Posts tagged Business
WSLCB Canopy Team

On October 27, 2017, all producer licensees in Washington State received a message from the Washington State Liquor & Cannabis Board (WSLCB) that the agency has formed a new team: the WSLCB Canopy Team.  This team consists of five employees with the title “Cannabis Program Specialist”, and they began work on November 1, 2017.

The WSLCB announcement states, "[the] team’s primary function is data collection through ongoing measurement of marijuana plant canopy at producer locations.  The Board plans to use the collected data to gauge the overall health and status of the marijuana plant canopy statewide.  The canopy team will have members stationed in Olympia, Mount Vernon, Wenatchee, and Spokane. A team coordinator will work out of WSLCB headquarters.  In the coming months and years, the canopy team will visit every producer on a rotating schedule. The team will reach out to producers to schedule appointments, and wherever possible, never arrive unannounced.”

This announcement was met with mixed emotions and skepticism. 

What is the WSLCB up to with this new agency?  Is it just research and data gathering? Or is there an enforcement piece attached to the team’s presence on your farm? 

A recent article in Dope Magazine speculates the canopy team—in addition to its stated purpose—will enforce the canopy tiers to make sure producers are staying within their tier.  In Washington, there are three types of producer licenses:

  • Tier One: up to 2,000 square feet of canopy

  • Tier Two: 2,001 – 10,000 square feet

  • Tier Three: 10,001 – 30,000 square feet

If the canopy team does have an enforcement function, they will likely measure your canopy to make sure the total canopy is within the license’s allotted tier. 

WAC 314-55-010(23) defines “plant canopy” as the square footage dedicated to live plant production such as maintaining mother plants, propagating plants from seed to plant tissue, clones, vegetative or flowering area. Plant canopy does not include areas such as space used for the storage of fertilizers, pesticides, or other products, quarantine, office space, etc. Square footage is determined by measuring the width and length of a space, and multiplying those two numbers together.  Square footage does not include the height of the plant that lies within the square footage space. 

If your trellising system expands the plant out (instead of up), the canopy team’s measurement may put you over the allotted square footage.  It may be best practices to take colorful tape and tape out the square footage of your canopy space, in each room or area, and trim plants to stay within the taped area — to ensure compliance with your canopy tier. 

With the WSLCB’s statement, announcing each producer in the State will be visited, expect an announced visit sometime soon, and begin taking steps to ensure compliance as soon as possible. 

The Ultimate Fright: Cannabis Without A Traceability System

It might be Halloween but that is not the scariest thing about today. 


Today is the last day of the Washington cannabis industry’s seed-to-sale tracking system.  Tomorrow, the system will go dark for an estimated three months while the State’s new provider, MJ Freeway (Leaf Data Systems), gets up and running.  The ramifications of this off-line tracking could be catastrophic (e.g. opening the door to Jeff Sessions’ dream fight) or it could just be an internal headache for all involved.  How bad will it be?  No one knows yet.  Here is what we do know:

Manual Tracking

In its official statement, the WSLCB asked licensees to keep track of their cannabis sales manually, using spreadsheets, and submit those reports to the WSLCB on a weekly basis.  The State is providing spreadsheets to aid in this process, but the extra time and money that this will take may slow production in the industry’s most critical time: harvest.  

BioTrackTHC’s Statement

As we were wading through these questions, trying to get our hands on more information, BioTrackTHC’s CEO sent an open letter to the Washington cannabis industry addressing the gap in coverage, and how BioTrackHTC customers could be effected.  The WSLCB had apparently asked BioTrackTHC to extend their contract with the State during the interim time period, however, talks broke down over security concerns.  The letter also notes the pay discrepancy between what BioTrackTHC was receiving under its State contract, what Leaf will be paid, and what BioTrackTHC was offered to stay online during the interim gap.    

If you use a paid version of BioTrackTHC or another software provider who has subscribed to use BioTrackTHC’s contingency solution, you may not see a change to the look and feel of your software solution, as stated on BioTrackTHC’s website.  There are many questions that remain unanswered, and we will not know how the contingency solution really works until it launches at the close of business today.

Possible Ramifications

The Attorney General, Jeff Sessions, has written a letter to every state where recreational cannabis is legal — warning these sates that cannabis is still illegal under federal law, and “Congress has determined that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a crime.”  Tracking cannabis seed-to-sale is also addressed in the Cole Memo

Without an online traceability system, will Washington be left open for federal interference?  Will this lack of online system open the door to arguments that the black market is alive and well, and that cannabis is traveling over state lines?

Only time will tell.  It will be up to the industry to show, once and for all, that it has the integrity to jump yet another hurdle, operating without the traceability system, and keep its nose clean.  There will be headaches and there is the potential for bad actors to use the lack of traceability software to conduct illegal activity.  However, this industry is used to setbacks and is highly adaptable.  I am optimistic the industry will use this snafu as an opportunity to show its perseverance and professionalism.

1031 Exchange: Is It Right For Me?

With the housing market booming and the economy picking up speed, we are seeing a resurgence in 1031 exchanges. 

A 1031 exchange allows you (the “exchangor”) to defer paying taxes on investment property when it is sold, so long as those proceeds are reinvested into other property of “like kind.”  Tax deference is often advantageous, however, the pros should be weighed against the cons — prior to diving into a 1031 exchange — to ensure the 1031 exchange is right for you. 

The first question: 

Can I benefit from a 1031 exchange? 

You benefit from a 1031 exchange if you are selling investment property, or property that is used in a trade or business, and want to purchase new investment property to replace it. If this is the situation, you can sell the old property and purchase the new property without paying taxes on the sale.  This tax deference is the main benefit of a 1031 exchange. 


If the properties qualify, and are of like kind, the next question: 

What is your basis in the relinquished property, and are the current capital gains rates favorable to a sale? 

If you have a high basis in the property (basis being the difference between the price you purchased the property for and its current fair market value), then you might not want to defer taxes.  It may be more tax efficient to pay the capital gains now, while rates are reasonable, on a high basis.  However, if you have a low basis in the property, it is almost always more advantageous to defer the taxes and go with a 1031 exchange.

In order for your property to qualify as 1031 property for sale (the “relinquished property”), you must have held it for five or more years as an investment or in a trade or business.  Once you sell the relinquished property, you have 45 days to identify new property to purchase (the “replacement property”) which also has to be intended for investment, or for a trade or business purpose.  After the replacement property is identified, it must be purchased within 180 days (around 6 months) from the relinquished property's date of sale.  This is the most common type of 1031 exchange, and is referred to as a forward, delayed 1031 exchange

There are many other types of exchanges and different iterations of the same pattern. For instance:

  • You can sell multiple properties and/or purchase multiple properties.

  • You can first purchase the replacement property and then sell the relinquished property — this is called a reverse, delayed 1031 exchange.

  • If you know exactly what properties you want to sell and purchase, you can sell and purchase simultaneously (or close to simultaneously) through a title company, which is referred to as a simultaneous 1031 exchange.

  • You can sell one property, purchase another and build improvements on it, which is called a construction 1031 exchange.

  • A 1031 exchange even works for large items of equipment.


Before we continue, let’s discuss the requirements: 

What are the requirements of a 1031 exchange?  

  • The primary principal of the exchange is: the exchangor cannot have control over, or access to, the funds during the exchange. If you have access to the funds, the exchange fails and does not qualify for tax deference.

  • A 1031 exchange has to be facilitated by a qualified facilitator, which is defined in the Internal Revenue Code very specifically, but generally means anyone who is a true third party, not related to or an agent of the person performing the exchange (the exchangor).

  • If you’re thinking of selling property that would qualify for a 1031 exchange, contact a qualified facilitator first, to make sure your specific property sale qualifies and to make sure tax deference is right for you, based on the property’s basis and current capital gains rates.

  • The facilitator must be assigned the Purchase and Sale Agreement and must receive the proceeds of the sale of the relinquished property, and will hold the funds in trust until the exchange is complete.

  • If you have already sold the relinquished property, it is too late and you will not qualify for an exchange.

Once you have engaged the facilitator and sold the relinquished property, the facilitator will enter into an agreement to purchase the replacement property, keeping in mind the two time limitations discussed above, and will use the proceeds from the sale of the relinquished property to purchase the replacement property.  The replacement property is deeded directly to the exchangor. Any remaining proceeds are reimbursed to the exchangor, and will be taxable income.


These exchanges are highly technical.  Any misstep of the Internal Revenue Code regulations can lead the disqualification of your exchange.  JDSA has a focused, real estate legal team and regularly acts as a 1031 exchange facilitator.   

Washington Minimum Wage Increase – Effective 1/1/17

This table shows the minimum wage increases for the next four years.

This table shows the minimum wage increases for the next four years.

On November 8, 2016, Washington voters passed Initiative 1433 to increase the state minimum wage beginning January 1, 2017.

Beginning on January 1, 2021 and each January 1 thereafter, the minimum wage will be adjusted, using the methodology that is set out in the statute.

Employers in industries with employees who receive tips, should be aware that tips and gratuities, and all service charges, except those itemized as not payable to employees servicing the customer cannot count toward the minimum hourly wage calculation for employees.

 

New Overtime Rules Not in Effect … Yet

 

The US Department of Labor’s (DOL) new regulations regarding overtime exemptions for executive, administrative, and professional employees (known as the “white-collar exemptions") were scheduled to take effect on December 1, 2016.  The regulations would have significantly increased the minimum salary threshold for employees to qualify for white collar exemptions.  Currently, salaried employees who make $455/week ($23,660 per year) or more, are exempt from overtime pay if they satisfy the duties test for one or more of the white collar exemptions.  The new DOL regulations, if permitted to take effect, will increase this salary threshold to $913/week, or $47,476/year.

On November 22, 2016, a federal district court in Texas issued a nationwide preliminary injunction which temporarily stops the DOL from implementing or enforcing most of the new overtime rule. What this means to you, the employer, is that you can continue to pay your exempt executive, administrative, and professional employees just as you have been, assuming they are properly classified as exempt under the current salary threshold and the duties test, until further court order.

DOL appealed the preliminary injunction to the Fifth Circuit Court of Appeals, which established an expedited briefing schedule that has spanned the inauguration and change in administration. In late January, sixty business groups and four states filed briefs in support of the injunction. It is unclear whether the new administration will continue to litigate the matter.

The Texas court’s decision temporarily blocks implementation of the proposed regulation, except for the provision increasing the minimum salary threshold for the Highly Compensated Employee (HCE) exemption. That increase, from $100,000 to $134,004, appears to have taken effect December 1, as planned, by virtue of its exclusion from the judge’s list of blocked regulations. While some suspect this may be a scrivener’s error and the court intended to block this provision along with the others, if you are relying on the HCE exemption, the most conservative approach would be to assume the salary threshold has increased, or consider whether one of the other white collar exemptions applies.

 

What does this mean to employers? 

  1. Ensure your executive, administrative and professional employees are properly classified as exempt under the current salary threshold and duties tests.
  2. If properly classified as exempt under current rules, continue paying those workers just as you did prior to the proposed change to the DOL regulation.

JDSA will continue to monitor this issue in the courts, and update the blog with new developments.

Washington Paid Sick Leave – Begins January 1, 2018

In addition to a minimum wage increase, Initiative 1433 also included provisions for paid sick leave.  Effective January 1, 2018, every employer with one or more employees (as defined in the Washington Minimum Wage Act which excludes certain categories of employees) must provide each employee paid sick leave as stated in the ‘Sick Leave Accrual” information below.

Because the Initiative is silent with respect to full time, part time, or temporary status, these classifications of employees likely also qualify for paid sick leave.

There are many unanswered questions about how this law will be applied and Washington State’s Department of Labor and Industries (“L&I”) will be responsible for answering many of these questions when it issues regulations via the rulemaking process this year.  JDSA will be participating in the rulemaking process and updating our blog as important developments happen.  L&I has held one meeting for interested stakeholders and has distributed stakeholder comments for review. The next meeting of stakeholders is scheduled for February 13, 2017 at L&I’s Headquarters in Tumwater, Washington.

If you are interested in following this process, you can sign up for email updates from L&I’s Wage and Hour list by subscribing to L&I's Wage and Hour E-mail Listserv or by contacting Allison Drake at allison.drake@Lni.wa.gov.

If you would like to submit comments, you can do one of the following:

  1. Send your feedback directly to L&I, or
  2. Submit your questions and concerns by contacting JDSA Law, and we will include them with our comments.
 

Sick Leave Accrual

Under the new law:

  • Employees accrue one hour of paid sick leave for every forty hours worked
  • Employees may use accrued paid sick leave beginning on the 90th calendar day after starting employment
  • Employees may carry over up to 40 hours of sick leave per year

Post-Accident/Injury Drug Testing – OSHA Rulemaking

The U.S. Department of Labor’s Occupational Safety & Health Administration (OSHA) recently issued new rules that will significantly impact employers in two ways: 

  1. As of December 1, 2016, anti-retaliation protections went into effect that restrict employer policies regarding post-accident drug testing and require employers to inform employees of their right to report work-related injuries and illnesses
  2. Starting on January 1, 2017, certain employers (depending on size and industry) must electronically submit certain injury and illness data to the Federal OSHA for posting to OSHA’s website

This applies to your company on January 1, 2017 if:

  • Your company has 250 or more employees at any location during the year, including temporary and seasonal workers.  If you qualify under this, you must report on OSHA Forms 300, 300A, and 301, -OR-
  • Your company has 20-249 employees at any location during the year (including temporary and seasonal workers) and your business is listed as one of these industries. If your company qualifies, you must electronically submit information on OSHA Form 300A only.

In addition, if you have a “Post-Accident Drug Testing” policy, you can no longer condition a post-accident drug or alcohol test solely on the occurrence of an accident at the workplace.  Instead, you must have a reasonable suspicion that drugs and/or alcohol use was a contributing factor to the accident.

For more on the new OSHA rule, visit the OSHA website.

 

OSHA Actions Needed

Beginning 12/1/2016:

  • Inform employees of their right to report work-related injuries and illnesses
  • Ensure the required L&I poster is prominently displayed to satisfy the new OSHA rule. The poster can be found on the L&I website
  • Review your ‘Post-Accident Drug Testing’ policy (if applicable) to ensure it complies with the new rule

Beginning 1/1/2017:

  • Certain employers must submit injury and illness data electronically to OSHA

Cash Payments to Employees in Lieu of Benefits

In June 2016, the federal appellate court for our region ruled in Flores v. City of San Gabriel, that any employer who pays their employees cash payments in lieu of health benefits or pays cash for unused benefits must include those payments in the calculation for the regular rate of pay for overtime compensation.  Failure to do so violates the federal Fair Labor Standards Act (FLSA) and will expose your company to liability for back wages and other penalties.

The court further held that even payments the employer made directly to trustees and third parties for health benefits must be included in the employees’ regular rate of pay. Although such payments are normally excluded from the regular rate when made pursuant to a “bona fide plan” of benefits, in this case, the court determined that the payments did not qualify for the “bona fide plan” exemption because employees received plan contributions in cash that were not incidental in value.

The court then went even further to hold that the employer was liable for back wages and penalties, because the employer did not prove that it acted in good faith and, despite the lack of case law in this area, the employer “knew or showed reckless disregard” that its conduct violated the Fair Labor Standards Act.

Employers should review any cash in lieu of benefit policies in light of this case and consider alternatives to such policies where they contradict the Ninth Circuit’s decision. In the alternative, employers should ensure that cash paid in lieu of benefits is included in the regular rate of pay for purposes of calculating overtime.


Employer-Mandated Tip Pooling – Don’t Do It

In March 2016, the federal appellate court for our region upheld a previous DOL ruling that barred ‘tip pooling’ for employees who typically do not earn tips (i.e., back of the house staff) under the Fair Labor Standards Act. 

Employers in the service industry cannot require staff who do not fall within FLSA’s definition of “customarily and regularly tipped employees” (such as line cooks, dishwashers, etc.) to be included in any tip pooling.  Staff may include these employees in tip pooling voluntarily, however.

Please visit DOL’s website for more information.


Agriculture Law Update

Over the past few years, a higher level of scrutiny has been placed on agricultural employer practices.  Statewide litigation involving issues ranging from rest break pay, meal period compliance, and overtime pay is hitting agricultural employers on a regular basis.  Decades old industry practices are now under evaluation in the courts for both piece rate and hourly employees. 

After a well-known recent case decision, Washington State Department of Labor & Industries published a new policy ‘Paid Agricultural Rest Breaks’. There are additional cases currently in the courts that are challenging current laws and, depending on their outcome, will have a significant impact on agricultural employers.  Employers should keep an eye on the evolving landscape in these areas and follow best employment practices.  

If you have any questions, please contact us and check the JDSA blog for relevant case law updates.