Common Mistakes When Starting a New Business

 Eric Stokes

Eric Stokes

So, you’ve decided to start a business. It’s an exciting idea. Owning your own business provides an opportunity to escape the rat race, to work how you want to work, and to reap the rewards of your own labor. However, there are some potential pitfalls and obstacles to consider as well.

Starting a new company, but failing to follow proper legal procedures, could end up harming your new business before it even gets off the ground, and the mistakes could put your personal assets at risk.

Three major considerations before embarking down the new business path include: Choosing the right business structure, protecting your assets, and checking for regulations. 

 

Cannabis Amnesty Program May Be Coming Soon

For "Undisclosed" True Party of Interest (TPOI) violations


The objective of the program is to allow cannabis businesses to come into compliance with ownership and financing regulations without fear of license revocation.

In late June, the Washington State Liquor and Cannabis Board (WSLCB) proposed a “Hidden Ownership Amnesty Program” for licensees with undisclosed true parties of interest.  By statue, there is no warning issued for a true party of interest violation.  The only remedy available to the WSLCB is the revocation of the license.  The objective of the program is to allow cannabis businesses to come into compliance with ownership and financing regulations without fear of license revocation.

Who Is Classified as a TPOI?

A True Party of Interest (TPOI) includes the following:

  • Those legal owners who possess any stock or membership interest in a licensed cannabis business
  • Spouses, even for marriages after the initial licensing was completed
  • Business partners or any other party who has the right to receive any percentage of the gross or net profits from a licensed business
  • Anyone exerting management control over the license
  • Certain commission relationships

Each TPOI is vetted and investigated by the WSLCB to ensure they pass a federal background check, and to ensure funds were raised in the state by legal means. Only vetted TPOI’s can control daily business operations and interests.

Some Highlights:

While this Amnesty program is still in the proposal phase, many are speculating as to the requirements applicants will have to meet, and if all applications will be approved.  It has been reported that:

  • The WSLCB will open a '30 day window' for applicants to apply for this amnesty provision
  • A 'special' application will be required and an additional ‘filing fee’ may be required when the application is submitted
  • 'Qualified' applicants (those not currently under investigation) can apply but application for amnesty will not necessarily guaranteed

Will the Amnesty program be approved?  

Additional details are still being discussed.  JDSA Law is committed to keeping you up to date, our Cannabis Law team will update this blog as developments continue to unfold.

Tax Rules and Alimony – Changes Impacting Spousal Support

For over 75 years, payers of alimony (a.k.a. spousal support or spousal maintenance) were allowed to take a tax deduction for the amount of alimony paid to their ex-spouse.  This shifted the income tax burden to the receiver of alimony, which in any instances increased the amount of income available to spouses transitioning to two households.

Under the new Tax Cuts and Job Act (TCJA), alimony will be treated differently for divorce or separation documents put into effect after December 31, 2018. 

What Does This Mean?

In brief, the new tax rule eliminates the payer’s ability to deduct alimony from their federal taxes.  However, this all depends on when you execute, or executed, your alimony agreement or court order.  For instance: 

Current Payers of Alimony or Receivers of Alimony

  • For those who already pay or receive alimony, the TCJA changes will not affect you.   

    • Payers – you may continue to deduct alimony from your federal income taxes

    • Recipients of alimony – you will continue to report alimony payments as taxable income
       

  • This tax treatment will continue to apply even if your alimony agreement or court order is subsequently changed – unless the modification specifically states that the TCJA treatment of alimony payments now applies

Payers of Alimony or Receivers of Alimony  documents executed before
January 1, 2019

  • Similarly, for those who execute alimony documents before January 1, 2019, the TCJA changes will not affect you.   

    • Payers may deduct alimony from federal income taxes

    • Recipients of alimony will report alimony payments as taxable income
       

  • This tax treatment will continue to apply even if your alimony agreement or court order is subsequently changed – unless the modification specifically states that the TCJA treatment of alimony payments now applies

Payers of Alimony or Receivers of Alimony – documents executed after
January 1, 2019

  • Payers of alimony – you cannot deduct alimony from your federal income taxes; you will have to pay tax on the income transferred to the alimony recipient

  • Recipients of alimony – you will not include monies received from alimony in your taxable income

  • For tax purposes, alimony will be treated the same as child support, which is not taxable income to the recipient

What Happens Next?

It is still unclear exactly how the new alimony tax rules will impact divorces. 

Historically, spouses who were required to pay alimony, did so knowing they could deduct those payments from their taxable income which was an incentive instead of battling the subject in court.  Without this tax incentive, spouses may argue over the alimony payment amount which in turn could turn out to be less alimony for the receiving spouse.  Additionally, the change in the law may impact how child support is calculated in cases involving minor children. 

JDSA Law is committed to staying well-informed on how these tax changes will impact you. Listen to our recent podcast for more on this topic – or connect with us, Jordan Miller (Family Law) and Lindsey Weidenbach (Tax Changes), for assistance. 

Cannabis-based Medicine Approved by FDA

Last month, the U.S. Food and Drug Administration (FDA) approved the first drug to utilize the marijuana plant-derived ingredient cannabidiol (CBD).  This medicine has been approved to treat seizures associated with two severe forms of epilepsy in patients aged two or older. 

However, it cannot be sold in the U.S. – yet.

The medication, Epidiolex, developed by British company, GW Pharmaceuticals, can’t be sold until the Drug Enforcement Administration (DEA) changes how it classifies CBD.  Nonetheless, this approval from the FDA is a major milestone in bringing safe, effective cannabinoid-based medications to patients.  And it offers new hope, especially to parents of children suffering from certain devastating neurological disorders.

GW Pharmaceuticals, has been working for decades to get this medication approved in the U.S.  This approval comes after a four-year series of trials showing the benefits of CBD in relieving seizures in patients with Lennox-Gastaut and Dravet epilepsy.  As an oral medication, Epidiolex is expected to be safer and more reliable than CBD products currently available through marijuana dispensaries or the Internet.

CBD is a compound typically found in very small quantities of marijuana.  It has been of interest to scientists and the public for several years, due to its anti-seizure properties and other possible therapeutic benefits.

Will the DEA change the CBD classification?  Stay tuned to find out.  JDSA Law is committed to keeping you up to date, and will update this blog as developments occur.

U.S. Senate Passes Legislation to Legalize Hemp

On June 28, the U.S. Senate passed its 2018 Farm Bill that includes provisions to legalize hemp as an agricultural commodity for the first time since the 1930’s.  Senate Majority Leader Mitch McConnell initially proposed the Hemp Farming Act of 2018 as a stand-alone bill, but eventually rolled it into the larger farm legislation to ensure a greater chance of success. The 2018 Farm Bill was approved by the full Senate with a resounding 86-11 vote.

What Does This Mean?

This U.S. Senate approved bill would:

  • Legalize hemp, removing it from the federal Controlled Substances Act
  • Allow the plant to be grown, processed and sold as an agricultural commodity
  • Permit the states to regulate hemp without fear of federal intervention
  • Allow hemp farmers to apply for crop insurance or research grants from the federal Department of Agriculture

So, what’s next?

The farm legislation from both the Senate and House will now move to a joint Congressional committee that will merge both chambers' bills into a single piece of legislation to be sent to President Trump's desk. Although the future of the bill's hemp provision is uncertain, all indications are that Mitch McConnell will fight hard for the survival of his hemp proposal.

JDSA Law is committed to staying up to date on the progress of the Farm Bill, and will post updates to the JDSA Blog as this legislation changes.

 

New Cannabis Packaging and Labeling Requirements

Attention Cannabis Processors and Retailers


The Washington State Liquor and Cannabis Board (WSLCB) recently adopted new cannabis “Packaging and Labeling Requirements” that will be effective January 1, 2019. 

The requirements were updated with the goal of making labels easier to read, easier to understand, and less burdensome to businesses.  Licensees are allowed to ‘phase-in’ the new requirements to minimize impacts and costs, however, all label changes must be in effect by January 1, 2019. 

So, what does this mean?

Listed below are some of the packaging and labeling changes. However, cannabis licensees are encouraged to review the entire revised law as this section has been significantly enhanced.

  • A new universal symbol is being introduced
    • This new symbol will replace the warning labels “this contains marijuana” and “for use for people 21 and older”
       
  • The following is now required on all labels:
    • “Warning – May be habit forming”
    • “Unlawful outside Washington State”
    • "It is illegal to operate a motor vehicle while under the influence of marijuana"; and
    • The new marijuana universal symbol referenced above
       
  • The following is now considered optional on labels:
    • Harvest date
    • “Best by” date
    • Manufactured date
       
  • Products such as capsules and lozenges, approved by the WSLCB on a case by case basis, may be packaged loosely in a child-proof, resealable package 

Other Important Changes

  • Producers and processors may offer accompanying materials, lab results, pesticide use, and other information related to cannabis production and manufacturing, via an internet link, web address or QR code. Previously, this information was to be provided in print format to the retail stores.
     
  • The definition of what is appealing to children, and the definition of a cartoon has been updated
     
  • It also appears that all infused edibles‘ labels must be reapproved by January 1, 2019

As part of this rulemaking project, the WSLCB is working to create more resources and guidance materials — for packaging and labeling for licensees — as well as process improvements to the cannabis-infused edibles product, packaging and labeling review program.

More Resources

 New Universal Symbol

New Universal Symbol

 Not For Kids - logo

Not For Kids - logo

Online Retailers: Be Ready to Collect Sales Tax

In a recent U.S. Supreme Court decision, States will now be able to collect sales tax from internet retailers who sell their products online.  This change appears to be a big victory for the States, and is expected to increase revenue that individual States argued they have been missing out on for decades.

Prior to this ruling, the law did not require businesses to collect sales tax on customer’s purchases if the business was shipping the purchase to a State where the business did not have a physical presence. In these situations, customers who resided in a State with sales tax were required to report and pay ‘use tax’ for their online purchase directly to their home State.  This tax reporting requirement was not widely known, and the home States seldom received the use tax.  This is all about to change as a result of this recent U.S. Supreme Court decision.

What Does This Means for Businesses?

Under the U.S. Supreme Court’s decision, States can now pass laws requiring sellers – without a physical presence in the State to which they are shipping – to collect that State’s sales tax from customers and send the collected sales taxes to that State.  What is not yet clear is whether Federal legislation will provide details on how sales tax collection will take place, or if each State will be responsible for carrying out their own specific sales tax collection program.

JDSA is also following the question of whether the ruling requires all Internet companies to collect sales tax.

Could this only apply to larger companies? 

For example, what about the smaller retailer who sells on eBay or Etsy?  Will they also face the same sales tax collection requirement?  This ruling, though favorable to State revenue, could create an undue burden on small, online retailers.  Tax planning and a full understanding of the collection process will be key to compliance.

Attorneys at JDSA Law are monitoring this developing legislation closely.  Stay close, by reading our blog for how this change could impact you.

Child Custody – Changes in Non-parental Visitation Rights

Effective June 7, a change in ‘Non-Parental Visitation Rights’ went into effect as a result of Senate Bill 5598 being signed into law earlier this year.  This law grants relatives, including but not limited to grandparents, the right to seek visitation with a child through the court system. 

What do these changes mean? 

  • Permits a non-parent relative who has an ongoing and substantial relationship with a child to request court-ordered visitation if the child risks substantial harm if visitation is denied
  • Requires a court hearing to consider the child's best interests, the risks, and benefits of visitation for the child, and reasons opposing visitation
  • Presumes a fit parent's decision denying visitation is in the child's best interests and does not risk substantial harm to the child, but permits a contrary ruling if evidence is clear and convincing

This new law is complicated and only allows a person to request visitation one time. If the request is denied by the court, the person may not ask again.

How JDSA Can Help

It's important to understand the necessary steps to take, and seek legal advice before filing a petition with the courts.  The Family Law attorneys at JDSA Law will help guide you through this complex process.  If you have questions or need advice, contact me, Jordan Miller, for assistance today.

Listen to our podcast — JDSA's Law Talk —  for more on this topic.  

 

Cannabis and Federal Intervention: Could The End Be Near?

The STATES Act of 2018 was introduced to ensure each State has the right to determine, for itself, the best approach to marijuana use, sales and enforcement within its border.

Forty-six U.S. states have laws permitting, or decriminalizing, marijuana or marijuana-based products. Each of these states has developed their own approaches to marijuana enforcement.  As more continue to consider updates to their marijuana regulations, it has become crucial that Congress take action to safeguard the states’ enforcement autonomy.

On June 7, 2018, the first bicameral, bipartisan legislation was introduced that could end the threat of federal intervention and prosecution – in states that regulate marijuana use and sales.  This legislation appears to have Presidential support, and now Congress must do its part by moving this legislation forward.

The STATES Act

The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act of 2018 was introduced to ensure each State has the right to determine, for itself, the best approach to marijuana use, sales and enforcement within its border.  This bill also contains common-sense guardrails to ensure states, territories, and tribes, which regulate marijuana, do so in a manner that is safe and respectful of the impacts on their neighbors. 

What Does The Act Do?

Here are some highlights:

  • Amends the Controlled Substances Act (CSA) so, as long as states and tribes comply with a few basic protections, its provisions no longer apply to any person acting in compliance with state or tribal laws relating to marijuana activities
     
  • Excludes industrial hemp from the CSA
     
  • Provides banks with additional guidance, thus lifting prior restrictions. The act states that compliant transactions are not trafficking, and do not result in proceeds of an unlawful transaction
     
  • Prohibits the following:
    • Distribution of marijuana at transportation safety facilities such as rest areas and truck stops
    • Distribution or sale of recreational marijuana to persons under the age of 21. There is an exception for medical purposes
    • Employment of persons under age 18 in marijuana operations

What Does The Act Not Do?

The Act does not amend the CSA as to marijuana (other than hemp) which in turn does not alleviate the effects of Tax Code 280E for the marijuana industry

Could this be the first step to the end of federal intervention?

Stay tuned.  Lindsey Weidenbach, at JDSA Law, is closely following this developing legislation regarding marijuana use and sales, and will update the JDSA Blog as the topic unfolds. 

Cannabis Regulations: The Positive Side of Federal Enforcement

Yes, the Feds are coming, but there is a positive side to their approach.

When federal enforcement of the cannabis regulations is mentioned, there is most often a negative reaction:  fear of raids, property seizure and court battles.

Yes, the Feds are coming, but there is a positive side to their approach.  Federal enforcement has begun, and it is focusing—exclusively—on the black market. This is the positive side to the flurry of cannabis enforcement, and the legal, regulated cannabis industry is benefitting.

Recent Examples

  • In the Seattle area, U.S. authorities arrested several illegal, unlicensed cannabis growers in an investigation into what is said to be an international black market cannabis operation financed by Chinese money. Authorities are still searching for the two men who are suspected of leading a crime ring that used hundreds of thousands of dollars wired from China to illegally grow cannabis in 17 homes around Washington State, and then shipped the cannabis to New York's black market.
  • Hundreds of federal and local law enforcement agents raided 74 houses in the Sacramento region – breaking up a network of illegal cannabis growers financed by dark money from China.
  • In Sacramento, federal and state authorities announced a joint effort to target illegal cannabis grows, with $2.5 million in federal money backing the effort.

Authorities Are Assisting the Industry

The federal Drug Enforcement Administration (DEA) and Department of Homeland Security are leading the efforts to crack down on the cannabis black market, and are supporting the state-legal cannabis industry.  Arrests are being made to those who violate cannabis licensing laws, in an effort to protect the investment and businesses who are following state law.  The black market is a competitor of the legal, regulated market, and the elimination of the black market is necessary for the legal, regulated market to thrive.

While it may seem the majority of information we hear regarding federal involvement in cannabis is in a negative light, on the brighter side, the U.S. Department of Justice is enforcing the legalization rules and regulations established in the nine legal cannabis states by shutting down the black market.  Enforcement can help legitimize the industry, and any assistance to eliminate the black market is federal money and time well spent.

For additional information on changes that impact the cannabis industry, check out the JDSA website regularly or contact Lindsey Weidenbach with questions.