January 2015 - Arizona Medical Marijuana Law

IRS Prepares to Audit, Raid Dispensaries

The Leaf Online: “A byzantine legal memo of potentially disastrous implications has been released by the Internal Revenue Service, articulating a new theory of the tax code which could result in punitive audits, crippling tax bills and even federal raids for state-legal cannabis retailers — though, curiously, not necessarily for growers. The federal memo [Warning: extremely esoteric — Ed.], released on January 23rd, poses an existential threat to state-legal dispensaries and adult-use retail stores which have heretofore operated under the largesse of US Tax Court decisions like Californians Helping to Alleviate Medical Problems, Inc. v. Commissioner of Internal Revenue“

By On the Net|2015-01-28T22:07:54-07:00January 28th, 2015|Stories & Articles, Tax Issues|Comments Off

Proposed DUI Bill Targets Medical-Cannabis Users With “Inactive” Metabolites

Phoenix New Times: “A few Republican lawmakers are trying to sneak past the Voter Protection Act with a draconian DUI bill that targets the state’s medical-marijuana users. State Representative Sonny Borrelli, R-Kingman, is the prime sponsor of HB 2273, a bill that could result in DUI convictions for medical-cannabis users who aren’t impaired while driving. Borrelli’s bill would reverse an Arizona Supreme Court ruling in April 2014 that prohibits DUI convictions based solely on the presence in the bloodstream of a marijuana compound known to be incapable of causing impairment.”

By On the Net|2017-02-04T07:38:58-07:00January 28th, 2015|AZ Legislation, Stories & Articles|Comments Off

IRS Limits Deductions For State-Legal Marijuana Businesses

Forbes.com: Internal Revenue Code “Section 280E provides that ‘no deduction is allowed for any amount incurred in a business that consists of trafficking in controlled substances.’ Because marijuana finds itself on Schedule I of the Controlled Substances Act, the IRS has the ammunition necessary to deny the deductions of any facility that sells the drug. And it does. Regularly. On Friday, the IRS released Chief Counsel Memorandum 201504011, which sheds some interesting new light on what expenses a seller of marijuana businesses may and may not deduct, but in order to understand the memo’s impact, we’ve got to take a tour through several Internal Revenue Code provisions – namely Sections 61, 471, and 263A — and understand how they interplay with Section 280E.”

The following questions and answers are from Chief Counsel Memorandum 201504011:

(1) How does a taxpayer trafficking in a Schedule I or Schedule II controlled substance determine cost of goods sold (‘COGS’) for the purposes of §280E of the Internal Revenue Code (‘Code’)?

(2) May Examination or Appeals require a taxpayer trafficking in a Schedule I or Schedule II controlled substance to change to an inventory method for that controlled substance when the taxpayer currently deducts otherwise inventoriable costs from gross income?

CONCLUSION

(1) A taxpayer trafficking in a Schedule I or Schedule II controlled substance determines COGS using the applicable inventory – costing regulations under §471 as they existed when §280E was enacted.

(2) Yes, unless the taxpayer is properly using a non-inventory method to account for the Schedule I or Schedule II controlled substance pursuant to the Code, Regulations, or other published guidance.

By On the Net|2015-01-27T07:41:00-07:00January 27th, 2015|Stories & Articles, Tax Issues|Comments Off

Medbox Founder Comments on Class Action Lawsuit

Vincent Mehdizadeh, founder and majority shareholder of Medbox Inc. issued the following statement about the Josh Crystal vs. Medbox, Inc. lawsuit:

“I just wanted to clarify that one lawsuit was filed and announced on the company’s ticker without, to my knowledge, obtaining the company’s consent. Thereafter, 8 different Plaintiff’s firms, or potentially just referral services, announced that same lawsuit, again without seeking the company’s permission in citing the company’s ticker symbol, in an effort to further solicit clients. It’s a shame that we live in a ‘sue first and get clients later’ type of world but that is the reality,” stated Vincent Mehdizadeh, Founder and Majority Shareholder at Medbox. “I was personally sued in the lawsuit and I can safely say that the allegations contained in the complaint are not accurate. During my tenure with the company I personally witnessed a very supportive shareholder base and I still believe the same holds true to this day. In addition, I will be personally engaging an independent public company accounting firm, on my own, to review prior periods as stated and address GAAP compliance, materiality, and fight this suit vigorously. Although this is not a formal company response on the matter, I needed to set the record straight and now I have.”

By On the Net|2017-02-04T07:38:58-07:00January 25th, 2015|Medbox, Stories & Articles|Comments Off

Colorado Governor Says Legalizing Pot was a Mistake

The Hill: “Colorado’s decision to legalize marijuana was a bad idea, the state’s governor said Friday. Gov. John Hickenlooper, a Democrat who opposed the 2012 decision by voters to make pot legal, said the state still doesn’t fully know what the unintended consequences of the move will be.”

By On the Net|2015-01-24T09:34:34-07:00January 24th, 2015|Colorado News, Stories & Articles|Comments Off

Medbox Sued in Class Action Lawsuit

In Josh Crystal vs. Medbox, Inc. (MDBX), Medbox and several of its current and former officers and directors were sued in a class action lawsuit filed in the U.S. District Court for the Central District of California. Also named as a defendant in the lawsuit are Pejman Vincent Mehdizadeh, Bruce Bedrick, Thomas Iwanski, Guy Marsala and Douglas Mitchell. Here are some interesting allegations from the Complaint:

1. This is a securities class action on behalf of all purchasers of the common stock of Medbox between November 20, 2013 and December 29, 2014 . . . .

3. Medbox was founded in 2010 by Defendant Pejman Vincent Mehdizadeh (“Mehdizadeh”), a mid-30s aged Iranian immigrant with a checkered history of business failures and criminal conduct, including grand theft in 2013. At the start of the Class Period on November 20, 2013, Defendant Mehdizadeh was Medbox’s controlling shareholder, owning approximately 65% of its common stock, and served as the Company’s Chief Operating Officer(“COO”) and Chairman of its Board of Directors (“Board”). . . .

4. During the Class Period, Defendants issued materially false and misleading statements regarding the Company’s financial results for the fiscal year ended December 31, 2013 (“FY 2013”) and each of the interim financial periods ended September 30, 2013 (“3Q 2013”), December 31, 2013 (“4Q 2013”), March 30, 2014 (“1Q 2014”), June 30, 2014 (“2Q 2014”) and September 30, 2014 (“3Q 2014”). Specifically, Defendants overstated Medbox’s revenues . . . .

13. Thereafter, on October 31, 2014, the Company disclosed that it had appointed a special board committee to investigate a letter from a former Company employee to the SEC “alleging wrongdoing by a former officer of the Company who
[was] a consultant to the Company” and that “a federal grand jury document subpoena [had been] served in August 2014 on the Company’s accountants by the U.S. Department of Justice….” . . . .

17. Finally, on the morning of December 30, 2014, . . . . The Company further disclosed that the earnings restatement had triggered a default on its debt covenants that had forced it to seek a forbearance from lenders. . . .

33. Defendant Mehdizadeh has a checkered history of business failures and criminal convictions, including grand theft in 2013. Specifically, in 2013, Defendant Mehdizadeh pled no-contest to a 15-count criminal complaint that was filed against him relating to a law firm Defendant Mehdizadeh managed as a
non-lawyer. Defendant Mehdizadeh received probation and agreed to pay $450,000 as part of a plea agreement. Defendant Mehdizadeh also declared bankruptcy in July 2010, which was discharged in 2011. . . .

35. At the start of the Class Period, Mehdizadeh owned approximately 65% of Medbox’s common stock and is still “the beneficial owner of the majority of the voting power of the Company[,]” owning or controlling approximately 58% of the Company’s outstanding shares, according to the Schedule 14C Mehdizadeh filed, or caused to be filed, with the SEC on or about January 9, 2015. . . .

Several law firms have jumped on this bandwagon. See:

Rosen Law Firm Announces Filing of Securities Class Action Against Medbox, Inc.

LEVI & KORSINSKY, LLP Notifies Investors of Class Action Against Medbox, Inc. and Its Board of Directors and a Lead Plaintiff Deadline of March 23, 2015

Rigrodsky & Long, P.A. Announces A Securities Fraud Class Action Lawsuit Has Been Filed Against Medbox, Inc.

Johnson & Weaver, LLP Files Class Action Suit against Medbox, Inc.

Washington Growers Struggle with Glut of Legal Weed

Associated Press: “Washington’s legal marijuana market opened last summer to a dearth of weed. Some stores periodically closed because they didn’t have pot to sell. Prices were through the roof. Six months later, the equation has flipped, bringing serious growing pains to the new industry. A big harvest of sun-grown marijuana from eastern Washington last fall flooded the market. Prices are starting to come down in the state’s licensed pot shops, but due to the glut, growers are — surprisingly — struggling to sell their marijuana.”

Arizona Medical Marijuana Act 2014 End of Year Report

The Arizona Department of Health Services issued its 2014 annual report with statistics about the state of medical marijuana use in Arizona. See the Arizona Medical Marijuana Act 2014 End of Year Report.

For more read the Arizona Capital Times story called “Arizona patients consumed 10 tons of medical marijuana in 2014.” The story starts with:

Arizona’s more than 63,000 medical marijuana patients ate, drank or smoked more than 10 tons of the drug last year. . . . It comes out, on average, to the equivalent of one joint per patient per day, though clearly some are using more and some are using less. And figuring an estimated price of $350 an ounce, that means Arizonans spent about $112 million on marijuana.

A new report Thursday from the Arizona Department of Health Services also finds:

85 dispensaries were up and running last year;

– More than two thirds of qualifying patients are male;

– The average patient made 17 transactions during the year.

Mehdizadeh to Replace Medbox Execs, Board

Los Angeles Business Journal: “Vincent Mehdizadeh, founder and majority shareholder of West Hollywood’s Medbox Inc., notified investors Friday that he will replace the marijuana dispensing company’s board of directors, its chief executive and its chief financial officer. It’s just the latest in a string of dramatic moves Mehdizadeh has made over the past year.”

Medical Marijuana a Challenge for Legal Pot States

Yahoo News: “A year into the nation’s experiment with legal, taxed marijuana sales, Washington and Colorado find themselves wrestling not with the federal interference many feared, but with competition from medical marijuana or even outright black market sales. In Washington, the black market has exploded since voters legalized marijuana in 2012, with scores of legally dubious medical dispensaries opening and some pot delivery services brazenly advertising that they sell outside the legal system.”

Chefs Challenge: Making Pot Taste Good

Seattle Times: “Cooking with pot faces two big problems: It’s hard to control how high people get when they eat marijuana, and it really doesn’t taste that good. Recreational marijuana is both illegal and controversial in most of the country, and its relationship to food does not rise much above a joke about brownies or a stoner chef’s late-night pork-belly poutine. But cooking with cannabis is emerging as a legitimate and very lucrative culinary pursuit.”

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