Ohio Issue 2 Legalizing Adult-Use Marijuana Passes

Ohio became the 24th state to legalize marijuana for adult use, on Tuesday, November 7th, when voters in the state approved Ohio Issue 2. The new law authorizes and regulates the cultivation, processing, sale, purchase, possession, home grow, and use of adult use cannabis by adults at least 21 years of age. It allows the sale and purchase of marijuana, which a new Division of Cannabis Control would regulate; allows adults who are 21 years of age and older to use and possess marijuana, including up to 2.5 ounces of marijuana and 15 grams of marijuana concentrate, and to grow up to six cannabis plants at the individual’s primary residence, with a total limitation of not more than twelve cannabis plants per residence where two or more adults reside at one time; and enacts a 10% tax on marijuana sales, some of the revenue of which will go towards a social equity and jobs program. The new law goes into effect 30 days after the election.

Issue 2 creates the Division of Cannabis Control (the “Division”) within the Ohio Department of Commerce, which will be responsible for licensing and regulating state adult-use marijuana operators. The new law requires the Division to adopt rules on twenty-two topics, including the following: establishing application, licensure, and renewal standards and procedures for license applicants or license holders related to adult-use cannabis operators, adult-use testing laboratories, and individuals required to be licensed; establishing reasonable application, licensure, and renewal fee amounts to ensure license applicants and license holders pay for the actual costs for administration and licensure for the Division; the process and requirements for Division approval of any requested change in ownership or transfer of control of an adult-use cannabis operator or adult-use testing laboratory; determining penalties for violation of Division rules or of the new law, and a process for imposing such penalties; establishing training requirements for employees and agents of adult-use cannabis operators and adult-use laboratories; prescribing standards and procedures for product packaging and labeling of adult-use cannabis products; and much more. The Division is also granted the authority to adopt other rules necessary for the administration, implementation, and enforcement of the new law. In addition, the new law imposes certain deadlines by which the Division must issue specific license types. For instance, regulators will have to begin issuing adult-use licenses to qualified applicants who operate existing medical operations within nine months of enactment. Further, the new law requires that adult-use cannabis operators and adult-use testing laboratories adopt operating procedures that comply with operation requirements required by the Division rules adopted pursuant to the new law.

Notably though, as a citizen-initiated statute, the new law is subject to change. Lawmakers who remain opposed to Issue 2 in the state legislature are free to tweak the law, and even repeal it, though the political stakes are higher now that voters have approved it. So, although Governor DeWine–who vocally opposed Issue 2–does not have the authority to veto the ballot initiative, according to the Ohio Constitution, legislators can still propose and pass modifications to the new law after the election. In this sense, lawmakers have the final word. In fact, Ohio Senate President Matt Huffman, who also opposed adult-use marijuana legalization, recently said that while there were no immediate plans to repeal the law if Issue 2 were to pass, it would likely undergo some changes.

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How Delta-8 Companies Can Mitigate Impact of 280E IRS Audit

The Drug Enforcement Administration (DEA) has taken the position that Delta-8 tetrahydrocannabinol (THC) and other cannabinoids synthetically derived from cannabidiol (CBD) are categorized as Schedule I substances under the Controlled Substances Act (CSA). Arguably, the DEA is misinterpreting the 2018 Farm Bill, which authorized the production of hemp and removed hemp from the list of controlled substances. The 2018 Farm Bill defines hemp as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” As such, Delta-8 THC should be considered hemp and, in turn, not a controlled substance. However, it is very likely that the IRS would adopt the DEA’s position with respect to Delta-8 THC and other cannabinoids synthetically derived from CBD. This means that Internal Revenue Code (IRC) Section 280E (“280E”) would apply to businesses selling Delta-8 THC.

Generally speaking, any taxpaying business is allowed to deduct ordinary and necessary expenses to conduct business. However, this is not the case for businesses in the cannabis industry. 280E states that “[n]o deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.” If Delta-8 THC is categorized as a Schedule I substance, then 280E applies to businesses selling Delta-8 THC; and, notably, 280E does not allow deductions other than cost of goods sold (COGS).

Most, if not all, companies selling Delta-8 THC are not filing tax returns that apply 280E. The risk associated with this is that if the IRS audits your company, they may find that you have not been properly calculating your taxes and subsequently require that you pay back-taxes and penalties.

Here are steps Delta-8 companies should be considering to mitigate the impact of an IRS audit:

  • If you sell other non-CBD-derived cannabinoids that are clearly “hemp” under the 2018 Farm Bill, consider creating two separate entities: (1) one entity for sales/expenses on non-CBD-derived cannabinoids; and (2) another entity for sales/expenses of CBD-derived cannabinoids. This way, the expenses related to non-CBD-derived are fully deductible and not subject to 280E. You should work with your accountant to allocate as many expenses as possible to the entity selling non-CBD-derived cannabinoids.
  • Regardless whether you are selling non-CBD-derived cannabinoids, you should work with an accountant to classify as many expenses as possible to COGS. This require documentation that supports the expenses as COGS.

The above recommendations are not legal or tax advice. There are various issues you should consider when trying to mitigate the impact of an IRS audit. We highly recommend that you work with legal counsel and tax counsel to examine these issues.

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New York Law Journal – “The Highs and Lows of New York’s Cannabis Market”

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Risk Management Strategies for Cannabis Startups: A Guide to Insurance

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Frequently Asked Questions around Rescheduling Marijuana to Schedule III Clearing the Smoke

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Important Changes to the Florida Hemp Statute – Prohibiting Products that are “Attractive to Children”

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A Path to Temporary Retail Sales: Unveiling New York’s Innovative Cannabis Growers Showcase

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Preparing for the Upcoming Launch of Maryland’s Adult-Use Market

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In November 2022, voters in Maryland voted to approve their state’s adult-use legalization measure. Maryland Question 4, the Marijuana Legalization Amendment, was on the ballot as a legislatively referred constitutional amendment, and the ballot measure passed with an overwhelming 66% in favor. Question 4 amended the Maryland Constitution to add a new article which authorizes individuals 21 years of age and older to use and possess marijuana beginning on July 1, 2023. The measure also directed the Maryland State Legislature to pass laws for the use, distribution, regulation, and taxation of marijuana. As such, it has been up to state lawmakers to efficiently adopt rules to establish and oversee a regulated adult-use cannabis marketplace in Maryland.

Maryland House Bill 556 (cross-filed with Senate Bill 516), also known as the “Cannabis Reform Act,” was signed into law by Governor Wes Moore on May 3, 2023. The legislation created the framework for the regulation of adult-use cannabis in Maryland, including the licensing system for adult-use cannabis businesses. Specifically, the legislation is responsible for: renaming the Alcohol and Tobacco Commission to be the Alcohol, Tobacco, and Cannabis Commission; establishing the Maryland Cannabis Administration (the “Administration”) as an independent unit of state government; establishing a regulatory and licensing system for adult-use cannabis; imposing a sales and use tax of 9% on the sale of cannabis; requiring the Administration, by July 1, 2023, to convert medical cannabis licenses to licenses to operate a medical and adult-use cannabis business; and more. In addition, the Administration recently released the first set of rules, expanding on some of the foregoing topics and providing additional guidance to businesses and consumers.

Beginning on July 1, 2023, current medical cannabis businesses will be able to sell adult-use cannabis with a converted license (requires the payment of a conversion fee) to simultaneously operate a medical and an adult-use cannabis business. Notably, licensees who choose not to convert may continue to hold their license for resale but may not operate under the license beginning on July 1, 2023. Thus far, nearly 100 dispensaries have been approved by the Administration to convert. The Administration must then award cannabis licenses in at least two separate rounds, the first of which will be reserved for social equity applicants only. On or before January 1, 2024, the Administration will begin issuing the first-round licenses; and, on or before May 1, 2024, the Administration will begin issuing licenses in a second round. The Administration will have to announce each licensing round 60 days in advance. For the first round, the Administration will enter each social equity applicant that meets minimum qualifications into a lottery. The Administration will evaluate applicants’ qualifications and their operational, business, and diversity plans; but it will not require that an applicant possess or own a property or facility to operate the cannabis business at the time of application.

The Administration will issue various license types, including standard licenses, micro licenses, incubator space licenses, and on-site consumption licenses. Standard grower licensees are authorized to operate more than 10,000 square feet, but not more than 300,000 square feet, of indoor canopy or its equivalent; standard processor licensees are authorized to process more than 1,000 pounds of cannabis per year; and standard dispensary licensees are authorized to operate a store at a physical location that sells cannabis or cannabis products. Meanwhile, micro grower licensees are authorized to operate not more than 10,000 square feet of indoor canopy space or its equivalent; micro processor licensees are authorized to process not more than 1,000 pounds of cannabis per year; and micro dispensary licensees are authorized to operate a delivery service that sells cannabis or cannabis products without a physical storefront, provided that the licensee employs not more than 10 employees. Notably, however, there are caps on the number of licenses available per type. For instance, the Administration may not, for standard licenses, issue more than 75 grower licenses, 100 processor licenses, and 300 dispensary licenses total. Meanwhile, the Administration may not, for micro licenses, issue more than 100 grower licenses, 100 processor licenses, and 10 dispensary licenses total. Additionally, no more than 10 incubator space and 50 on-site consumption licenses may be awarded.

There are also restrictions on the number of licenses a person can own or control. A person may have an ownership interest in or control of, including the power to manage and operate, for both standard and micro licenses, one grower licensee, one processor licensee, and not more than four dispensary licensees. In addition, a person may own or control not more than two incubator space licensees and not more than two on-site consumption licensees. However, a person who owns or controls an incubator space licensee or an on-site consumption licensee may not own or control any other cannabis licensee. Further, the Administration will not accept more than one application per license type from an applicant in any round or accept more than two applications from an applicant in any round.

Applicants for standard licenses, incubator space licenses, and on-site consumption licenses will have to pay an application fee of $5,000 per application; while applicants for micro licenses will have to pay a smaller application fee of $1,000 per application.

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Comparing the Psychedelic Legal Frameworks in Oregon and Colorado

With research mounting for the therapeutical potential of psychedelic-assisted therapy, U.S. states are exploring various frameworks to legalize and regulate psychedelic-assisted therapy. In January 2023, Oregon became the first state to legalize and regulate psychedelic-assisted therapy through the Oregon Psilocybin Services Act (“OPSA”) and later adopted rules providing additional color to the legal framework (the OPSA and the adopted rules will be collectively referred to as “Oregon Laws and Regulations”). In November 2022, Colorado became the second state to legalize and regulate psychedelic-assisted therapy through the Colorado Natural Medicines Act (“CNMA”). Unlike Oregon, Colorado has not yet adopted rules around its framework; so, there are still many open questions around the Colorado framework. This article aims to compare and contrast these frameworks, highlighting the key differences and implications.

What Compounds are Legalized and Regulated?
Oregon: Oregon Laws and Regulations legalize and regulate only psilocybin. While psilocybin exists in 200+ species of fungi, Oregon law allows manufacturers to only cultivate psilocybe cubensis mushrooms. Psilocybin products may include whole dried mushrooms, ground homogenized fungi, extracts, and edible products. Nonetheless, it’s certainly possible (and, in my opinion, likely) that Oregon may pass further initiatives legalizing and regulating additional psychedelic compounds.
Colorado: The CNMA initially legalizes and regulates only psilocybin. However, the CNMA explicitly leaves open the option to legalize and regulate ibogaine, DMT, and mescaline services after June 2026. There have also been bills in Colorado attempting to make these other compounds available prior to June 2026. We are still waiting for the Colorado rules and regulations as to the type of species that may be cultivated and the type of products that will be available.
Discussion: While psilocybin has received the most attention in the media, there has been tremendous research around the therapeutical potential of various psychedelic compounds, including natural psychedelic compounds (i.e, ibogaine, DMT, ayahuasca, peyote, mescaline) and synthetic psychedelic compounds (MDMA, LSD, and other new psychedelic chemical entities). While Oregon Laws and Regulations do not explicitly legalize and regulate psychedelic compounds other than psilocybin and Colorado explicitly mentions the potential legalization and regulations of other psychedelic compounds, my expectation is that additional psychedelic compounds will eventually be legalized and regulated in both states as long as there are not significant adverse events during psychedelic therapy and the federally-approved clinical trials around these other psychedelic compounds continue to prove safety and efficacy.

Can Municipalities Ban (or opt-out of) Allowing Operations Within Their Municipality?
Oregon: Under Oregon Laws and Regulations, municipalities are automatically opted-in unless they opt-out through an ordinance. Under this provision, a vast majority of the Oregon municipalities have opted out – leaving limited locations for Service Centers and ultimately limiting access to Oregon Psilocybin Services.
Colorado: The CNMA explicitly disallows municipalities from banning healing centers. However, it allows municipalities to regulate the time, place, and manner of the operations. Looking at past cannabis regulations and implementation, I expect several Colorado municipalities to use the “time, place, and manner” provision to initially relegate Healing Centers to limited zones within their respective municipality.
Discussion: Oregon’s deference to municipalities to ban and Colorado’s deference to municipalities to regulate the time, place, and manner of operations has received much scrutiny by psychedelic advocates. Indeed, this deference will certainly limit access to these medicines. However, deferring to municipalities on local issues is an important part of state/local government. Ultimately, it allows the voters of a particular municipality to determine what goes on within their municipality. With the growing support for psychedelic medicines by Oregon and Colorado voters, I expect Oregon and Colorado municipalities to ease restrictions around psychedelic therapy within their respective municipality.

Do Licensed Operators Need to Be a Resident of Oregon or Colorado?
Oregon: 50% ownership interest must be held by one or more individuals who have been residents of Oregon for two or more years. This requirement ends in 2025.
Colorado: No residency requirement. Nonetheless, Colorado may still ultimately implement a residency requirement in its rules.
Discussion: Recently, state residency requirements for marijuana licenses have been successfully challenged as a violation of the Dormant Commerce Clause of the federal constitution. I expect that similar challenges will occur for the Oregon residency requirement as well as any other states that include a residency requirement in their respective state. In my opinion, the residency requirements are clear violations of the Dormant Commerce Clause; and eventually states will remove such requirements for both cannabis and psychedelics.
Can Health Care Facilities Provide Psychedelic Services?
Oregon: Under Oregon Laws and Regulations, health care facilities cannot provide psilocybin services. Psilocybin services are limited to Service Centers.
Colorado: The CNMA explicitly states that the Department will implement rules that allow for psychedelic services to be provided by health care facilities that are not owned by a healing center. It also explicitly provides protections for holders of a professional or occupational license to not be subject to professional discipline. This leaves open the possibility for health care facilities to provide psychedelic-therapy services.
Discussion: Both Oregon and Colorado do not require participants to have qualifying conditions to receive psychedelic services and thus both Oregon and Colorado are not medical frameworks. Nonetheless, the language of the CNMA leaves open a potential medical-type framework for health care facilities in Colorado.

Commercialized Framework outside the State Licensing Structure
Oregon: While Oregon decriminalized all drugs under Measure 110, it explicitly prohibits any commercial activities under the decriminalization regulations. In other words, you must be licensed by the Department under Measure 109 to conduct any commercial activities.
Colorado: While Colorado’s decriminalization provisions prohibit individuals to sell psychedelics for profit unless licensed by the Department, the decriminalization provisions permit payment to individuals not licensed by the Department for “bona fide harm reduction services, bona fide therapy services, or bona fide support services.”
Discussion: For both underground administration of psychedelics and legal ketamine administration, the main expense incurred by participants or patients is for the psychedelic-therapy and not for the medicine itself. The cost of the medicine itself is de-minimus compared to the time required providing the therapy. Thus, Colorado prohibiting the receipt of payment for the medicine itself while allowing payment for the therapy and support services, may potentially provide an enormous loophole and put this decriminalization model in direct competition with the individuals and companies licensed by the Department.

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Arizona Passed Budget Bill to Fund Psilocybin Research: What’s Next?

Arizona has signed into law a budget bill that includes provisions to fund $5,000,000 of research relating to psilocybin for various indications for fiscal year 2023-2024. So what happens next?


First, a “psilocybin research advisory council” will be created that consist of the following: (1) the director of the department of health or his/her designee; (2) a military veteran; (3) a law enforcement officer of Arizona; and (4) a professor or researcher from a university under the jurisdiction of Arizona board of regents who specializes in clinical research or psychedelic studies.

Second, the psilocybin research advisory council will establish criteria for the clinical trials that qualify to receive the grants. To be considered for the grant, the clinical trials must (1) use whole mushroom psilocybin (not synthetic mushroom psilocybin); (2) be for a phase one, phase two, and phase three clinical trial that is capable of being approved by the FDA; and (3) evaluate the effects of whole mushroom psilocybin on treating one of the following indications: PTSD, symptoms associated with long COVID-19, depression, anxiety disorders, symptoms associated with end-of-life distress, obsessive compulsive disorder, substance abuse and addiction disorders, eating disorders, chronic pain, inflammatory disorders, eating disorders, autoimmune disorders, seizure disorders, or other degenerative disorders. The clinical trials should prioritize (1) using whole mushroom psilocybin cultivated under a schedule I license issued by the DEA; and (2) using veterans, first responders, frontline health care workers and persons from underserved communities as the research subjects.

Third, the department of health services will announce the opening of the application process at least 30 days before applications are available and allow at least thirty days for applicants to complete their submission.


Fourth, the psilocybin research advisory council will oversee the application process and review applications for the clinical trial research grants to assist the director of the department of health in selecting the most credible clinical trials to award the research grants. The grants will be awarded no later the February 1 each year.


Fifth, on or before June 1 of each year, the psilocybin research advisory council will make recommendations to the governor, the speaker of the house of representatives, the president of the senate and the department of health on psychedelic-assisted therapy based on current federal and state research policy.

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