then report the gross donations that it re- ceives and that is the figure on which the IRS will assess taxes. However, a collective may also serve a secondary function of giving care to patients. In a Tax Court case, the court con- cluded that the caregiving function of a Cali- fornia collective was a separate business in its entirety and the collective was allowed to take deductions in regard to that side of the busi- ness.21 Navigating the tricky waters of this industry is no easy feat. Businesses are ad- vised to seek the aid of both tax professionals as well those familiar with accounting in this industry. How States with Permitted Recreational Uses (Adult Use) Are Abiding with Feder- al Law Currently, seven states have permitted the adult use of cannabis22: Alaska, Oregon, Colo- rado, Washington, Nevada, Massachusetts, and Maine. The District of Columbia has also legalized adult use. However, the District is comprised predominantly of federal land, and it is against the law to possess or use on feder- al land. In 2018, California will become the eighth state to legalize adult use as voters ap- proved Proposition 64, the Adult Use of Mari- juana Act (AUMA). While the use of cannabis is already a very interesting legal issue, under this administration, adult use is going to be a hotly contested topic. The Cole Memorandum may still apply for adult non-medical users of cannabis. Howev- er, the same cannot be said for the Rohrabacher-Blumenauer amendment, which as discussed, is the only binding limitation on federal enforcement of cannabis law. This is because the amendment only applies to indi- viduals complying with state medical canna- bis laws. It does not discuss non-medical adult users. The Cole Memorandum was released after Colorado and Washington permitted adult use of cannabis. The Memorandum essentially (Continued from page 7) indicated that the federal government would not interfere with state-law-compliant cannabis activity so long as the enforcement priorities were being followed. As long as cannabis was not being advertised and sold to minors and it was not being shipped across state lines, it was not a target for federal enforcement. The Cole Memorandum merely serves as a guide and is not binding on this administration or prosecu- tors under the new administration. In short, non-medical adult users of marijuana are in direct violation of federal law and can be prose- cuted at any time. Other Challenges to the Industry Insurance: While getting a cannabis business insured is not the greatest challenge, as plenty of compa- nies do offer coverage in this industry, it is im- portant to treat this as any other business and get insurance. In fact, for those leasing proper- ties for their cannabis business, general liabil- ity insurance is essential. If the business sells edibles, vaporizers, etc., product liability insur- ance may be necessary to avoid the heavy cost of accidents. Cultivators and producers are gen- erally advised to also maintain general liability and products liability insurance as well. If the business has employees, workers’ compensation insurance would also be advised. In sum, operating a business in the cannabis industry comes with the same type of risks as, for instance, a fast food operation. Obtaining insurance is a necessary means of minimizing the financial risks that comes with owning and operating a business. Intellectual Property: One of the most significant challenges in this industry is creating a proprietary good that oth- ers cannot re-create for their benefit. Cannabis business owners cannot trademark or patent anything that is directly connected to cannabis, such as seeds or certain strains of cannabis, or manufactured goods or extracts made from can- nabis. The alternative approach has been to trademark the name or the logo of the compa- ny, which has its own set of challenges. A busi- (Continued on page 22) Page 21 Intersection of Federal and State Cannabis Law Spring/Summer 2017