In our weekly Ask An Attorney column, Jessica McElfresh answers the question: Is there anything aspiring marijuana business owners can do now to get in good legal standing with cities before they start passing out licenses next year?
With local applications for cannabis licensing in full swing and state licensing in 2018 approaching, California’s cannabis industry wants to prepare and stand the best possible chance of a smooth licensing process. Three areas stand out above all: one, paying taxes and updating business records; two, addressing past convictions or other blemishes; and three, preparing for track and trace regulations.
Taxes and Records – Keep it Tight
Taxes matter. They show a business has complied with California law, documented financial transactions, and has been operating in California. Businesses need to file returns for 2016 and earlier years with the Internal Revenue Service, State Franchise Tax Board, and State Board of Equalization. Even if a business cannot pay taxes in full, the business should have all filings up to date and be on a payment plan.
The individuals behind cannabis businesses need to file their personal taxes. While we cannot know if the state will want proof that individual applicants have filed taxes, proof of regular filings may help an individual demonstrate fitness to be licensed in the state’s highly regulated industry.
Related to taxes are business records and filings. Make sure that all corporate or limited liability company records and filings with the Secretary of State – minutes, resolutions, bylaws, Statements of Information, etc. – are accurate and current. You do not want to delay your application with the state with last-minute updates, or create confusion for your reviewer.
Clean Up Your Past and Document It
Though many people in the cannabis industry have never been convicted, dealt with code enforcement, been sued, lost a permit or license, or filed for bankruptcy, others have. If you have, now is the time to clean up your record, gather documentation, and prepare to explain the past.
If you were convicted of a cannabis felony in California, you are likely eligible to have your conviction redesignated as a misdemeanor under Proposition 64. Some former misdemeanors can be redesignated as infractions. You should seek Proposition 64 relief even if you already had your conviction dismissed, or expunged, from your record. On that note, if you have any old convictions, contact an attorney to discuss expungement or dismissal, reduction of felonies to misdemeanors, or early termination of probation.
Gather records to show you have cleaned up your record and about the original case. Contact your old attorney or get a copy of your case file from the court. Even if you clean up your record and have convictions dismissed, you will likely have to disclose all convictions and the story behind them to the state as part of your application. You should put together a resume, letters of recommendation, and a statement about the circumstances surrounding the conviction and what you have done with your life since. Review these materials with both your cannabis business attorney and a criminal defense attorney to protect yourself and your business.
Fitness to hold a license goes beyond criminal convictions. Indeed, past civil lawsuits, code enforcement actions, or loss of an earlier business license could be more damaging to your application than many criminal convictions. If you or any business you have run has ever filed for bankruptcy, been sued by the government, or been part of any litigation, you need to gather the court records and be prepared to discuss the incident. If you have ever lost a professional or business license, consult with a licensing attorney, as well as your cannabis business attorney, on how to explain this past discipline.
Track and Trace
As we know, the State of California will require all licensed businesses to participate in the state’s developing track-and- trace system for cannabis. If your business is not already keeping track of every cent and every gram for your own accounting and records, now is the time to start. Work with bookkeepers and accountants, research software programs to track your inventory and finances, and investigate products for physically scanning or tagging inventory, plants, and whatever else you will be handling. The sooner you start tracking and tracing within your own business, the easier it will be to comply with the state’s process.
Jessica McElfresh of McElfresh Law, Inc. has practiced cannabis law and policy since 2010, focusing on licensing, land use, regulation, and business operations.