we've applied the cdtfa

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regulations we've been able able to

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separately State the Cannabis

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accessories from the Cannabis and

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cannabis product and significantly save

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the cons the consumer on the excise tax

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for that reason and so what ended up

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happening we did it and then once the

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CFA kept caught on on what we were doing

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they uh they didn't like it for the most

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part and so what they did was started

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the rul making process to change how

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that applied for the retailers and so

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they issued a discussion paper which is

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the beginning of the rul making process

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telling the industry we want to change

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the rules we we think you're confused

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that's that's actually what they put in

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the discussion paper they said we you're

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actually confused um that is not what

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it's supposed to be this is what the

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statute says and it doesn't say anything

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what it's supposed to say so here's an

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explanation of the new proposed

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regulations the Cannabis excise tax

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applies on almost all retail sales we're

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also going to codify the tax on tax

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feature I'm sure you're familiar with

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from your clients is where you compound

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the tax or the local all the way to the

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excise tax all the way to the sales tax

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we're going to try to codify that into a

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regulation we're going to try to tax you

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on your services that you provide to

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your customers which is not a sales and

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use tax issue which is not a cannabis

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excise tax issue and so when they sent

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that out to the industry which is the

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first part everybody went crazy we

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jumped on the interested parties meeting

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we told them this is crazy this is not

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what this the rule says you're doing

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this as an emergency regulation we don't

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understand what's happening we s written

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comments we we told them this is far far

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beyond your Authority you're off the

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rail so that was back in October after

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we submitted our comments after we had

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that conversation with cdtfa in December

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they issued the notice of proposed

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rulemaking process right which is the

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official beginning of creating a new

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regulation what that starts is they will

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submit the proposed regulation to the

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oal which is the office of

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administrative law which is the agency

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task with reviewing these regulations

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and approving them under the APA or the

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administrative procedures what they did

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was they submitted a a diluted version

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of what they first told us about right

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after we told them we didn't like what

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this was you were trying to put into

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place uh regulations that you had no

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authority to put in they took out a lot

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of that stuff they took out the tax on

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tax because they're like oh we really

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don't have the authority to do that they

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took out a lot of the service language

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that they put in there and they proposed

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this diluted version of Regulation 3802

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and submitted it without additional

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input we this is the first time we saw

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the new updated rules and they submitted

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to the oal so because it's an emergency

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regulation we only had 5 days to reach

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out to the O and tell them hey these are

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the things that are wrong with this

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regulation here's a dozen reasons why so

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we submitted to the oal our written

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comment which was on December 11th and

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the oal only had five days to review and

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reject or approve the regulation right

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so again this is regulation 30802 we

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submitted it to the oal we said here's a

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dozen reasons why under the APA

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regulation 3802 should not be approved

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and the O's job is to disapprove if they

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find any one of those in violation of

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the APA then on December 15th which was

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the last day of review for the O we

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reached out to them said hey what

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happened with the regulation did it

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passed did it not passed they said oh we

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approved it and we approved an amendment

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to 3700 and this is where we Ste back we

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said had you approve an amendment to

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3700 we even know that was on the table

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here 3700 is what we're depending on for

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the move so how did you guys approve

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that this is crazy I never heard of this

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no response to that so then we submitted

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a a public records act request to see

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what was the conversation between you

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and the cdtfa regarding these

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regulations what did you guys do how did

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the 3700 even come into the equation and

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so the oal sent back all the emails of

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the communications between them and we

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were beside ourselves we saw the cdfa

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and O communicating with each other in

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response to our comment that the oal

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told the cdtfa that the regulations you

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submitted do not mean

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uh what's called The Clarity standard

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which is one of the six substance of

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standards that a regulation has to meet

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and that as submitted it cannot be

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approved you have to either withdraw it

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entirely and resubmit or essentially

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just give up on it altogether cdtfa

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nobody El that are working with each

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other over the next you know couple days

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says oh how about this language does

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this language work oh how about 3700 if

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we add this so between the between the

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two agencies they started working on

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changing the provisions of the language

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behind closed doors and then on the last

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day the oal said this should work for us

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so they switched out the ru making file

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never told the public so not only did

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they amend 3700 and the provisions of

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the regulation they also amended 3802

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some of the language in there without

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ever telling us and they went and said

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sent submitted to the Secretary of State

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for approval that was the first time it

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wasn't until the pr request did we

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realize at 3802 what was submitted to us

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was not even what was approved and so

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that's what's Happening Here and Now

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that's what we're challenging wow okay

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you know part of my practice is

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Regulatory Compliance understanding the

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regulations knowing how the regulations

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come to be and obviously under the

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administrative procedure act which all

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states have it it's a smaller version

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right of what we have federally right

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there's a whole blueprint for how the

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government is supposed to get a rule to

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Market essentially with the input of the

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public so number one let's talk about

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the emergency nature of these

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regulations how are these remotely

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emergency regulations and how can cdtfa

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try to adopt things in this maybe and

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you know maybe that's the heart of it

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that they can't they cannot do it this

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way that's a great question it's a great

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point right so it is our opinion that

266
00:09:45,480 --> 00:09:48,519
this is not an emergency right what

267
00:09:47,000 --> 00:09:50,600
they're doing here this is just them

268
00:09:48,519 --> 00:09:53,440
trying to clarify statutes now every

269
00:09:50,600 --> 00:09:55,519
agency has some discretion and prating

270
00:09:53,440 --> 00:09:57,320
regulation right so everybody knows

271
00:09:55,519 --> 00:09:59,800
legislature can't think of everything

272
00:09:57,320 --> 00:10:01,480
agencies are there to manage those rules

273
00:09:59,800 --> 00:10:03,040
look at the statutes and say okay this

274
00:10:01,480 --> 00:10:04,519
is what we think of them for the most

275
00:10:03,040 --> 00:10:07,120
part and they'll make a regulation out

276
00:10:04,519 --> 00:10:08,320
of it the APA which is the

277
00:10:07,120 --> 00:10:10,760
administrative procedures act

278
00:10:08,320 --> 00:10:12,519
California's version of how the process

279
00:10:10,760 --> 00:10:15,600
and procedure of bacing a regulation

280
00:10:12,519 --> 00:10:17,800
does have a diluted version for

281
00:10:15,600 --> 00:10:19,680
emergency regulations right they say in

282
00:10:17,800 --> 00:10:20,720
the event of an actual emergency we're

283
00:10:19,680 --> 00:10:22,279
going to break down some of these

284
00:10:20,720 --> 00:10:24,560
barriers you're still going to have to

285
00:10:22,279 --> 00:10:26,399
meet some procedural requirements but

286
00:10:24,560 --> 00:10:28,800
we're not going to make it so difficult

287
00:10:26,399 --> 00:10:30,959
so we can't take Swift government action

288
00:10:28,800 --> 00:10:33,120
now the APA you still have to prove it's

289
00:10:30,959 --> 00:10:35,000
an emergency right an actual one that's

290
00:10:33,120 --> 00:10:37,480
for the public uh good or for the public

291
00:10:35,000 --> 00:10:39,480
need or to avoid a serious public harm

292
00:10:37,480 --> 00:10:41,720
and with those emergencies the

293
00:10:39,480 --> 00:10:44,600
regulation is only supposed to be around

294
00:10:41,720 --> 00:10:46,639
for 180 days right so it's a temporary

295
00:10:44,600 --> 00:10:49,040
action it's only there for 180 days and

296
00:10:46,639 --> 00:10:51,000
at the end of the 180 days the agency is

297
00:10:49,040 --> 00:10:53,120
supposed to do the same process of

298
00:10:51,000 --> 00:10:56,360
passing a permanent regulation right

299
00:10:53,120 --> 00:10:59,959
that's typically the case now when AB

300
00:10:56,360 --> 00:11:01,320
195 was passed back in June 2022 I

301
00:10:59,959 --> 00:11:03,760
believe that was that made some

302
00:11:01,320 --> 00:11:06,240
significant changes in the excise tax

303
00:11:03,760 --> 00:11:08,079
the Cannabis tax law that shifted the

304
00:11:06,240 --> 00:11:10,079
collection of remittance from the

305
00:11:08,079 --> 00:11:12,000
distributor back to the retailer right

306
00:11:10,079 --> 00:11:14,560
and so when they passed that the

307
00:11:12,000 --> 00:11:16,440
legislature did Grant the cdtfa

308
00:11:14,560 --> 00:11:18,760
emergency Ru making Authority which the

309
00:11:16,440 --> 00:11:21,200
language says that the oal is supposed

310
00:11:18,760 --> 00:11:23,440
to treat this as immediately necessary

311
00:11:21,200 --> 00:11:25,680
to avoid public harm right and so with

312
00:11:23,440 --> 00:11:27,519
that language the O was supposed to

313
00:11:25,680 --> 00:11:29,959
consider it as an emergency for the most

314
00:11:27,519 --> 00:11:33,160
part now when you look the reason for

315
00:11:29,959 --> 00:11:35,079
that is that most likely and in my

316
00:11:33,160 --> 00:11:36,519
opinion the legislator is saying hey we

317
00:11:35,079 --> 00:11:38,839
know we're switching things up if you

318
00:11:36,519 --> 00:11:40,600
need to pass regulations to change forms

319
00:11:38,839 --> 00:11:42,680
to change the process of collection and

320
00:11:40,600 --> 00:11:45,320
remitting it you know to create a

321
00:11:42,680 --> 00:11:47,360
numbers or or excise tax numbers for the

322
00:11:45,320 --> 00:11:49,440
retailer to start collecting Orting the

323
00:11:47,360 --> 00:11:51,120
excise tax let's not avoid it we're

324
00:11:49,440 --> 00:11:53,160
going to give you this power for a year

325
00:11:51,120 --> 00:11:54,600
go create your regulations and pass it

326
00:11:53,160 --> 00:11:57,639
out there now this is only supposed to

327
00:11:54,600 --> 00:11:59,079
last for a year right so December 31st

328
00:11:57,639 --> 00:12:00,480
2023 was the last day that they're

329
00:11:59,079 --> 00:12:03,639
allowed to promulgate these emergency

330
00:12:00,480 --> 00:12:06,639
regulations but even if you have that

331
00:12:03,639 --> 00:12:08,920
legislative Authority you still have to

332
00:12:06,639 --> 00:12:11,399
provide facts of why this is important

333
00:12:08,920 --> 00:12:12,920
you can't just point to the statute and

334
00:12:11,399 --> 00:12:14,320
say the oal you're supposed to treat

335
00:12:12,920 --> 00:12:16,560
this as an emergency so therefore it's

336
00:12:14,320 --> 00:12:18,440
an emergency that's not how the APA

337
00:12:16,560 --> 00:12:20,120
works not from my understanding at the

338
00:12:18,440 --> 00:12:22,320
very least you're still supposed to put

339
00:12:20,120 --> 00:12:24,560
some facts of why we need to do it this

340
00:12:22,320 --> 00:12:27,279
way and why we don't have to go through

341
00:12:24,560 --> 00:12:29,720
the ordinary rul making process right

342
00:12:27,279 --> 00:12:32,040
had the cdtfa said well we're we're

343
00:12:29,720 --> 00:12:33,880
issuing these new forms for to help

344
00:12:32,040 --> 00:12:35,680
retailers collect and remit the excise

345
00:12:33,880 --> 00:12:37,600
tax that's one thing because you can say

346
00:12:35,680 --> 00:12:39,160
we're moving forward the retailer

347
00:12:37,600 --> 00:12:40,880
doesn't know how to collect and remit it

348
00:12:39,160 --> 00:12:42,279
we have to provide some regulations

349
00:12:40,880 --> 00:12:43,680
that's that's one thing we can

350
00:12:42,279 --> 00:12:45,399
understand that but there's a difference

351
00:12:43,680 --> 00:12:47,639
between that and an entirely

352
00:12:45,399 --> 00:12:49,680
interpretive regulation which is very

353
00:12:47,639 --> 00:12:52,720
discretionary it's not an emergency to

354
00:12:49,680 --> 00:12:54,360
clarify confusion in the industry on the

355
00:12:52,720 --> 00:12:56,279
interpretation of the statute that's

356
00:12:54,360 --> 00:12:57,880
what all regulations are you're there to

357
00:12:56,279 --> 00:13:00,839
help people understand what the statute

358
00:12:57,880 --> 00:13:03,160
means so to to use your emergency Ru

359
00:13:00,839 --> 00:13:05,519
making Authority just to try to

360
00:13:03,160 --> 00:13:07,320
interpret a statute and to give some

361
00:13:05,519 --> 00:13:09,240
sort of guidance to an industry is not

362
00:13:07,320 --> 00:13:11,839
an actual emergency and certainly not

363
00:13:09,240 --> 00:13:13,199
one the legislature intended or when

364
00:13:11,839 --> 00:13:14,959
they gave you that power for a whole

365
00:13:13,199 --> 00:13:17,040
year and that's the issue we're dealing

366
00:13:14,959 --> 00:13:19,079
with and if you're going to use that you

367
00:13:17,040 --> 00:13:20,880
have to explain what you have to explain

368
00:13:19,079 --> 00:13:22,560
what the emergency is you can't just

369
00:13:20,880 --> 00:13:24,560
point to the statute and say they gave

370
00:13:22,560 --> 00:13:26,000
us as power so we're used and it's just

371
00:13:24,560 --> 00:13:29,800
common sense at that point if you're G

372
00:13:26,000 --> 00:13:31,519
to tell us and so yes go for

373
00:13:29,800 --> 00:13:33,800
oh no I didn't mean to interrupt but to

374
00:13:31,519 --> 00:13:35,600
summarize in a way because I'm not a tax

375
00:13:33,800 --> 00:13:39,920
practitioner a lot of our listeners are

376
00:13:35,600 --> 00:13:44,360
not assembly Bill one was it 95 or 195

377
00:13:39,920 --> 00:13:47,600
195 AB 195 yeah assembly Bill 195 passes

378
00:13:44,360 --> 00:13:49,639
and it's this tax technical tax fix Bill

379
00:13:47,600 --> 00:13:52,240
and kind of overall to the California

380
00:13:49,639 --> 00:13:54,959
Cannabis tax system part of that bill

381
00:13:52,240 --> 00:13:56,959
vested cdtfa with this emergency role

382
00:13:54,959 --> 00:13:59,440
making Authority which is this hurried

383
00:13:56,959 --> 00:14:01,959
up due process procedure of of these

384
00:13:59,440 --> 00:14:04,040
emergency reasons that you stated we

385
00:14:01,959 --> 00:14:06,120
have to drop these regulations and it

386
00:14:04,040 --> 00:14:08,040
seems that catalyst's position is

387
00:14:06,120 --> 00:14:10,440
they're using the emergency rule making

388
00:14:08,040 --> 00:14:13,079
Authority on this hurried up basis to

389
00:14:10,440 --> 00:14:15,839
meet that end ofe deadline cloaked as an

390
00:14:13,079 --> 00:14:19,000
emergency to maybe generate a revenue

391
00:14:15,839 --> 00:14:20,440
grab around accessories that's right the

392
00:14:19,000 --> 00:14:22,519
way I look at it and it wasn't that big

393
00:14:20,440 --> 00:14:24,079
of an overhaul by the way I mean I know

394
00:14:22,519 --> 00:14:26,880
they eliminated the cultivation tax with

395
00:14:24,079 --> 00:14:28,759
AB 195 in terms of the excise tax it

396
00:14:26,880 --> 00:14:30,199
wasn't as big of an overhaul as the

397
00:14:28,759 --> 00:14:32,399
everyone was thinking it's not like they

398
00:14:30,199 --> 00:14:34,279
changed the Cannabis excise tax and the

399
00:14:32,399 --> 00:14:36,120
collect and how much it was and what was

400
00:14:34,279 --> 00:14:38,040
collected on the language CH stayed the

401
00:14:36,120 --> 00:14:39,440
same for the most part everything stayed

402
00:14:38,040 --> 00:14:40,600
the same for the most part the only

403
00:14:39,440 --> 00:14:42,600
difference was where it was being

404
00:14:40,600 --> 00:14:43,880
collected and remitted before

405
00:14:42,600 --> 00:14:46,120
Distributors were supposed to collect

406
00:14:43,880 --> 00:14:47,759
and remitted after the retailers were

407
00:14:46,120 --> 00:14:49,720
they included some vendor credits they

408
00:14:47,759 --> 00:14:52,720
included some other features in the tax

409
00:14:49,720 --> 00:14:55,079
code but it wasn't some huge overhaul of

410
00:14:52,720 --> 00:14:57,279
the system it was just a huge overhaul

411
00:14:55,079 --> 00:14:59,519
of the administration so yeah they had

412
00:14:57,279 --> 00:15:01,120
the year to to issue regul ulations to

413
00:14:59,519 --> 00:15:03,120
accommodate what they've been doing for

414
00:15:01,120 --> 00:15:04,800
the last 5 years and to switch it over

415
00:15:03,120 --> 00:15:05,920
to this new system and so they had a

416
00:15:04,800 --> 00:15:07,480
year to do that and they did pass

417
00:15:05,920 --> 00:15:09,079
regulations not the first time they used

418
00:15:07,480 --> 00:15:11,680
this regulation right they passed

419
00:15:09,079 --> 00:15:13,360
emergency regulations early in 2023 that

420
00:15:11,680 --> 00:15:15,480
were effective they actually changed

421
00:15:13,360 --> 00:15:17,000
regulation 3700 but they didn't touch

422
00:15:15,480 --> 00:15:18,440
the Cannabis accessories language when

423
00:15:17,000 --> 00:15:21,279
they amended that which is a very

424
00:15:18,440 --> 00:15:23,279
important feature if it goes forward so

425
00:15:21,279 --> 00:15:26,360
sideline your challenge if it goes

426
00:15:23,279 --> 00:15:28,800
forward what happens to retailers as a

427
00:15:26,360 --> 00:15:31,360
whole if this language stands and as you

428
00:15:28,800 --> 00:15:33,040
said emergency for 180 days but you and

429
00:15:31,360 --> 00:15:34,839
I know this and Regulatory practitioners

430
00:15:33,040 --> 00:15:36,680
know this nine times out of 10 those

431
00:15:34,839 --> 00:15:39,199
emergency regulations become the

432
00:15:36,680 --> 00:15:41,560
permanent rules right actually well one

433
00:15:39,199 --> 00:15:43,399
thing I didn't I forgot to mention

434
00:15:41,560 --> 00:15:46,680
actually I had to he as my notes is that

435
00:15:43,399 --> 00:15:49,560
when they pass AB 195 the APA lost for

436
00:15:46,680 --> 00:15:51,600
180 days the ab15 gave them the

437
00:15:49,560 --> 00:15:53,560
emergency regulations to be in forced

438
00:15:51,600 --> 00:15:55,079
for two years whatever these emergency

439
00:15:53,560 --> 00:15:57,600
regulations are they will be there for

440
00:15:55,079 --> 00:16:00,160
two years that's a big deal so it's not

441
00:15:57,600 --> 00:16:02,600
just yeah it's a huge

442
00:16:00,160 --> 00:16:05,240
and again if they stand and they become

443
00:16:02,600 --> 00:16:07,199
permanent what happens to California

444
00:16:05,240 --> 00:16:08,600
retail which if anybody's been watching

445
00:16:07,199 --> 00:16:10,399
they know the California industry is

446
00:16:08,600 --> 00:16:12,399
struggling as a whole a race to the

447
00:16:10,399 --> 00:16:14,079
bottom that's no secret I think in any

448
00:16:12,399 --> 00:16:16,120
of these states but what impact does

449
00:16:14,079 --> 00:16:18,639
this have it depends on how much you

450
00:16:16,120 --> 00:16:20,839
knew about this issue so for us we've

451
00:16:18,639 --> 00:16:23,160
been separating out the Cannabis um from

452
00:16:20,839 --> 00:16:25,000
Cannabis accessories to help reduce

453
00:16:23,160 --> 00:16:27,120
excise tax on the customers that helped

454
00:16:25,000 --> 00:16:29,120
us remain competitive of course but we

455
00:16:27,120 --> 00:16:31,399
also know that a lot of people have been

456
00:16:29,120 --> 00:16:33,600
watching what we've been doing and it's

457
00:16:31,399 --> 00:16:35,639
it wasn't a huge secret it's been out

458
00:16:33,600 --> 00:16:37,880
there and so a lot of retailers have hit

459
00:16:35,639 --> 00:16:40,079
us off hey we your receipts look a

460
00:16:37,880 --> 00:16:41,720
certain way why is that and we're not

461
00:16:40,079 --> 00:16:43,120
we're pretty open book we're not there

462
00:16:41,720 --> 00:16:45,199
to not tell everybody what's happening

463
00:16:43,120 --> 00:16:46,759
so a lot of retailers were looking into

464
00:16:45,199 --> 00:16:48,480
it and trying to figure out how to do

465
00:16:46,759 --> 00:16:49,959
that but a lot of retailers also didn't

466
00:16:48,480 --> 00:16:51,639
know about it so for those retailers who

467
00:16:49,959 --> 00:16:53,399
didn't know about it it's really as

468
00:16:51,639 --> 00:16:55,000
business as usual and you're going to

469
00:16:53,399 --> 00:16:57,519
have to hope that you have legislative

470
00:16:55,000 --> 00:16:58,880
action to help reduce the tax for those

471
00:16:57,519 --> 00:17:01,839
that were looking for a way way to

472
00:16:58,880 --> 00:17:04,480
legally reduce the excise tax to help

473
00:17:01,839 --> 00:17:06,480
reduce the burdens on this industry it

474
00:17:04,480 --> 00:17:08,439
completely stops that this regulation

475
00:17:06,480 --> 00:17:10,280
completely stops a legal way to help

476
00:17:08,439 --> 00:17:11,919
reduce the Cannabis excise tax and now

477
00:17:10,280 --> 00:17:13,360
you're now you're going to have to hope

478
00:17:11,919 --> 00:17:15,280
that you have legislative action

479
00:17:13,360 --> 00:17:17,160
especially considering that cdtfa now

480
00:17:15,280 --> 00:17:20,720
has the authority to increase the excise

481
00:17:17,160 --> 00:17:22,919
tax beginning in 2025 up to 19% for

482
00:17:20,720 --> 00:17:25,280
those who were aware it stops that and

483
00:17:22,919 --> 00:17:28,079
you're left with whatever the tax rate

484
00:17:25,280 --> 00:17:30,360
is but more importantly is the power

485
00:17:28,079 --> 00:17:32,480
that the ctfa took in this action that

486
00:17:30,360 --> 00:17:34,840
just to make up things as they go is

487
00:17:32,480 --> 00:17:37,799
more worrisome in my opinion and if this

488
00:17:34,840 --> 00:17:39,400
was to were to stand it's yeah we can't

489
00:17:37,799 --> 00:17:41,919
reduce the excise tax the way we wanted

490
00:17:39,400 --> 00:17:43,640
to but it allows them to essentially

491
00:17:41,919 --> 00:17:46,080
make up rules as they go whenever they'd

492
00:17:43,640 --> 00:17:48,960
like and if the oal is not going to do

493
00:17:46,080 --> 00:17:50,640
its job in disapprove these regulations

494
00:17:48,960 --> 00:17:53,240
as they're required to then what's it

495
00:17:50,640 --> 00:17:55,240
for them to legislate from their desk so

496
00:17:53,240 --> 00:17:57,280
to speak this is like an administrative

497
00:17:55,240 --> 00:17:59,520
practitioner's Dream It's like a law

498
00:17:57,280 --> 00:18:01,600
school pattern right right and how you

499
00:17:59,520 --> 00:18:03,360
overturn government decision which is

500
00:18:01,600 --> 00:18:06,840
not easy to do now before we kind of get

501
00:18:03,360 --> 00:18:09,600
into to that um how many California

502
00:18:06,840 --> 00:18:11,559
Cannabis operators even know about this

503
00:18:09,600 --> 00:18:13,520
case the reaction we're getting from the

504
00:18:11,559 --> 00:18:15,640
case it seems like a seismic event tell

505
00:18:13,520 --> 00:18:17,400
you honestly I think a lot of retailers

506
00:18:15,640 --> 00:18:19,280
are jumping on board we have a lot of

507
00:18:17,400 --> 00:18:21,600
our I mean we don't have enemies but

508
00:18:19,280 --> 00:18:23,480
let's say competitors right reaching out

509
00:18:21,600 --> 00:18:25,280
to us tell us how you do it what's going

510
00:18:23,480 --> 00:18:26,799
on well we have our Auditors looking at

511
00:18:25,280 --> 00:18:29,440
it and so the Auditors actually like

512
00:18:26,799 --> 00:18:31,120
your tax position I mean people are are

513
00:18:29,440 --> 00:18:33,640
watching and I haven't seen this many

514
00:18:31,120 --> 00:18:35,640
news articles in California regarding a

515
00:18:33,640 --> 00:18:38,240
particular issue in a very long time and

516
00:18:35,640 --> 00:18:40,679
so I think majority of retailers now

517
00:18:38,240 --> 00:18:43,280
know of this cannabis accessory and

518
00:18:40,679 --> 00:18:46,080
cannabis good issue because you know the

519
00:18:43,280 --> 00:18:47,880
industry is very small so to speak and I

520
00:18:46,080 --> 00:18:49,440
think a lot every day everybody's seeing

521
00:18:47,880 --> 00:18:51,520
I'm seeing my LinkedIn posts are just

522
00:18:49,440 --> 00:18:53,720
going I never seen more LinkedIn posts

523
00:18:51,520 --> 00:18:56,039
about a specific issue in a very long

524
00:18:53,720 --> 00:18:58,360
time so to be fair that's an interesting

525
00:18:56,039 --> 00:19:00,280
thing and then it's speculative but I I

526
00:18:58,360 --> 00:19:01,919
think it's warranted to ask what do you

527
00:19:00,280 --> 00:19:05,080
think your chances are of prevailing

528
00:19:01,919 --> 00:19:07,000
here given how narrow the challenges

529
00:19:05,080 --> 00:19:08,200
have to be successful when you're

530
00:19:07,000 --> 00:19:11,120
dealing with the administrative

531
00:19:08,200 --> 00:19:13,159
procedure act and overturning government

532
00:19:11,120 --> 00:19:15,039
decisions where frankly under the law

533
00:19:13,159 --> 00:19:16,840
the deck is stacked against the

534
00:19:15,039 --> 00:19:18,960
petitioner because it's such a narrow

535
00:19:16,840 --> 00:19:22,120
Lane to overturn this kind of decision-

536
00:19:18,960 --> 00:19:24,640
making right yeah no of course I mean

537
00:19:22,120 --> 00:19:26,280
and and as attorneys we don't speak in

538
00:19:24,640 --> 00:19:27,880
absolutes right we don't we don't speak

539
00:19:26,280 --> 00:19:30,520
in certainties we say oh there's a

540
00:19:27,880 --> 00:19:32,720
chance say this there's that and there's

541
00:19:30,520 --> 00:19:34,320
no one will ever give a guarantee but

542
00:19:32,720 --> 00:19:35,440
really and I'm a conservative person

543
00:19:34,320 --> 00:19:38,000
when it comes to these type of

544
00:19:35,440 --> 00:19:40,880
predictions especially with lawsuits if

545
00:19:38,000 --> 00:19:42,559
the court follows the law if the court

546
00:19:40,880 --> 00:19:45,039
looks at this and says this is what the

547
00:19:42,559 --> 00:19:46,480
APA provides and you didn't follow that

548
00:19:45,039 --> 00:19:48,360
which we believe is exactly what

549
00:19:46,480 --> 00:19:51,039
happened then the chances should be very

550
00:19:48,360 --> 00:19:53,440
high the APA says this you didn't do

551
00:19:51,039 --> 00:19:55,200
this therefore the regulation is invalid

552
00:19:53,440 --> 00:19:57,320
and that's as simple as that I think

553
00:19:55,200 --> 00:19:59,960
that is a very simple case tell you

554
00:19:57,320 --> 00:20:01,919
honestly do do I think is do I is there

555
00:19:59,960 --> 00:20:05,080
a possibility that that's not how the

556
00:20:01,919 --> 00:20:08,440
court sees it of course right am I an

557
00:20:05,080 --> 00:20:10,440
expert in the APA not necessarily but I

558
00:20:08,440 --> 00:20:12,440
know enough to know what the APA says

559
00:20:10,440 --> 00:20:14,120
and what they did and I'm hoping that's

560
00:20:12,440 --> 00:20:16,600
enough and so I think the chances are

561
00:20:14,120 --> 00:20:18,159
pretty good if the laws applied as far

562
00:20:16,600 --> 00:20:20,080
as I'm concerned yeah I'm definitely

563
00:20:18,159 --> 00:20:21,520
going to be watching because I I do

564
00:20:20,080 --> 00:20:23,240
personally feel like it's a major

565
00:20:21,520 --> 00:20:25,120
victory to overturn government

566
00:20:23,240 --> 00:20:26,760
regulation because your paths to

567
00:20:25,120 --> 00:20:28,480
challenge I think you said there are six

568
00:20:26,760 --> 00:20:30,280
bases in California where you try to

569
00:20:28,480 --> 00:20:31,960
overturn decision-making it's typically

570
00:20:30,280 --> 00:20:33,840
things like arbitrary and capricious

571
00:20:31,960 --> 00:20:36,720
overreach of authority I don't even

572
00:20:33,840 --> 00:20:39,200
remember from eons ago what the other

573
00:20:36,720 --> 00:20:41,039
bases are but I know it's not very many

574
00:20:39,200 --> 00:20:42,280
so I'm definitely going to be going to

575
00:20:41,039 --> 00:20:44,600
be watching and it could set a very

576
00:20:42,280 --> 00:20:46,360
interesting precedent but just to

577
00:20:44,600 --> 00:20:48,240
conclude because I think everybody looks

578
00:20:46,360 --> 00:20:50,480
at California and people who are not

579
00:20:48,240 --> 00:20:52,720
cluin they think that it's Gang Busters

580
00:20:50,480 --> 00:20:54,559
everyone's making money hand over fist

581
00:20:52,720 --> 00:20:57,000
that there's constant expansion it's the

582
00:20:54,559 --> 00:20:59,080
land of opportunity and then you have

583
00:20:57,000 --> 00:21:00,520
the other side of the coin where you

584
00:20:59,080 --> 00:21:02,320
have other states that say I don't want

585
00:21:00,520 --> 00:21:03,880
to be like that I think it's a freefor

586
00:21:02,320 --> 00:21:06,440
all they have huge problems with

587
00:21:03,880 --> 00:21:09,880
diversion etc etc with this latest

588
00:21:06,440 --> 00:21:12,159
iteration of rul making yet again taking

589
00:21:09,880 --> 00:21:13,880
a bite out of the tax Apple which I

590
00:21:12,159 --> 00:21:14,760
think CDT faa's position is it's always

591
00:21:13,880 --> 00:21:16,200
been this way what are you guys

592
00:21:14,760 --> 00:21:18,440
complaining about it's always been this

593
00:21:16,200 --> 00:21:21,159
way we're just clarifying right how do

594
00:21:18,440 --> 00:21:22,960
you think California Cannabis is fairing

595
00:21:21,159 --> 00:21:24,679
overall compared to other states with

596
00:21:22,960 --> 00:21:27,679
adult youth since the overwhelming

597
00:21:24,679 --> 00:21:30,080
majority now have it it's tough to say

598
00:21:27,679 --> 00:21:32,039
right Catalyst itself is California

599
00:21:30,080 --> 00:21:33,520
exclusive so so my interest has always

600
00:21:32,039 --> 00:21:35,360
been California what I observe is

601
00:21:33,520 --> 00:21:37,600
California what I see from other states

602
00:21:35,360 --> 00:21:40,520
New York is the roll out is horrible

603
00:21:37,600 --> 00:21:42,520
horrifying as actually it's lawsuits on

604
00:21:40,520 --> 00:21:45,039
lawsuits starting stopping licensing

605
00:21:42,520 --> 00:21:46,840
process it's so so that one that one is

606
00:21:45,039 --> 00:21:49,799
is a tough one but then I see something

607
00:21:46,840 --> 00:21:53,240
like Michigan who had a report of sales

608
00:21:49,799 --> 00:21:55,080
of about 2.9 billion in 2023 I believe

609
00:21:53,240 --> 00:21:56,799
that's the amount they sold and I Look

610
00:21:55,080 --> 00:21:58,799
at California which was five bills but

611
00:21:56,799 --> 00:22:02,000
then I also look at California has three

612
00:21:58,799 --> 00:22:04,120
times the population of Michigan right

613
00:22:02,000 --> 00:22:05,600
so per capita some states are doing much

614
00:22:04,120 --> 00:22:08,000
better but really if you're going to

615
00:22:05,600 --> 00:22:09,880
compare states to States every state is

616
00:22:08,000 --> 00:22:11,679
essentially their own country supposedly

617
00:22:09,880 --> 00:22:13,080
when it comes to cannabis right there's

618
00:22:11,679 --> 00:22:15,360
no open borders you're supposed to keep

619
00:22:13,080 --> 00:22:17,320
it within the state and so what I see as

620
00:22:15,360 --> 00:22:19,840
success in any state whether you're

621
00:22:17,320 --> 00:22:23,159
California Michigan Illinois New York is

622
00:22:19,840 --> 00:22:25,279
how successful were you in eradicating

623
00:22:23,159 --> 00:22:26,799
the elm Market because that's that

624
00:22:25,279 --> 00:22:28,840
should be the ultimate goal because you

625
00:22:26,799 --> 00:22:31,200
can't have a real Market when in

626
00:22:28,840 --> 00:22:33,720
California for example two out of every

627
00:22:31,200 --> 00:22:36,200
three sales the retail PL at the retail

628
00:22:33,720 --> 00:22:38,120
level is to the elicit market so so are

629
00:22:36,200 --> 00:22:40,159
we successful in my opinion absolutely

630
00:22:38,120 --> 00:22:42,080
not right there's some people and and a

631
00:22:40,159 --> 00:22:44,000
lot of money was lost in California I'm

632
00:22:42,080 --> 00:22:45,799
sure you've seen it so when in

633
00:22:44,000 --> 00:22:48,039
California when two of the three cells

634
00:22:45,799 --> 00:22:50,000
are still to be a listent market it is

635
00:22:48,039 --> 00:22:51,640
not a successful program some people

636
00:22:50,000 --> 00:22:53,039
might find success in it and there's a

637
00:22:51,640 --> 00:22:56,240
lot of people who been wiped out in this

638
00:22:53,039 --> 00:22:58,760
industry but the high taxes the high

639
00:22:56,240 --> 00:23:00,679
regulation and the local control there's

640
00:22:58,760 --> 00:23:02,840
still 61% of the cities and counties

641
00:23:00,679 --> 00:23:05,000
that don't allow it and so do I think

642
00:23:02,840 --> 00:23:08,080
the California Market is the best Market

643
00:23:05,000 --> 00:23:09,880
in cannabis yes I think it absolutely is

644
00:23:08,080 --> 00:23:12,520
right in terms of its size in terms of

645
00:23:09,880 --> 00:23:15,400
its potential do I think California has

646
00:23:12,520 --> 00:23:17,760
successfully implemented a program no I

647
00:23:15,400 --> 00:23:20,480
don't but there's still opportunities

648
00:23:17,760 --> 00:23:22,159
within the market to succeed so as

649
00:23:20,480 --> 00:23:24,880
compared to other states it's tough to

650
00:23:22,159 --> 00:23:27,320
say at least I don't have all the facts

651
00:23:24,880 --> 00:23:29,520
in hand but I don't believe California

652
00:23:27,320 --> 00:23:31,559
did the job it needed to do and there's

653
00:23:29,520 --> 00:23:32,760
still a long way to go I agree with you

654
00:23:31,559 --> 00:23:34,120
on that and I don't think elicit

655
00:23:32,760 --> 00:23:36,480
operators are very worried about

656
00:23:34,120 --> 00:23:39,440
reporting excise taxes it's just

657
00:23:36,480 --> 00:23:41,559
fundamentally unfair and and personally

658
00:23:39,440 --> 00:23:44,679
I feel that cannabis is dying a thousand

659
00:23:41,559 --> 00:23:46,400
deaths by a Thousand Cuts relative to

660
00:23:44,679 --> 00:23:48,159
tax regulation in addition to local

661
00:23:46,400 --> 00:23:49,640
control issues but I'll have to bring

662
00:23:48,159 --> 00:23:51,559
you back to talk about local control

663
00:23:49,640 --> 00:23:53,679
because I know catalyst is has it has

664
00:23:51,559 --> 00:23:55,120
had its fair share of challenges in that

665
00:23:53,679 --> 00:23:56,960
regard too but I want to thank you

666
00:23:55,120 --> 00:23:58,799
Anthony for coming on the podcast to

667
00:23:56,960 --> 00:24:01,720
talk about this I wish you the best of

668
00:23:58,799 --> 00:24:03,640
luck in challenging oal and the cdtfa I

669
00:24:01,720 --> 00:24:06,200
will certainly be watching so thanks

670
00:24:03,640 --> 00:24:06,200
again thank you

671
00:24:23,279 --> 00:24:28,399
for and that concludes today's episode

672
00:24:25,720 --> 00:24:32,200
of the Cannabis law Now podcast until

673
00:24:28,399 --> 00:24:32,200
next time stay alert stay

674
00:24:36,000 --> 00:24:39,000
alive

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Hilary Bricken

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