The tax man is extending a helpful hand to marijuana business owners, not something we would normally see for the cannabis industry.
In an announcement posted on its website late last month, the Internal Revenue Service unveiled its new “Cannabis/Marijuana Initiative,” billed as a “groundbreaking effort” by the agency to assist such business owners as they navigate the often confounding U.S. tax code.
The goal of the initiative, the agency said, “is to implement a strategy to increase voluntary compliance with the tax law while also identifying and addressing non-compliance,” a move the IRS believes “will positively impact filing, payment and reporting compliance on the part of all businesses involved in the growing, distribution and sales of cannabis/marijuana.”
The agency said it has a number of “strategic activities” planned as part of the initiative, which include ensuring that “training and job aids are available to IRS examiners working cases so they can conduct quality examinations (audits) consistently throughout the country,” making sure “there is coordination and a consistent approach by the IRS to the cannabis/marijuana industry,” finding “ways to identify non-compliant taxpayers,” collaborating “with external stakeholders to increase an awareness of tax responsibilities to improve compliance” and giving “taxpayers access to information on how to properly comply with the filing requirements.”
Even as dozens of states have legalized marijuana for either medical or recreational marijuana use, and even as polls consistently show that majorities of Americans support legalizing marijuana outright, there remains a stubborn elephant in the room—cannabis is still listed on the Controlled Substances Act and is thus still illegal on the federal level. That makes things very difficult when it comes to tax breaks.
De Lon Harris, a commissioner at the IRS who authored the post on the initiative last month, alluded to that discrepancy as a motivation behind the new program.
Rather than just providing information on the IRS’ website, Harris said he intends to “engage with the cannabis/marijuana industry through speaking events and other outreach.” He said that he has hosted three such outreach events in the last year.
“It’s tricky from a business perspective, because even though states are legalizing marijuana and treating its sale as a legal business enterprise, it’s still considered a Schedule 1 controlled substance under federal law,” Harris wrote. “That means a cannabis/marijuana business has additional considerations under the law, creating unique challenges for members of the industry. Specifically, these businesses are often cash intensive since many can’t use traditional banks to deposit their earnings. It also creates unique challenges for the IRS on how to support these new business owners and still promote tax compliance.”
Harris said that although IRS Code Section 280E establishes that “all the deductions and credits aren’t allowed for an illegal business,” there is a “caveat.”
“Marijuana business owners can deduct their cost of goods sold, which is basically the cost of their inventory. What isn’t deductible are the normal overhead expenses, such as advertising expenses, wages and salaries and travel expenses, to name a few,” he said.
“I understand this nuance can be a challenge for some business owners, and I also realize small businesses don’t always have a lot of resources available to them. That’s why I’m making sure the IRS is doing what it can to help businesses with our new Cannabis/Marijuana Initiative,” Harris continued.
It may not be long before legalization goes federal. Democratic leaders on Capitol Hill like Senator Chuck Schumer have signaled that they are ready to press ahead with the reform. Earlier this year, Democratic members of the House introduced legislation that would both decriminalize and deschedule cannabis.
The DEA published a new document in the Federal Register on September 2 requesting an increase in production for certain Schedule I and Schedule II substances so that it can initiate more research studies.
Titled “Proposed Adjustments to the Aggregate Production Quotas for Schedule I and II Controlled Substances and Assessment of Annual Needs for the List I Chemicals Ephedrine, Pseudoephedrine, and Phenylpropanolamine for 2021,” the article specifically includes some major changes for cannabis and psilocybin.
In the document’s section dedicated to explaining adjustments for 2021, it begins with mentioning the changes to cannabis and psilocybin. “DEA is proposing significant increases to the APQs of the schedule I substances psilocybin, psilocin, marihuana, and marihuana extract, which are directly related to increased interest by DEA registrants in the use of hallucinogenic controlled substances for research and clinical trial purposes,” the DEA writes.
“DEA firmly believes in supporting regulated research of schedule I controlled substances. Therefore, the APQ increases reflect the need to fulfill research and development requirements in the production of new drug products, and the study of marijuana effects in particular, as necessary steps toward potential Food and Drug Administration (FDA) approval of new drug products.”
Among many scheduled substances listed in a chart, no changes were noted between the “established 2021 quotas” and “proposed revised 2021 quotas.” For the entries that did include a change, most were increased by only 30 grams, with a few exceptions. However, the listing for psilocybin received a proposed increase from 30 grams to 1,500 grams, and psilocyn received an increase from 50 grams to 1,000 grams. Likewise, “marihuana” received a bump from 1,500,000 grams to 2,000,000 grams, and the “marihuana extract” quota increased from 200,000 grams to 500,000 grams.
The DEA does not go into detail regarding why it is suddenly so interested in studying psilocybin and psilocyn in large quantities, but the substance has received a good amount of attention over the past year. The state of Oregon will soon be voting on psilocybin legalization initiative called IP-34 this November. California residents will be voting on the California Psilocybin Decriminalization Initiative 2022 in November as well.
For cannabis, the ongoing restriction as a Schedule I substance will eventually come to an end. A petition led by Dr. Sue Sisley, whose work on medical cannabis to treat conditions such as PTSD, sought to force the DEA to reschedule cannabis. While the case in the United States Court of Appeals for the Ninth Circuit was dismissed on August 30, 2021, Circuit Judge Paul Watford wrote a statement as a part of his ruling that cannabis reclassification could be a possibility in the future.
“I agree that the petitioners in this case failed to exhaust their administrative remedies and therefore join the court’s opinion dismissing their petition for review,” Watford wrote. “I write separately to note that, in an appropriate case, the Drug Enforcement Administration may well be obliged to initiate a reclassification proceeding for marijuana, given the strength of petitioners’ arguments that the agency has misinterpreted the controlling statute by concluding that marijuana ‘has no currently accepted medical use in treatment in the United States.’”
Comments for the DEA’s most recent article can be submitted between now and October 4.
Harborside, a California cannabis dispensary, appealed the Tax Court’s decision of tax deficiencies totaling over $29 million dollars for the periods between 2007 through 2012. Harborside’s tax liability stems from the IRS’s denial of deductions under IRC §280E and the disallowances of cost of goods sold reported on Harborside’s tax returns. Internal Revenue Code §280E prohibits tax deductions for businesses whose activities involve a federally controlled substance (within the meaning of schedule I and II of the Controlled Substances Act). Unfortunately, cannabis is still and at the time (of the facts in the case) a Schedule I Controlled Substance.
On appeal Harborside makes two arguments: (1) whether IRC §280E violates the Sixteenth Amendment of the U.S. Constitution; (2) whether IRC §471 regulations excludes certain inventory costs for Harborside (cannabis businesses). This article will not go into the constitutionality of IRC §280E in reference to the Sixteenth Amendment but will focus on the cost of goods sold (COGS) and IRC §471 issue.
The Tax Court erred in determining that “processing costs related to inventory are not includable in Harborside’s cost of goods sold.”
The IRS did not allow Harborside to include purchasing, handling, and storage costs related to the goods it purchased for resale (“indirect costs”) — costs like testing, labeling, curing, storing, trimming, manicuring, maintaining, and packaging the [cannabis], or [cannabis] products — in its cost of goods sold. Harborside would reject [cannabis] if it wasn’t properly cured, if it hadn’t been sufficiently trimmed, if it had an incurable safety issue such as pathogenic mold, or if it didn’t contain the right “cannabinoid profile.”
In response to Harborside, the IRS admits in the Appellee’s brief, “if Harborside could establish that Section 471 permits it to include indirect costs in its cost of goods sold, Section 280E would not prevent that result, as that section only bars Harborside’s claim to deductions.” Section 471 states that “the use of inventories is necessary in order clearly to determine” income, and “on such basis as the Secretary may prescribe as conforming as nearly as may be to the best accounting practice in the trade or business and as most clearly reflecting the income.”
For more clarity on §471, we look towards the regulations for guidance. Treas. Reg. §1.471-3(b) provides, in relevant part:
Cost [i.e., inventory cost] means: In the case of merchandise purchased since the beginning of the taxable year, the invoice price less trade or other discounts, except strictly cash discounts approximating a fair interest rate, which may be deducted or not at the option of the taxpayer, provided a consistent course is followed. To this net invoice, price should be added to transportation or other necessary charges incurred in acquiring possession of the goods. * * * For taxpayers acquiring merchandise for resale that are subject to the provisions of section 263A, see §§ 1.263A-1 and 1.263A-3 for additional amounts that must be included in inventory costs.
Harborside’s appeal will come down to when Harborside acquires possession of the good.
COGS is the costs of acquiring inventory, through either purchase or production. See, e.g., Reading v. Commissioner, 70 T.C. 730, 733 (1978). In support of disallowing Harborside inventory costs, the IRS states that the costs of testing, labeling, curing, storing, trimming, manicuring, maintaining, and packaging products are costs incurring after acquisition of goods.
But when does Harborside actually acquire the “goods?” Because we cannot make the assumption that cannabis bud is a “good” if it’s still connected to the plant, not consumable because of mold, or not properly tested to determine its CBD/THC levels. At this point and before being packaged and labeled properly, the cannabis bud is a raw material. Thus, the argument could be made that Harborside has not “acquired” possession of a “good,” until the cannabis product is ready for sale and consumption that complies with state cannabis laws.
Is Harborside a producer?
Although the argument was not brought up in the appeal, Harborside is more analogous to a producer than a reseller. This would put Harborside under Treas. Reg. §1.471-3(c) for its cost of goods sold analysis. Producers must include in COGS both the direct and indirect costs of creating their inventory. See Treas. Reg. §1.471-3(c), 1.471-11. The regulations tell producers to capitalize the “cost of raw materials,” “expenditures for direct labor,” and “indirect production costs incident to and necessary for the production of the particular article…” This would allow Harborside to include in COGS the cost of the cannabis plant, costs of testing, labeling, curing, storing, etc. However, the issue that Harborside runs into with being a producer for this regulation is the idea of control. The IRS places significant weight on whether a taxpayer has an ownership interest in the raw materials or products throughout the process.
In Suzy’s Zoo® v. Commissioner, 273 F.3d 875 (9th Cir. 2001) the IRS stated, “[t]he only requirement for being a ‘producer’ is that the taxpayer be ‘considered an owner of the property produced.’” A taxpayer can be a “producer,” moreover, even if it uses contract manufacturers to do the actual production. Despite Harborside buying cannabis only from its members that meet its quality-control standards, Harborside does not continue to have ownership interest of the cannabis plant/products from growing to packaging, making it fail the control requirement for Treas. Reg. §1.471-3(c).
Internal Revenue Service is being consistent with its treatment of cannabis businesses and whether they should be considered a “producer” under Sec. 1.471-3(c). In Richmond Patients Group v. Commissioner, TC Memo 2020-52, the taxpayer attempted to argue it was a producer, but to no avail. The Court concluded that taxpayer lacked the ownership interest to be a producer and even analogized taxpayer’s facts with Harborside stating that “[n]o improvements were made to [cannabis] from the time it was purchased to the time it was sold.”
Although the Court of Appeals have yet to release an opinion on Harborside’s matter, more than likely they will affirm the lower court. The rift between cannabis and the IRS extends beyond §280E and we are now dealing with more of a §471 issue. There is much to be learned and gained from Harborside. The most significant is how to qualify as a “producer” for IRC §471 regulations. If Harborside would have made exclusive rights agreements with the growers (members) to only sell to Harborside, then ownership interests may have been established significant enough to satisfy §471 regulations. However, in some states, exclusivity agreements are prohibited. Or if Harborside would have retained ownership rights to the clones or seeds given to members to grow, then Harborside would have an even better argument that they are a producer. Again, some states do not allow for retailers to have this much influence over a producer (tied house laws). There are even more scenarios that other cannabis business models could implement to avoid the Harborside predicament and allow direct and indirect costs to be included in their COGS as a producer. If nothing else, Harborside continues, as it has done for over a decade, to act as a roadmap of the shifting sands and everchanging landscape of how cannabis and tax law interact.
The push and pull of the cannabis legalization issue can be seen all over the globe, with a recent UN vote officially legalizing cannabis for medical use. But what about cocaine? Is the medical value of cocaine coming back into play? A current bill is making its way through the Colombian government that says Colombia will legalize cocaine.
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Colombia and cocaine have gone together like peanut butter and jelly since Pablo Escobar started using old cannabis trafficking routes to move the white powder out of Colombia, and to the rest of the world. Now, with a new bill moving its way through Colombian government, its looking like there’s a good chance Colombia will legalize cocaine.
A look at the history of cocaine
When it comes to cocaine, the main story that we all know starts in the middle of the 70’s with Pablo Escobar and the Medellin Cartel, however cocaine has been used for much longer than that. In fact, in South American countries like Colombia, Bolivia, and Peru, locals have been chewing on coca leaves for thousands of years to get their mildly stimulating effect. This allowed workers to suppress their appetites and work longer hours.
When the Spanish came to South America, they wanted to send their spoils back home, and employed the locals to work long hours digging up gold and silver, for which they enforced the use of coca leaves. At this time, the leaves themselves were not being taken anywhere as they couldn’t maintain through the journey back to Europe. For this reason, use stayed local for quite some time.
It wasn’t until the 1800’s that German chemist Albert Niemann was able to isolate the active compound of the plant which he renamed ‘cocaine’ in his 1860 published finding. Niemann didn’t get to do much more work with the drug as he died the following year from damage to his lungs caused by experimenting with mustard gas as a weapon for war.
A few years later, in 1863, Corsican chemist Angela Mariani created a mixture of cocaine and wine which was sold as a medicine for the treatment of anemia, pain, as an appetite suppressant, and stomach stimulant. He called it Vin Mariani. This concoction gained notoriety all over the world, and led to the creation of many different – yet similar – products containing cocaine.
One of the many copycats was US pharmacist John Pemberton who made his own wine and cocaine mixture. When the Ku Klux Klan demanded that alcohol be banned in Atlanta in the mid-1860’s, Pemberton came up with a new idea, and replaced the alcohol in the drink with soda water, a mixture he called Coca-Cola. Yes, for anyone not in the know, Coca-Cola did, in fact, once contain cocaine. Before it had to be taken out of the beverage upon growing health concerns in the early 1900’s, Pemberton had reformulated the drink to have 7.2mg of cocaine per ounce. In 1914, the Harrison Narcotics Tax Act put forth regulation for the cocaine industry, which essentially ended it for many decades, apart from people using it like rich Hollywood stars.
The more recent cocaine story
And now back to the story we’re all familiar with, although how it started might not be as familiar. Even before Pablo Escobar came on the scene, the road was already being paved for a new cocaine boom. The New York Times published an article in 1974 which stated cocaine was “a good high achieved without the forbiddingly dangerous needle and addiction of heroin.”
This was followed up by a book written by journalist Richard Ashley, which failed to find negatives associated with cocaine apart from those related to not having common sense. Even Newsweek Magazine published illustrations of high-class folks doing lines of cocaine.
And perhaps all this helped Escobar to do his thing. By using old cannabis trafficking lines, Escobar built up a trafficking network to move cocaine out of Colombia, inciting a massive and violent drug war. This war exploded in 1975 when in retaliation for the seizure of 600kg of cocaine by law enforcement, the cartel took out about 40 people in one weekend, known after that as the ‘Medellin Massacre’. It’s thought that at the peak of its existence, the Medellin Cartel was bringing in approximately $60 million per day in profits. What really allowed the cartel to take off, was its partnership with Carlos Lehder, a marijuana smuggler who showed Escobar and his partners Jose Gonzalo Rodriguez Gacha, and the Ochoa brothers, how to use small planes to fly the cocaine directly into the US. While much coca is grown in Colombia, at that time, the majority was being imported from Bolivia and Peru, and only processed in Colombia before being trafficked out.
One of the factors that led to Escobar’s downfall and death, was competing cartel, the Cali Cartel which started operations only a year after the Medellin Cartel, in 1977, and which is said to have worked with the government to bring Escobar down. This cartel started as a kidnapping ring, and then focused its earnings into trafficking, starting with marijuana, and moving onto cocaine. While Escobar is still the biggest name in cocaine history, the history of cocaine didn’t stop with his death. It was carried on by the Cali cartel, the Norte del Valle Cartel which operated from the early 90’s till around 2012, the North Coast Cartel which operated from the late 90’s till around 2004, and a number of smaller groups with more specific, compartmentalized jobs, that have operated in conjunction since then.
One last thing to remember about the history of cocaine, according to the UN Single Convention on Narcotic Substances 1961, though cocaine is in schedule I, it’s also schedule III, making it perfectly legal internationally for medical use:
“III – Preparations of substances listed in Schedule II, as well as preparations of cocaine”
Two of the things that are extremely hard to pin down, are how much money exactly is earned (though this is much easier), and how many people die (and have died), as a result of this trade. In terms of the latter, when questioned about it concerning a line that came up from an episode of Narcos, Elizabeth Zili, the former DEA head of intelligence in Colombia affirmed that no hard numbers exist saying “I really couldn’t give you a number, but it was extremely high. We never totally trusted the statistics we were getting from the [Colombian] government. One never does, no matter where you are.” Even if hard numbers for death tolls can’t be confirmed, that thousands of people have died since the 70’s as part of the trade is generally not argued.
When it comes to the former point on how much is earned, (and how much is used), here are some basic stats. One kilo of cocaine is produced by processing about 125 kilos of coca leaves. This production costs a local drug lab approximately $137.50. Once the leaves are turned into actual cocaine, the value goes up to $2,269. This same amount can garner a profit of about $60,000+ in America, and more internationally, with the value going as high as $235,000 in a place like Australia.
Pretty much all the cocaine in the world comes from Colombia, Bolivia, and Peru, with Colombia providing about 70% of it in 2018. About 4% of the world’s population (or 300 million) have used cocaine in their lives, with approximately 18.1 million people using the drug in 2018 alone. As of 2018, approximately 169,000 hectares of land are being used for growing coca in Colombia, and about 130,000 families survive by farming it.
Will it be legalized?
Obviously, the title of this article isn’t about history, but the future, and the question of whether Colombia will legalize cocaine. In an effort to curb the drug trade, different avenues have been tried like eradicating plants by spraying chemicals on them aerially, forced crop substitutions so that farmers can maintain income, and decriminalization. None of it has worked. One of the bigger steps taken though, was the decriminalization of all drugs in 1994, including hard drugs like cocaine. Now, in a further effort to curb trafficking, the Colombian government might take this decriminalization one step further with a bill saying Colombia will legalize cocaine.
In 2019, a bill was introduced by Colombian senators Feliciano Valencia and Ivan Marulanda as a new way to fight the war on drugs. The proposed legislation revolves around the idea that Colombia will legalize cocaine, and is a cocaine use and regulation bill which would move control of cultivation and production to the government (and away from cartels). The bill doesn’t specify a ban on exportation of the drug, but focuses more on cutting financing to cartels, just like Uruguay did with its legalization for recreational cannabis. It would also push for more scientific research into it. This bill comes about a year after the introduction of a bill for the legalization of cannabis recreationally.
To say that there is opposition to this bill is an understatement, but its not an impossibility. It also would NOT be the first country to do it. Back in 1988, Bolivia did the very same thing, passing Law 1008 which legalized the cultivation of coca and instated a regulated industry. This, of course, did not stop the US from trying to eradicate fields, and even led to Operation Naked King, a DEA sting operation as late as 2015 targeting Evo Morales, the Bolivian president who drove the DEA out of Bolivia in 2008. Not only is there opposition, but as Bolivia shows, the US makes such a move a rather risky one, and calls into question whether there is a possibility at all that Colombia will legalize cocaine.
To shed more light on the current Colombian initiative, it wouldn’t just set up a regulated, government-run industry, it would actually require the government to buy all the coca grown, for redistribution for medical purposes. The idea would be for the government to buy the coca at market prices. If it seems like this would be incredibly expensive, consider that this move would cost Colombia approximately 2.6 trillion pesos ($680 million USD), whereas eradication programs actually cost four trillion pesos ($1 billion USD) annually. It’s essentially cheaper if the government buys it, rather than destroying it. This allows farmers to keep their businesses while bringing them into a legal market, and cuts down on deforestation by farmers in attempts to hide crops. The government would then provide raw materials to different industries for the production of baking flour, foods, teas, and other medicinal products.
To be clear, because of the decriminalization in 1994, personal use of cocaine, is actually legal, although a 2018 decree does give law enforcement the ability to confiscate it.
Getting people on board to accept cannabis legalizations has been an arduous task. This can be seen in the rejection of the removal of cannabis from schedule I of the UN’s Single Convention on Narcotic Substances, which just failed recently. So, the idea of selling the legalization of an even harder drug is no easy feat. Perhaps it is lucky for Colombia that Bolivia went first.
I tend to think that when these initiatives come up, they mean something, even if they originally fail. I don’t know if this bill will pass, but chances are that if this one doesn’t, the next one will. There is a drive and motivation to change how the industry works, to redistribute the cash flow, and to actually use the drug more efficiently. Just like with cannabis legalizations, it isn’t always the first effort that works, but once the idea has been initiated, you can be 99% sure that there will be a follow-through eventually. I’d say at this point, Colombia will legalize cocaine, its just a matter of when.
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There once was a time when cannabis was a popular medicinal substance carried in pharmacies across the U.S. and farmers were even given government incentives to grow hemp. Fast forward a few decades, marijuana drug became classified as a Schedule 1 substance. It is the most restrictive category for substances with “no currently accepted medical […]
I’ll be honest: history classes were never really my jam. I was more drawn to English, journalism and social sciences in college — and yet I always knew somehow I would eventually develop a deep passion for history.
And sure enough, it happened — starting with sprawling Ken Burns documentaries, moving forward with smart history podcasts and hitting me over the head more recently via Lin-Manuel Miranda’s musical theater masterpiece “Hamilton.”
While I spent my 20s in rock clubs and my 30s studying drug policy, I find myself in my 40s going back to explore the historical roots of these subjects and others. And like countless others before me, I’m learning how thrilling it can be to understand history and how impossible it is to fully comprehend the present or forecast the future without knowing what came before.
Cannabis history is a fascinating one, from ancient Chinese relics to the Anslingers and DeAngelos of the world. But many modern cannabis consumers are hardly aware of this rich history, and so here’s a lively lesson on three figures in cannabis history you may not know.
Raymond P. Shafer
Raymond P. Shafer was the 39th Governor of Pennsylvania, from 1967 to 1971. Before this son of a reverend became a national GOP leader, he was an Eagle Scout, high school valedictorian, Yale Law grad, naval intelligence officer, World War II veteran and Purple Heart recipient.
After Shafer’s gubernatorial term, President Richard Nixon appointed Shafer as chairman of the National Commission on Marijuana and Drug Abuse (later dubbed the Shafer Commission). And just think of the timing: Nixon was approaching peak anti-marijuana hysteria, having just signed the Controlled Substances Act, which “temporarily” categorized cannabis as Schedule I in anticipation of the Shafer Commission’s report.
But when Shafer presented the report — Marihuana, a Signal of Misunderstanding — to Congress in March 1972, the thoughtfully researched report written by politicos, physicians, psychiatrists, pharmacologists, educators and researchers actually recommended descheduling and decriminalizing cannabis.
This was monumental, and champions of drug policy reform cheered the report’s reasoned, common-sense recommendations. Nixon and important congressional subcommittees, however, ignored the report and moved forward with a War on Drugs that targeted people of color and ruined untold lives.
Margaret Mead was an author and cultural anthropologist known for her groundbreaking research (and resulting papers and books) on the role of sex in primitive cultures, as well as the debate surrounding race and intelligence.
Before becoming an internationally renowned academic, Mead was the daughter of a sociologist and a University of Pennsylvania professor, recipient of a masters and doctorate from Columbia University, assistant curator at the American Museum of Natural History in New York City and president of the American Association for the Advancement of Science.
In 1969, Mead testified to Congress that marijuana should be legalized, saying: “Marihuana is not harmful unless it is taken in enormous and excessive amounts. I believe that we are damaging this country, damaging our law, our whole law enforcement situation, damaging the trust between the older people and younger people by its prohibition, and this is far more serious than any damage that might be done to a few over-users, because you can get damage from any kind of overuse.”
Speaking truth to power, in 1969 no less. Impressive.
Dennis Peron was an entrepreneur and activist best known for radically changing medical marijuana laws in California and beyond.
Before Peron made drug policy history, he was raised in Long Island, New York, served in the Air Force in Vietnam and supported gay activist Harvey Milk in Peron’s newly adopted home of San Francisco.
Peron’s cannabis history is long, from his San Francisco Cannabis Buyers Club — the first dispensary in the U.S. — days to unsuccessful, legalization-centric bids for California Governor and U.S. President. But Peron, known as “the father of medical cannabis,” is best-known for organizing 1991’s Proposition P in San Francisco and helping to write 1996’s Proposition 215 statewide in California, the latter of which allowed the cultivation, possession and use of medical marijuana in the state — the first time such laws had been successfully passed in the modern world.
TELL US, who are your cannabis heroes?
Originally published in the print edition of Cannabis Now. LEARN MORE
There once was a time when cannabis was a popular medicinal substance carried in pharmacies across the U.S. and farmers were even given government incentives to grow hemp. Fast forward a few decades, marijuana drug became classified as a Schedule 1 substance. It is the most restrictive category for substances with “no currently accepted medical […]
Every day, patients around America use cannabis to treat everything from glaucoma to chronic pain to nausea from chemotherapy treatments. Yet even in places like California, which pioneered legal medical marijuana in 1996 and passed adult-use cannabis in 2016, hospital policy has not caught up with the law and cannabis remains officially barred from hospital premises across the country. The reason why should sound familiar: federal prohibition.
Hospitals in the United States are subject to federal regulations, and could stand to lose funding and the ability to serve patients if they break the federal law, even with something like a state-legal medication.
This conflict between state and federal law on cannabis use in hospitals has very real consequences. One woman, Jessica Assaf, wrote on Healthcare in America in January 2018 about the experience of watching her partner’s father die of colon cancer at Memorial Sloan Kettering Cancer Center in New York City.
“After two years of failed chemotherapy and radiation, this prominent New York City lawyer weighed 130 pounds and could no longer talk nor move,” she wrote. “Though this patient had a medical recommendation for cannabis use in New York and vaporized THC and CBD daily to manage his pain, he could not use his medicine while he was stuck in the hospital. Instead, he was administered fentanyl.”
The medical marijuana movement, in fact, has a history of pushing for cannabis use in hospitals. The legendary activist known as Brownie Mary brought the issue into the international spotlight after she was arrested for bringing pot brownies to people dying of HIV/AIDS in San Francisco’s hospitals in the 1980s. Forty years later, it might be legal for millions to purchase medical marijuana — but using it in hospitals remains as prohibited as ever.
California Pioneering the Fight for Cannabis Use in Hospitals
The first sign of progress in allowing cannabis use in hospitals came in September 2016, just north of San Francisco. In a 2-0 vote, with three members abstaining, the board of California’s Marin Healthcare District voted in favor of a resolution to study allowing patient cannabis use at Marin General Hospital, in the town of Greenbrae. A series of public forums were to be held to discuss the proposal.
However, in the three years since, the study has not been conducted and has effectively stalled.
The resolution was originally introduced by retired emergency room physician Dr. Larry Bedard, who had served on the California Medical Association cannabis task force that led to the association recommending legalization in 2011.
“We ought to be on the cutting edge for our patients, allowing them to openly and appropriately use medicinal cannabis,” Bedard told San Francisco’s KPIX at the time of the Marin resolution.
“This is something they know about,” said Shaw. “I think it’s time for Marin General to step up, because this is a revolution for better health… For goodness sake, help the patients! Save lives!”
However, Shaw’s comments apparently didn’t get through. In the three years since the Marin Healthcare District voted to study the issue, little has come of it. Reached for comment in Marin County by Cannabis Now, Bedard says the resolution has seen no progress.
“The hospital administrators basically said ‘C’mon Larry, it’s a Schedule I drug, the Trump administration would take away our Medicare provider number and we’d have to close,” Bedard tells us.
An attempted remedy at the state level in California has also failed. Last year, Senate Bill 305, the “Compassionate Access to Medical Cannabis Act,” unanimously passed both chambers of California’s Legislature. It would have prohibited healthcare facilities from interfering with a terminally ill patient’s use of medical cannabis. It was also dubbed “Ryan’s Law,” after Ryan James Bartell, a San Diego native who had died of pancreatic cancer in April 2018. But in October, it was “begrudgingly” vetoed by Gov. Gavin Newsom.
“This bill would create significant conflicts between federal and state laws that cannot be taken lightly,” Newsom wrote in a veto statement, noting that “health facilities certified to receive payment from the from the federal Center for Medicare and Medicaid Services must comply with all federal laws.”
But his statement also took aim at those federal laws. “It is inconceivable that the federal government continues to regard cannabis as having no medicinal value,” Newsom wrote, adding that this “ludicrous stance puts patients and those who care for them in an unconscionable position.”
Doctors Weigh In
Clearly, the stakes in this question are high due to the illegality of cannabis at the federal level. While 11 states have legalized adult-use cannabis and 33 states have legalized medicinal marijuana, the feds still hold significant sway over hospital policy.
First, as already noted, hospitals must be accredited through the federal Center for Medicare & Medicaid Services and “could be found to be in violation, lose federal funding, and face penalties” if they allow even state-legal cannabis use, according to a 2017 article in the peer-reviewed journal Hospital Pharmacy.
Second, clinicians are also prohibited from prescribing or providing cannabis in a hospital because it is not approved by the U.S. Food and Drug Administration.
“Yet, hospitals in more states are asked to create cannabis policies as voters decriminalize cannabis for medical use,” the authors Laura Borgelt and Kari Franson wrote in that same article. “There is no recognized supplier of medicinal cannabis, so hospitals are often asked to allow patients to bring in their own supply for their own use.”
But in a Kafkaesque twist, hospitals then risk running afoul of a guideline established by the Joint Commission, the national body that sets standards for medical facilities. Joint Commission Standard MM.03.01.05 states: “The hospital informs the prescriber and patient if the medication brought into the hospital by patients, their families, or licensed independent practitioners is not permitted.”
Borgelt and Franson note that some hospitals have considered that “cannabis policies that could adequately address this standard” and allow cannabis on its premises if it informs everyone involved that the cannabis is “not permitted.”
“But several questions remain,” the authors write. “For example, how is the product identified, how does the institution verify its integrity, and how is a federally illegal drug ‘permitted’?”
However, some doctors have taken a more laissez-faire approach to the issue of allowing cannabis in hospitals.
“I think there’s a legal question and an ethical question,” Dr. Benjamin Caplan, founder of the CED Clinic and a representative of the group Doctors for Cannabis Regulation, told Patient Safety Monitor Journal in 2019. “In order for doctors to best manage illnesses carefully, and to the best of our abilities, we must know as much as we can [about] what a patient is taking. But it’s very common for patients to sneak cannabis in back rooms or under the radar, which is really unfortunate for everyone. I think the hospital perspective should be embracing what patients find helpful.”
Emphasizing the ethical dimension, Caplan added: “To have cases where patients are having seizures in a hospital and they can’t get the medicine that they want (and find helpful) as an outpatient is a real cultural disconnect for the medical establishment. I think the solution is for people to not sneak around; the solution is for hospitals to open their arms to patients who find a medication helpful.”
Veterans Lack Access to Cannabis in VA Hospitals
The question of whether or not it’s allowed to use cannabis in a hospital is a particular concern for military veterans — many of whom use cannabis to treat PTSD, yet are more directly dependent on the federal government for their healthcare. The U.S. Department of Veterans Affairs has remained largely intransigent on the question of medical cannabis, despite growing pressure.
“Moving to make cannabis available through VA hospitals or other go-to sources of care is difficult,” the VA website notes. “Doctors at VA facilities aren’t just prohibited from prescribing marijuana: The drug is still listed as ‘Schedule I,’ so these health care professionals can’t even speak about it with their patients.”
Needless to say, if the VA won’t allow its doctors to prescribe cannabis, it’s certainly not allowing its patients to use cannabis on the premises of VA hospitals.
The Mayo Clinic & the Potential for Change
The most significant opening for allowing cannabis in hospitals appears to come from the Mayo Clinic, the national network of medical treatment and research facilities. The Mayo Clinic website recognizes that “medical cannabis has possible benefit for several conditions.”
It notes that three states — Arizona, Florida and Minnesota — have adopted some form of the “Right to Try Act,” allowing access to “investigational” treatments, potentially including cannabis, for people with life-threatening conditions who have exhausted approved treatment options.
In one of those states, the Mayo Clinic allows on-premises use: “Minnesota residents with a supply of medical cannabis from the Minnesota Medical Cannabis program may continue use during their Mayo Clinic visit or hospital admission.”
However, the Mayo Clinic is in a unique position as a not-for-profit organization with national renown and standing as a top research institute. While the Mayo Clinic receives a significant amount of federal funding and has a Medicare number, it appears willing to take the risk with the federal government. If other hospitals will follow remains to be seen.
TELL US, do you think patients should be allowed to use cannabis in the hospital?