🧾 $4.6M rides on whether a THC lemonade is hemp

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A Washington company made a lemonade with 100 milligrams of THC in it, sold it only through licensed cannabis stores, and is now telling the U.S. Tax Court the drink was hemp all along. About $4.6 million rides on that argument. Michigan has been paying since 2024 for a state lab to check the private labs, and it still isn't allowed to touch a sample. Nevada wants a lot more cannabis per test, and Germany's health minister picked the friendliest possible room to complain about 300 tons of imported flower.

🧾 The lemonade defense
🔬 Michigan's lab that can't hold a sample
🚗 Curbside, and a bigger sample
💊 Germany's 300 tons

Dogtown Pioneers makes Ray's Lemonade and Lil' Ray's under a Washington producer-processor license and sells them only to licensed cannabis stores. Business was good. Gross receipts grew from about $2.96 million in 2020 to $10.2 million in 2022. The IRS applied Section 280E to those three years, and because Dogtown is an S corporation, the bill went to its shareholders. On September 10th, Miller Nash filed petitions in the Tax Court for Raymond Kinney and Geyang Wu, Daniel Kinney, and Donna Auclair and Rodney Boast. Together they contest about $4.61 million in deficiencies, penalties and additions before interest. The headline argument is a clever one. A 12-ounce Ray's carries up to 100 milligrams of delta-9 THC, which the petitions put at about 0.03 percent of the drink by weight, water included. They put the 1.75-ounce Lil' Ray's at about 0.2 percent. Both sit under the 0.3 percent line in the hemp definition, so the petitions say the finished lemonade was hemp, and that any determination resting on the extract going into the mixing tanks got the wrong product. The hemp line is a dry-weight test, though, and the petitions answer that by pointing out that the IRS never measured anything, dry weight or otherwise, and never mentioned hemp at all. The argument I'd take more seriously is about bookkeeping. Dogtown's receipts stayed under the small-business ceiling that lets a company keep inventory under Section 471(c) the way its own books do. The IRS disallowed the entire payroll of the people who mixed, bottled and packed the drinks, about $2.6 million over the three years, plus roughly $6.9 million in other production costs. According to the petitions, the examiners called Dogtown's inventory method wrong without saying what should replace it and without changing a dollar of beginning or ending inventory. Cost of goods sold is the one place 280E can't reach. If the court holds that the IRS can't strip production wages out of it without actually changing a company's method, every small operator using 471(c) will want a copy of the opinion. The lemonade theory, meanwhile, only works looking backward. Once Section 781 applies in full on December 11th, anything over 0.4 milligrams of total THC per container falls outside hemp regardless of percentage. (U.S. Tax Court, Kinney & Wu v. Commissioner, No. 8550-26; Auclair & Boast v. Commissioner, No. 8551-26; Kinney v. Commissioner, No. 8552-26; The Marijuana Herald; Public Law 119-37, Section 781)

🏙️ Lewiston, Minnesota, has about 1,550 people and hasn't seen a new house built since 1993, so the same homeowners absorb every levy increase. The city is now looking at opening a dispensary of its own. City Administrator Ragini Varma told the Post Bulletin that nobody has talked to residents yet and a decision is months away. The example everyone points to is Anoka, whose city-run store has grossed more than $3 million since February and helped the council shave two points off next year's levy increase, down to 2.9 percent. Stephanie Rietz, who manages the Anoka store, mentioned one more advantage a private owner can't buy. A city pays no federal income tax, so 280E never comes into it. (MMJDaily; Post Bulletin)

📈 Green Thumb renewed its buyback Monday, up to $50 million over 12 months starting tomorrow. Since September 2023 it has bought back about 29.5 million shares for $203.4 million, more than $80 million of that this year. The company says it doesn't expect to borrow for the new program and isn't obligated to spend it. TerrAscend recently renewed a $10 million program of its own. A company that can't list on a U.S. exchange doesn't have many uses for spare cash that require nobody's permission, and buying back its own stock is one of them. (Green Thumb Industries release via Cannabis Business Times)

A big grower called Amber Middlebrook at ACT Lab in Lansing recently with a question she couldn't answer. He'd sent the same product to two labs and gotten back 26 percent THC from one and 31 from the other, and he wanted to know which was right. She told Kyle Kaminski of The 'Gander that some variation is unavoidable and a five-point spread is a problem. A grower who doesn't like his number can send the batch somewhere else, which the industry calls lab shopping, and nothing in Michigan's rules stops him. Buyers have had reason to wonder about the numbers since 2021, when testing problems at Viridis Laboratories led to the largest recall in the state's history, an estimated 64,000 pounds. The fix Michigan chose was a state reference lab that would set the benchmark and audit all 19 private labs against it. The state has funded it since 2024 and hired the brilliant Claire Patterson to run it. It still can't accept a sample, because cannabis is federally illegal and the Legislature has never given the lab explicit authority to possess it. SB 704 would do that. It passed the Senate 34 to 1 in March and has been sitting in a House committee since April. When Kaminski asked Middlebrook whether labs bear some responsibility for what their numbers do to the market, she said, "That's regulatory." I'm with her on that one, since you can't expect one private lab to police the other 18. Michigan's session ends December 31st, and a bill still in committee that day dies with it. (The 'Gander; Michigan Legislature, SB 704; Michigan Cannabis Regulatory Agency)

⚗️ Two medical patients in Maine got sick in late August after using a concentrate called Deep Sea, sold in 14-gram jars by Ganja World, a delivery service in the central part of the state. They complained to the Office of Cannabis Policy, which tested the product and found 7,970 parts per million of butane in one sample and 10,500 in a second taken from Ganja World's own facility. The adult-use program fails anything over 5,000. OCP has issued a patient advisory telling anyone with symptoms to call a doctor. (Maine Office of Cannabis Policy; MMJDaily)

🏷️ California's Department of Cannabis Control has a second comment window open until October 2nd on its group tagging rules, DCC-2026-03-R. AB 8 took the individual-tag requirement out of the statute last year, and DCC's proposal lets a cultivator carry a group of mature plants under one tag. The September 17th revisions make clear a group can mix strains. They also add three-day deadlines to log any move of a plant or group around the premises and any new tag assigned when plants start flowering. Pedro Molina of First Day Foundation, a youth services group, made the case against the change in Capitol Weekly on Monday. One tag per plant makes diversion harder to hide, he argued, in a state where DCC's own director has put the illicit share of consumption around 60 percent. It's a fair worry, and the revised text goes part of the way toward meeting it. Every group still sits in the state system with a location, a count and a date, and the new movement deadlines put more events on the record. What a regulator loses is the ability to follow one particular plant. That matters a great deal if diversion happens a plant at a time and much less if it happens by the harvest. (California Department of Cannabis Control, DCC-2026-03-R; Capitol Weekly commentary)

Nevada's Cannabis Compliance Board has two packages up for a public hearing on October 15th at 9 a.m., with written comments due by 5 p.m. the day before. The one shoppers will notice is R103-26. Right now a curbside order has to be placed before you pull in. The proposal drops that, so you could order from the parking lot, though you'd still have to stay in the car. The same package relaxes warning requirements on business-name and logo signs and requires signed compliance attestations for flavorings and terpenes bought from outside suppliers. It also sets one liquid-asset floor for applicants: $200,000 for a retail store or independent consumption lounge and $250,000 for everything else. R104-26 is the one labs and growers will read twice. It carries out SB 157 from 2025 by raising the minimum testing sample from 10 grams to 60, split into 20 grams to test, 20 held for any retest and 20 kept on file. Think of it as keeping a spoonful of every batch of soup in the fridge. If a potency or contaminant result gets disputed, it gets settled on the same material that was first tested. Nobody has to pull a fresh sample days later from another part of the harvest, which is the exact fight Michigan has no one to referee right now. Growers give up 50 more grams per batch, though passing retest and retention portions can go back to the cultivator in some cases. Missouri's own curbside rule closes for comment October 1st. (Nevada Cannabis Compliance Board, Notices of Intent to Act Upon R103-26 and R104-26; The Marijuana Herald)

🏛️ Virginia's Cannabis Control Authority put prices on its adult-use licenses in the 82-page draft it showed its board September 9th. A standalone store would pay $4,000 to apply, $20,000 when authorized and $15,000 a year to renew. Fees scale down for microbusinesses ($1,000, $2,500 and $6,000) and up for the five Tier V grows, each capped at 35,000 square feet ($7,500, $50,000 and $45,000). Impact applicants could have those fees reduced or waived. The draft allows delivery but bars curbside pickup and the drive-thrus some medical dispensaries run today. It caps a purchase at two ounces of flower, eight grams of concentrate or 800 milligrams of THC in edibles, and keeps stores 1,000 feet from hospitals, schools, colleges and child day programs. The friction showed up at the board meeting. New licenses won't issue until May, and growers told the board that cultivating, drying, curing, processing and testing a crop takes at least four months, Axios Richmond's Karri Peifer reported. That puts their first harvest past the July 1st opening, while the medical operators paying the $10 million dual-use fee already have plants in the ground. CCA expects to finalize the rules in December and open applications by February 1st. Since HB 30 set the July date, only the General Assembly can move it. (Axios Richmond; MJBizDaily; Virginia Cannabis Control Authority draft regulations)

📊 An eighth in Ohio runs almost $30 at the median, according to Weedbuddy's price tracking, the highest of the eight states it follows. In Michigan it's about $20. Nevil Patel, whose company Shangri-La grows and sells in five states including Ohio, told Spectrum News 1 that Ohio buyers still drive north for it, legal or not. He also said a good number of Ohio cultivators are expanding capacity two or three times over. Kate Ols of Standard Wellness pointed to the rulebook: Ohio has fewer licenses than Michigan and wants to see your packaging, product names and ingredients before anything reaches a shelf. (Spectrum News 1; Weedbuddy)

⚖️ Hemp businesses took their complaints about Ohio's enforcement to a Statehouse news conference Monday, The Blade's Danny Eldredge reported. SB 56, in effect since March, pulled most intoxicating hemp off store shelves. It also cut the THC limit for adult-use marijuana extracts from 90 percent to 70, while letting the Division of Cannabis Control raise it again. Wes Bryant of 420 Craft Beverages, one of the plaintiffs holding a federal injunction against the hemp provisions, said his customers are being pulled over and their product seized while dispensaries sell concentrates over the new cap. "Those rules have to mean something, and they have to be applied fairly," he said. Greg Wagoner, a Toledo attorney with Shumaker, Loop & Kendrick, presented a Gravitas Investigations sweep from May. It found all 30 in-person dispensary purchases above 70 percent, and products averaging 89.7 percent potency across all 210 active dispensaries. The Division's answer is that SB 56 didn't automatically rewrite the 90 percent limit already in its rules from Issue 2, so it let licensees keep selling products it had already approved. A new rule setting the limit at 90 percent cleared the Joint Committee on Agency Rule Review in May and takes effect October 5th. David Bowling of the Ohio Cannabis Coalition called the double-standard charge false and pointed back at untested hemp. Letting approved products stay on shelves while a rule catches up is ordinary regulatory practice, and I'd have done the same. What's harder to explain to a hemp processor is why the state spent seven months giving one industry the benefit of the doubt on SB 56 while his deliveries were getting stopped on the highway. (The Blade; Ohio Division of Cannabis Control)

🗳️ Pennsylvania Senate Democrats are holding a policy hearing Friday at 1 p.m. at the DoubleTree in Philadelphia, titled "Adult-Use Cannabis: Criminal Justice, Safety & Economic Impacts." Committee chair Sen. Nick Miller and Sen. Sharif Street are running it. Street's legalization bill with Republican Sen. Dan Laughlin, SB 120, has been parked in Laughlin's own Law & Justice Committee, and every Senate Democrat has signed Street's resolution to discharge it. A minority caucus's policy committee can hold a hearing and not much else. Governor Josh Shapiro is on the ballot November 3rd against Stacy Garrity, who has said she'd veto legalization, so Friday's audience is partly the electorate. SB 120 still moves only when Laughlin calls it up. (Marijuana Moment; Pennsylvania Senate Democratic Policy Committee)

💵 Rep. La Shawn K. Ford filed HB 5815 on Thursday, and it takes a different approach from most equity programs. His Illinois Freedom Program would send cash directly to people disproportionately affected by past cannabis enforcement. It would sit under Restore, Reinvest, and Renew, with the R3 Board and the Illinois Criminal Justice Information Authority writing the rules on who qualifies and how much they get. It would be paid from growth in cannabis tax revenue, with a guarantee that R3 grants don't fall below base-year levels. It would take effect July 1st, 2027, and Ford is running this fall for the congressional seat Danny Davis is leaving. Enforcement hasn't stopped in the meantime. The Marijuana Policy Project's April report counted 5,666 Illinois possession arrests last year and the highest arrest rate of any legal state. MPP ties much of that to the rule that cannabis in a car must sit in a sealed, odor-proof container, a Class A misdemeanor if it doesn't. A fix, SB 42, passed the Senate in 2025 and, as of MPP's report, hadn't had a House vote. (Marijuana Moment; Illinois General Assembly, HB 5815; Marijuana Policy Project, 2026 Cannabis Arrest Report)

Carsten Linnemann picked his audience well. Speaking to the German Pharmacy Congress in Munich on September 15th, the federal health minister said his ministry expects medical cannabis flower imports to hit 300 tons this year, roughly ten times what Germany imported three years ago. Much of it, he said, has more to do with getting high than with medicine. He wants the Bundestag to pass a bill it has had since late last year. It would require an in-person visit with a doctor before anyone gets a flower prescription and would end mail-order delivery of flower. That would shut down the model the big telemedicine platforms built after the 2024 law, where a patient fills out an online questionnaire, gets a private prescription, and a pharmacy ships the jar. The pharmacists in the room, who fill prescriptions over the counter, would pick up much of that business. His number holds up, for what it is. BfArM's corrected first-quarter figure was 67.6 tons, revised up from 50.5, and four quarters at that pace comes to about 270, so 300 isn't a stretch. An import total can't tell you who is using the flower or why, though. Linnemann also cited a July study in Deutsches Ärzteblatt International by Jakob Manthey and colleagues, which found cannabis-specific hospital admissions up 5.6 percent for adults and 14.9 percent for adolescents after the 2024 law. The authors say their design can't establish cause, and the data don't separate prescribed cannabis from any other kind. No vote is on the calendar. When one comes, I'd expect the in-person requirement to survive and the mail-order ban to pick up an exception for patients who can't easily get to a pharmacy, because those are the witnesses no legislator wants to be seen arguing with. (Hanf Magazin; Apotheken Umschau; Federal Ministry of Health; Deutsches Ärzteblatt International)

📢 FDA is getting ready to test how it talks about cannabis. On September 14th the agency posted notice that it intends to give the Reagan-Udall Foundation a sole-source contract covering 16 projects, one of them called Cannabis Public Health Message Testing. The draft statement of work has the foundation running consumer focus groups and interviewing health care providers. It would then write and test messages on potency, formulations, manufacturing and health effects, with adolescents, young adults, pregnant and breastfeeding women and older adults singled out for attention. The work ends with a white paper proposing a communications framework for FDA and HHS. The contract would run from September 30th to September 29th, 2027, and other organizations had until yesterday to say they could do the job. By law the foundation can't advise FDA on specific regulatory policy, so what comes back is tested language, and whether any of it ever reaches the public is up to FDA. (The Marijuana Herald; FDA contracting notice FDASSOC136354)

💼 LEEF Brands, the California concentrate company, added Hirsh Jain to its board Monday as an independent director. Jain founded Ananda Strategy after stints at Airbnb and McKinsey, and he has been advising LEEF on interstate commerce, exports and expansion. CFO Kevin Wilson came off the board to make room and keeps his job. That leaves independents holding three of five seats and the audit and compensation committees fully independent, the governance a company builds when it's thinking about a major U.S. exchange. The more interesting line sits near the bottom of the release, where LEEF says it has filed DEA registration applications across its California and Nevada licenses and is preparing its operations for export markets. Jain has argued for a while that interstate trade is more likely to arrive through lawsuits, reciprocity deals between states and regional compacts than through one act of Congress. LEEF is building Salisbury Canyon Ranch, its biggest farm, on roughly that bet, and the man who made the argument now gets a vote on it. (LEEF Brands release via GlobeNewswire)

📰 A couple of notes from our end. High Times ran Sunday's piece on why an eighth costs $15 in Washington and $52 in Kentucky, with our permission, and I'm glad it found a bigger audience. I also made the Global Top 200 Cannabis Consultants directory again this year, which is really a credit to the clients who keep bringing us their hardest problems. (High Times; Access Newswire)

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