Ep. 388: Bob Hoban

Cannabis Economy Podcast
Ep. 388: Bob Hoban

Ep. 388: Bob Hoban

Bob Hoban returns and shares possible ways forward: “Now, you go forward with the excise tax. That’s an example of how the federal government might swallow this legalization notion better. Because, all of a sudden, the dollars that would disappear because the 280E exception, under tax law, prohibits companies from taking the vast majority of expense deductions.”

Transcript:

Seth Adler: Bob Hoban returns. Welcome to Cannabis Economy. I'm your host, Seth Adler. Download episodes on canneconomy.com. That's two Ns in the word economy. First a word from Evolab, and then Bob Hoban.

Speaker 2: The other real cool thing, we did do an agreement with [Dr. Ben Cohen 00:00:18], who's a pain specialist, that is helping us design a pain formulation cream that will be used for athletes. I don't know if you are aware that ... Obviously, I mean, this was I guess kind of old news, but WADA and USADA has both taken CBD off of the list of prohibited use items. So, we're going very heavily now after pain products for athletes, and Dr. Ben's going to help us with that project, as well.

Bob Hoban: Bob Hoban, Hoban Law Group.

Seth Adler: Here I am, back at Hoban HQ.

Bob Hoban: That's right.

Seth Adler: Yeah. Thanks for having me.

Bob Hoban: Welcome to Denver, Colorado.

Seth Adler: Congratulations on the Eagles.

Bob Hoban: It's a big victory. We worked hard all year. I was in the weight room since before you can imagine.

Seth Adler: And, we did it, right?

Bob Hoban: That's right.

Seth Adler: I don't if this was ... Because, you kind of moved offices here. Was the Pete Rose in Philadelphia Phillies uniform and signed picture in the other office?

Bob Hoban: It was, it was indeed.

Seth Adler: I must have missed it.

Bob Hoban: Yeah. We're going to have to get a Nick Foles picture in here soon.

Seth Adler: Yeah. Is he also number 14?

Bob Hoban: No, he's number nine.

Seth Adler: Okay. Yeah.

Bob Hoban: Superbowl MVP.

Seth Adler: These are things you know.

Bob Hoban: That's right.

Seth Adler: Yeah. There's other things you know. We want to make sure to kind of cover them. First things first, we had a little bit of a change here as far as the Attorney General rescinding the Cole and Ogden Memos.

Bob Hoban: Yep.

Seth Adler: I just wanted to get your sense, as an attorney, as a guy that's been in the industry for quite some time.

Bob Hoban: Right.

Seth Adler: When that happened that morning, I think it was the Thursday of the first week of January, what were your immediate thoughts?

Bob Hoban: It was January 4th.

Seth Adler: Yes, it was.

Bob Hoban: I remember it like it was yesterday.

Seth Adler: There we go.

Bob Hoban: No, this was ... Let's put it this way, the Attorney General is right.

Seth Adler: Yes, he is. Sadly.

Bob Hoban: The Attorney General ... The US Attorney, Jeff Session, is charged with enforcing federal law.

Seth Adler: Mm-hmm (affirmative). He's been saying that all along.

Bob Hoban: All along. He's right that, guess what? Congress has to act.

Seth Adler: Mm-hmm (affirmative)

Bob Hoban: We can't continue to blame someone like Jeff Sessions, although his policies are not something that I agree with, and I think most of the industry I think would disagree with.

Seth Adler: Sure.

Bob Hoban: But-

Seth Adler: Most of the voters, as well.

Bob Hoban: Correct.

Seth Adler: Yeah.

Bob Hoban: At the end of the day, he's correct about this in that Congress needs to act. At some point, they need to act beyond simply passing these stop gap spending mechanisms where they say, "Department of Justice can't do this, or can't do that with their dollars."

Seth Adler: Bob Hoban returns. Welcome to Cannabis Economy. I'm your host, Seth Adler. Download episodes on canneconomy.com. That's two Ns in the word economy. First a word from Evolab, and then Bob Hoban.

Speaker 2: The other real cool thing, we did do an agreement with [Dr. Ben Cohen 00:00:18], who's a pain specialist, that is helping us design a pain formulation cream that will be used for athletes. I don't know if you are aware that ... Obviously, I mean, this was I guess kind of old news, but WADA and USADA has both taken CBD off of the list of prohibited use items. So, we're going very heavily now after pain products for athletes, and Dr. Ben's going to help us with that project, as well.

Bob Hoban: Bob Hoban, Hoban Law Group.

Seth Adler: Here I am, back at Hoban HQ.

Bob Hoban: That's right.

Seth Adler: Yeah. Thanks for having me.

Bob Hoban: Welcome to Denver, Colorado.

Seth Adler: Congratulations on the Eagles.

Bob Hoban: It's a big victory. We worked hard all year. I was in the weight room since before you can imagine.

Seth Adler: And, we did it, right?

Bob Hoban: That's right.

Seth Adler: I don't if this was ... Because, you kind of moved offices here. Was the Pete Rose in Philadelphia Phillies uniform and signed picture in the other office?

Bob Hoban: It was, it was indeed.

Seth Adler: I must have missed it.

Bob Hoban: Yeah. We're going to have to get a Nick Foles picture in here soon.

Seth Adler: Yeah. Is he also number 14?

Bob Hoban: No, he's number nine.

Seth Adler: Okay. Yeah.

Bob Hoban: Superbowl MVP.

Seth Adler: These are things you know.

Bob Hoban: That's right.

Seth Adler: Yeah. There's other things you know. We want to make sure to kind of cover them. First things first, we had a little bit of a change here as far as the Attorney General rescinding the Cole and Ogden Memos.

Bob Hoban: Yep.

Seth Adler: I just wanted to get your sense, as an attorney, as a guy that's been in the industry for quite some time.

Bob Hoban: Right.

Seth Adler: When that happened that morning, I think it was the Thursday of the first week of January, what were your immediate thoughts?

Bob Hoban: It was January 4th.

Seth Adler: Yes, it was.

Bob Hoban: I remember it like it was yesterday.

Seth Adler: There we go.

Bob Hoban: No, this was ... Let's put it this way, the Attorney General is right.

Seth Adler: Yes, he is. Sadly.

Bob Hoban: The Attorney General ... The US Attorney, Jeff Session, is charged with enforcing federal law.

Seth Adler: Mm-hmm (affirmative). He's been saying that all along.

Bob Hoban: All along. He's right that, guess what? Congress has to act.

Seth Adler: Mm-hmm (affirmative)

Bob Hoban: We can't continue to blame someone like Jeff Sessions, although his policies are not something that I agree with, and I think most of the industry I think would disagree with.

Seth Adler: Sure.

Bob Hoban: But-

Seth Adler: Most of the voters, as well.

Bob Hoban: Correct.

Seth Adler: Yeah.

Bob Hoban: At the end of the day, he's correct about this in that Congress needs to act. At some point, they need to act beyond simply passing these stop gap spending mechanisms where they say, "Department of Justice can't do this, or can't do that with their dollars."

Seth Adler: We're talking about Blumenauer now, Rohrabacher amendment.

Bob Hoban: Correct.

Seth Adler: Right? Which is part of the budget which protects medical cannabis. Fantastic.

Bob Hoban: Exactly.

Seth Adler: But, we gotta do more, is the point.

Bob Hoban: That's correct. I think that the fallout from that, if you will, is kind of two-fold. First of all, I think it may have back-fired, in that we saw Republicans, like Cory Gardner ...

Seth Adler: Yes.

Bob Hoban: ... a Senator in the state of Colorado ...

Seth Adler: Who does need to get elected again, by the way.

Bob Hoban: He does, he does.

Seth Adler: I was watching him shout and thinking, "Why would he be shouting so loud?"

Bob Hoban: Well, at the end of the day, while Cory may not be aligned with marijuana business philosophy, the thing that all Republicans could and should get their mind around, is that this is a state's rights.

Seth Adler: Indeed.

Bob Hoban: This is a jobs and an economy issue.

Seth Adler: Forgetting personal liberty. Right?

Bob Hoban: Exactly, exactly. Forget about that one, for a moment. At the end of the day, when you look at those things, this should open up and the federal legislators should do what the states want them to do. Not dictate it the other way around.

Seth Adler: Right.

Bob Hoban: Now, the other thing that I think is really interesting, as the fallout to this, is it may have stalled institutional investment that was coming into this industry.

Seth Adler: It certainly did. That's what I'm hearing. Everybody I've spoken to ... Operators, any one alike, is saying, "Yes, this absolutely slowed investment, without question. This killed deals in the moment."

Bob Hoban: But, institutional investment, and that was the target.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: So, I was in Washington, D.C. shortly after this, and talking with people that know certain circles.

Seth Adler: Okay.

Bob Hoban: And, what they've been told, is this was Jeff Sessions acting in manner to sort of slow down ... Quote, unquote, under his watch ... the institutional investment into this industry. But, what it's done though, is it's emboldened and put other folks ... Private equity firms, family offices, wealthy individuals in a position that is, as long as they have a risk tolerance for this type of industry, that they can become kingmakers.

Seth Adler: Right. And, still ...

Bob Hoban: So, the money's not not flowing in, it's just not coming from those sources that were nibbling and getting in more, and more, and more ... Which would have made a dramatic change to this industry from its funding perspective.

Seth Adler: Interesting. So, when I spoke to Jim Cole the day after, on January 5th.

Bob Hoban: Yes.

Seth Adler: He said, "When we wrote these memos, when we put this together, always the better option was the legislature acting."

Bob Hoban: Yes.

Seth Adler: "We still have the Controlled Substances Act. Cannabis still is federally illegal."

Bob Hoban: Mm-hmm (affirmative).

Seth Adler: Understanding that you're in certain circles, I think you just mentioned, or at least have access to certain circles ...

Bob Hoban: Sure.

Seth Adler: ... in Washington, D.C., what do you think is feasible, is possible, in terms of any sort of vote in 2018?

Bob Hoban: Well, I think there has to be a vote, at least as it relates to the budget. This may have backfired, as I said a moment ago, in the sense that, now that the vote on the spending is not limited to the previous Rohrabacher–Blumenauer, meaning not just limited to medical.

Seth Adler: Right.

Bob Hoban: That it probably gets extended to all of adult use, when all is said and done.

Seth Adler: But, there would have to be a different amendment though, right?

Bob Hoban: Well, correct. So, there's something called the McClintock-Polis amendment.

Seth Adler: Right.

Bob Hoban: Which, you roll those two things together ... I believe there was a legislator from California at the federal level that presented something that does that. So, those discussions will take place, but at the end of the day, we all talk about, "When's cannabis gonna be federally legal, and when are they gonna issue this excise tax, et cetera?" I'm not so sure that's going to happen. Frankly, I'm not so sure it's in the industry's best interest that that happens.

Seth Adler: Okay. Let me just slow you down here for a second.

Bob Hoban: Sure.

Seth Adler: 'Cause you're saying a lot, and I appreciate that.

Bob Hoban: Yeah.

Seth Adler: So, McClintock-Polis would be the adult-use kind of protections ...

Bob Hoban: Yes.

Seth Adler: ... that medical cannabis gets from Rohrabacher–Blumenauer. Now ...

Bob Hoban: Yes.

Seth Adler: We just jumped to federal excise tax, which would be, I think, connected to 280E. Correct?

Bob Hoban: Absolutely.

Seth Adler: Okay.

Bob Hoban: But, don't lose sight of the fact that the federal government was never prohibited, the Department of Justice was never prohibited, from enforcing against a retail or adult-use marijuana business in the United States. It has not been budget hamstrung by that to date.

Seth Adler: Of course.

Bob Hoban: So, he could have done something to date, and he hasn't. That's telling.

Seth Adler: Even with the Cole Memos. The Cole Memo's just guidance.

Bob Hoban: Correct.

Seth Adler: Right. Absolutely.

Bob Hoban: So, you have that. Now, you go forward with the excise tax ... And, that's an example of how the federal government might swallow this legalization notion better. Because, all of a sudden, the dollars that would disappear because the 280E exception, under tax law, prohibits companies from taking the vast majority of expense deductions.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: So, if I make $100, and I deduct 75 of those dollars, 'cause those are my expenses. I probably don't get to deduct the vast majority that I'm taxed on, almost at 100 whole dollars.

Seth Adler: Which means that, and I think you just said 100 whole dollars, but basically, the cannabis industry is taxed at 80% roughly.

Bob Hoban: Yes.

Seth Adler: Right?

Bob Hoban: Yes.

Seth Adler: So, if we take away 280E, then the federal government says, "Oh. Wait a second. What about all that money?" Hence, the excise tax.

Bob Hoban: Correct. So, how does the government get their cut, if you will.

Seth Adler: Mm-hmm (affirmative). Indeed.

Bob Hoban: Right?

Seth Adler: This is exactly ...

Bob Hoban: How did the [crosstalk 00:07:41].

Seth Adler: If I will. This is exactly what it is.

Bob Hoban: How did the Corleone family get their cut?

Seth Adler: Indeed, indeed.

Bob Hoban: Alright?

Seth Adler: Right.

Bob Hoban: So, at the end of the day, that needs to be figured out. Having an excise tax of some sort, whether that's applied and issued state by state, and delivered to the federal government, or as a national basis. Those are some details to be worked out.

Seth Adler: Right.

Bob Hoban: But, that insures that the federal government gets dollars in, because right now, I would suggest strongly ... I'm not saying my clients are doing this, but I would suggest very strongly that most companies take those deductions. And, they view it as an unfunded future tax liability. In other words, I would take those deductions, and upon the instance of an audit, then I would be prepared to pay those taxes plus those penalties.

Seth Adler: Huh.

Bob Hoban: But, I'm not going to give up those deductions today, because I can capitalize, and recapitalize, and build my business from here to this next level, and make additional dollars.

Seth Adler: That's interesting.

Bob Hoban: So, I think that's a tax strategy that, for better or for worse, most people in the cannabis industry use. So, they don't get their cut anyway.

Seth Adler: Yeah.

Bob Hoban: So, you might as well standardize it across the board.

Seth Adler: Oh, look at that. See, that's not ... because these microphones turn into public, I think most people don't tell me that on the microphones. That might not be something that I ... No. That might not be something that we've heard before.

Bob Hoban: Well, it's a fact as I understand it.

Seth Adler: Yeah.

Bob Hoban: It's certainly not something that we advise our clients to do.

Seth Adler: Sure.

Bob Hoban: But, we see it happen.

Seth Adler: Yeah. So, if that kind of activity is going on, why don't we just go ahead and do this excise tax, and everybody wins type of thing.

Bob Hoban: That's correct.

Seth Adler: Yeah.

Bob Hoban: But, here's the deal. Does federal legality ... Is that required for the excise tax? And, that's really the question.

Seth Adler: Certainly not.

Bob Hoban: Because, I like the fact that it is legal state, by state, by state. I don't believe that you should force this policy as a federal matter down states that don't want ...

Seth Adler: Nebraska. If you don't want it, you don't have to have it.

Bob Hoban: Correct.

Seth Adler: I'm with you on that.

Bob Hoban: Right.

Seth Adler: I have come all the way around on state's rights, because there used to be a dog-whistle associated with state's rights, associated to slavery. So, me growing up coming from the Left, and now I try to be in the center, and I'm almost apolitical at this point ... Almost. I'm like one step away. But, I'm pretty squarely in the center now.

Bob Hoban: Right.

Seth Adler: This has to do with the fact that we should not be able to tell you what to do, whether it's your body, whether it's your state. So, if your state ... If these voters in Colorado voted for it, they should have it.

Bob Hoban: Yes.

Seth Adler: Well, why would the federal government have something to say about that? I think folks like Thomas Jefferson might agree.

Bob Hoban: Correct. Well, this is where things get into the weeds, and I won't go there except to say, there's something called the Commerce Clause in our U.S. Constitution.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: Which basically allows the federal government to interfere with just about anything that touches commerce across the country, including things that touch on state's rights.

Seth Adler: Right.

Bob Hoban: But, with that said, if you let states do what they want within their boundaries, A: it creates a more robust industry. There's more jobs.

Seth Adler: Mm-hmm (affirmative). Certainly.

Bob Hoban: We don't have this economy of scale, where this ... For example, large cultivation facility in Nebraska that supplies the entire Western U.S.

Seth Adler: Right.

Bob Hoban: Instead, you have every state with a large supply facility. More jobs, more industry. It makes the industry more recognizable, and I think ... better, in the long run.

Seth Adler: Yeah. Yeah.

Bob Hoban: Now sure, it would be nice for business purposes to make that more efficient, but I'm okay with that. And, as long as that carries with it an exception to the Controlled Substances Act, because you're regulated in the state and that product stays within the state, then you've all of a sudden made it legal. But, only in places where the states want it to be legal.

Seth Adler: But, that still gives the Attorney General the opportunity to say it is federally illegal.

Bob Hoban: Mm-hmm (affirmative).

Seth Adler: And, he is still right. Right? Begrudgingly.

Bob Hoban: Well, not if they adopt a measure ... And, we've talked about this a lot in our ... quote, unquote, Make America Hemp policy.

Seth Adler: Oh, yes.

Bob Hoban: Which, we've engaged with the federal government on and with, but we talked about. And, we talked about it where we looked at the issue, and we said, "No matter what happens, something has to give, but the states should be able to do what they want. And, if they do it to a certain level of regulation, then that's an exception to the Controlled Substances Act."

Seth Adler: Yeah.

Bob Hoban: You don't have to change the Controlled Substances Act, you simply create an exception state, by state, by state. And, by the way, this is not ...

Seth Adler: Isn't that the Cole Memos?

Bob Hoban: Yeah. So, codify, adopt as statute, something akin to the Cole Memo. Absolutely.

Seth Adler: In the Legislature.

Bob Hoban: Yep.

Seth Adler: And, then we're done. Okay.

Bob Hoban: Then you're done.

Seth Adler: Perfect. You already brought up Hemp.

Bob Hoban: Yeah, and that eliminates the 280E, by the way, and also empowers the federal government to have some sort of excise tax. Or, by the way, maybe it's a tax that's imposed by the states, collected by the states, and shared with the federal government through some other mechanism.

Seth Adler: Okay. So, my whole grand plan of ... Repeal and replace the Controlled Substances Act, we don't necessarily need to do that.

Bob Hoban: We don't need to do that.

Seth Adler: Yeah.

Bob Hoban: And, it seems like a drastic measure.

Seth Adler: Yeah.

Bob Hoban: Not that it wouldn't solve a lot of problems in society.

Seth Adler: Indeed. Yes, it would.

Bob Hoban: But, it's a major, major step.

Seth Adler: You know what ... The repeal and replace the Controlled Substances Act? You know what you replace it with?

Bob Hoban: What?

Seth Adler: Nothing. You don't have to replace it with anything. It's silly.

Bob Hoban: That's right. Well, that's your newfound Libertarian streak.

Seth Adler: C'mon, baby. Alright. Now, let's go Make America Hemp Again.

Bob Hoban: Yep.

Seth Adler: Right? 'Cause I brought up Thomas Jefferson, you brought up the campaign.

Bob Hoban: Mm-hmm (affirmative).

Seth Adler: And, not I've been doing a little bit of research. I'm just going straight to it. We need a decorticator. We need a big one, and we need it right here in Colorado.

Bob Hoban: Darn right, darn right. So, let's talk about hemp processing overall.

Seth Adler: Let's do it.

Bob Hoban: There's not that many, in fact less than a handful, of large scale decorticators. And, for those listening, a decorticator basically separates the fiber on the outside of the plant material from the inside. It unzips the fiber, so that you can use that for rope, and textiles, and so forth, and so on. Then, the hurd that's left is a great building material, but it can also ... That's the building block. Cellulose, sugars, lignans for fuel, plastics, and a variety of other components. Not to mention, supercapacitor graphene. That's what comes from that part of the plant.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: You need that. You need large-scale processing facilities that clear seeds, that de-hole seeds, that press seed shells into protein powder. You need a counter-current reactor to extract those chemical components from the stalks of the plant.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: When are we gonna get that? We're gonna get that when we have a certain amount of biomass across the United States ...

Seth Adler: Yes.

Bob Hoban: ... that encourages big investment in multi-million dollar facilities to do that turnkey type processing solution. We're not there yet.

Seth Adler: Are we not ... Isn't this a chicken-and-egg type situation where ... To go back to the other side of the plant ...

Bob Hoban: Right.

Seth Adler: ... in the cannabis industry. We built the cannabis industry before there was the need for the cannabis industry. So, the investment did come in before it could be realized. Why would we say, "We need to build the hemp industry," ... Because, you can't get that much processing without ... Excuse me. You can't grow that much hemp without processing.

Bob Hoban: So, if you grow hemp ... You can grow limited quantities of hemp, and extract really high-potency levels of cannabinoids. CBD, for example.

Seth Adler: Indeed.

Bob Hoban: You can do that from the flowers, right now.

Seth Adler: Sure.

Bob Hoban: With simple extraction technology that's borrowed from marijuana, borrowed from the nutraceuticals industry. But, to bring that biomass on a scale where you're producing it for fiber and for seed, and for these chemical components that I talked about, you really need enough biomass to run these machines 18 hours a day, 6 days a week.

Seth Adler: So, what is that biomass? Give me an example of how many acres we need to plant in order for that to occur.

Bob Hoban: So, we're going on our fifth year of the farm bill. The first three years, it doubled. 3,000, 6,000, 12,000.

Seth Adler: Yes, sir.

Bob Hoban: We stumbled a little bit this year. This past year. And, got up around 20, plus or minus.

Seth Adler: Meaning, we didn't quite double.

Bob Hoban: Correct.

Seth Adler: I mean, that's still ridiculous growth.

Bob Hoban: Correct.

Seth Adler: Yeah.

Bob Hoban: And, proud to say, Colorado's far and away the leader of hemp production for now.

Seth Adler: Right.

Bob Hoban: And, this year we'll see probably 30 to 40,000 acres nationwide.

Seth Adler: Okay, okay.

Bob Hoban: I believe closer to 40. When you get to 60, 70, 80,000 acres ...

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: ... then you're going to see big investment, because then they're going to say, "The biomass exists sufficiently that we can process fiber all day long."

Seth Adler: So, if this is this year, then isn't that next year based on the growth curve? And so, if I'm investing, don't I need to build the thing now so I can process next year? Aren't we here? Isn't that today?

Bob Hoban: It's close, but we need genetics. We need quality genetics, primarily from EU-based countries that have dialed in high-quality seed, fiber, and hurd products, so that you're not just growing a hybrid of a marijuana plant that has below 0.3% THC. If all of the energy of that plant's going into a flower, it's probably not very good for all of the other things I can do with it.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: But, if I have a thicker stalk, and more seed versus ... and less flower, then I probably have the building block for other industries in the United States.

Seth Adler: And, you mentioned the global marketplace. Even Thomas Jefferson himself wrote about the fact that China had a great hemp market, and Russian had the other great international market. How close are we to approaching what they've been doing since then?

Bob Hoban: Well, Thomas Jefferson probably wrote that on hemp paper.

Seth Adler: Indeed.

Bob Hoban: So, that's probably interesting.

Seth Adler: Certainly.

Bob Hoban: But, at the end of the day ... I've been to China, I've visited the largest hemp farm in the world. 13,000 acres. Pretty remarkable, but candidly, those genetics are heirloom genetics. They've been around for a long, long time. They have a great profile of cannabinoids, and they've traditionally been used for textiles, and so forth, and so on. But, on an industrial scale, I'm not so sure that we don't need more specific genetics in the United States ...

Seth Adler: Of course.

Bob Hoban: ... for the types of production that we envision, and that we intend to do. That's been used in China, for example, but not necessarily that much outside of China. In part, because of ... Whether it's true or false, it's this notion that, somehow, the Chinese hemp has been poisoned by things that were in the soil. Because, hemp is a great remediator. It pulls everything out of the soil.

Seth Adler: Indeed, and again, Thomas Jefferson has written about that. So, let's leave China alone for those reasons, and then get to Europe. Whether you want to include Russia, or not.

Bob Hoban: The European countries have had a solid ... I'd call it, very solid hemp industry for years. They've used it for animal bedding, for animal feeds, for proteins, for textiles. In some part, they're starting to get into the extraction ... The CBD, or the cannabinoid, extractions. But, at the end of the day, they have quality genetics.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: Because, when hemp was effectively outlawed with marijuana, prohibited back in the 30's in the U.S. ...

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: ... these seed banks over there, that had operated for years before that, really dialed in the notion of, "I can get you a variety that's very, very thick for hurd. I can get you this that's very, very good for fiber. This, for seed." And, they've deposited and reposited those seeds, and then they replicate those seeds now on a commercial scale. So, as the U.S. goes, the rest of the world goes. And, when they see the consumer demand, the farmer demand, the investment demand ... All of a sudden, these European countries are starting to put more emphasis on expanding their programs, and selling us some of their products.

Seth Adler: Okay.

Bob Hoban: Their seed, in particular.

Seth Adler: Okay. So, you wanna get it from Europe. I want the decorticator here in Colorado.

Bob Hoban: Tomorrow.

Seth Adler: Today.

Bob Hoban: Yes.

Seth Adler: This afternoon.

Bob Hoban: Yes.

Seth Adler: So, where is that kind of inflection point of, "We can both have what we want." If this year, we're going to get to next year, which would be that kind of productivity that you're talking about here in the U.S., where it would justify investment ... Is it next year then? Is it within five years? How are you reading these tea leaves?

Bob Hoban: That's a great question. I think that the biomass grown will continue to increase ... Probably not double, but increase substantially over the next three to five years. Three years, in particular. But, here's where I think that the rubber's gonna meet the road. Because of a policy that we passed here in Colorado through our CDPHE, which is our FDA equivalent, now hemp extracts are regulated like any other food, like any other product. But, the only state in the country to have done that.

Seth Adler: Okay.

Bob Hoban: No state in the country to date regulates post-harvest hemp material. The FDA certainly doesn't.

Seth Adler: Right.

Bob Hoban: As we sit here today. So, you're seeing an influx in Colorado. Huge investment in extraction of CBD, huge CBD growth. Now, traditionally, a farmer would get about $25,000 per acre for CBD production, $1,200 per acre for fiber or seed production.

Seth Adler: 'Kay.

Bob Hoban: With so much biomass, so much CBD coming into the market this year, you'll see that side of the industry dive price-wise.

Seth Adler: Okay.

Bob Hoban: And, that'll make the fiber look more attractive. So, there'll be more biomass nationwide, there'll be a more equal playing field between fiber and cannabinoid extracts.

Seth Adler: Right.

Bob Hoban: And, that's when you're gonna see things start to excel pretty dramatically. We're so close.

Seth Adler: Yeah.

Bob Hoban: We're so close.

Seth Adler: Alright. Okay. So, flower's coming down, fiber's going up.

Bob Hoban: Mm-hmm (affirmative).

Seth Adler: So, now we're on the edge of the thing. Right?

Bob Hoban: We are, we are.

Seth Adler: When I spoke to you maybe one year ago, maybe two years ago, and you're trying to Make America Hemp Again.

Bob Hoban: Right, right.

Seth Adler: Everybody's like, "Okay, Bob. Okay."

Bob Hoban: Yes. Yeah. How much soap and rope can we take?

Seth Adler: Yeah, exactly. Now, at some point here, we gotta talk about the fact that you're a lawyer, right?

Bob Hoban: That's right, that's right.

Seth Adler: And, you got some stuff going on, as far as suits and things. Right?

Bob Hoban: We do. We're very busy.

Seth Adler: Yeah. So, let's talk about ... We mentioned the farm bill, right?

Bob Hoban: Mm-hmm (affirmative).

Seth Adler: Let's talk about what you're doing as far as the office goes, when you get back behind the desk.

Bob Hoban: Yeah. So, we're actively preparing for an oral argument in San Francisco next week, the 15th, before the Ninth Circuit Court of Appeals. That panel argument is very brief, but very, very important. We've been preparing night and day for that, for weeks now. We're excited to get out there and put our best foot forward, and see what kind of questions this panel asks of us, and asks of the Department of Justice lawyers to see where they're thinking.

Seth Adler: Tell us about the panel, tell us about your friends on the other side. Who the panel is, and what you expect to hear from your opponents.

Bob Hoban: Well, the panel names, at this point ... I've certainly got a list, and I'm not prepared to address [crosstalk 00:22:17]. Yeah.

Seth Adler: Oh, no. Not people. I'm just saying just turn us wise as to who's adjudicating here.

Bob Hoban: Yeah. So, there's three judges. These are appellate judges, and they're from the Ninth Circuit ... They're within California, at least two of the three. One of that was appointed is actually sitting in place of another Ninth Circuit judge. So, we'll go in, and we'll have 15 minutes to present our case. The other side ... So, we'll raise some of the high points. In terms of the substance ...

Seth Adler: Give us the high points. Yeah.

Bob Hoban: So, the substance of the law is that this final drug rule, 7350, cannot stand because of the fact it doesn't follow ... It's congressionally approved law. Whether it's the farm bill, whether it's the Appropriations Act, whether it's the Controlled Substances Act ... It doesn't track any of those, because it broadens the definition of marijuana to include everything from the genus cannabis. That's the primary argument. Then, there's some procedural [crosstalk 00:23:12].

Seth Adler: You guys were sloppy with the word marijuana.

Bob Hoban: Yes. Back in 1937, and that's not our fault.

Seth Adler: Right.

Bob Hoban: But, you're married to that, and if you'd like to change that, Congress has to do something.

Seth Adler: There we go. Look at that.

Bob Hoban: Or, there's ways that the Attorney General can do it, but it requires very specific findings and process, and that never occurred. So, this rule's perceived to outlaw all cannabinoid extracts period. From hemp, from marijuana, from anything from cannabis.

Seth Adler: Sure.

Bob Hoban: And, we'll go in ... And, we expect the DEA, who have been, believe it or not, a pleasure to work with. Their lawyers have been nothing but professional, and just really, really top-notch. We've had wonderful dialogue back and forth.

Seth Adler: Good.

Bob Hoban: And, it's been a collegial environment thus far.

Seth Adler: Good.

Bob Hoban: We'll go in, and we'll expect to agree on the substantive law, and we'll disagree on the procedural law that applies here. What that means to non-lawyers out there is, should this case go forward, did the fact that our clients didn't raise an argument against this back in 2011, when this rule was started ... Does that mean that they don't have any standing here? And, also ... So, what? We created a rule. Demonstrate the injury to your clients and to the industry.

Seth Adler: Right.

Bob Hoban: Those are two challenges. We feel ready to address them, and that's where we perceive the battle ground to be. And, of course, you can never anticipate what judges are gonna ask you, and these are very, very smart judicial appointees.

Seth Adler: What do you expect the feasible outcomes to be? Best case scenario, worst case scenario, something in between.

Bob Hoban: Best case scenario, strike the rule. Period.

Seth Adler: Okay. And so, then hemp continues, and we'll deal with cannabis ...

Bob Hoban: Yes.

Seth Adler: ... as we know it. 0.3 and above THC, later ...

Bob Hoban: Yes.

Seth Adler: Okay, great.

Bob Hoban: Which also segues into the next conversation about, "Who regulates this then?" Well, we know that. It's the USDA and the FDA, but we have to get through the DEA first. So, that's number one.
Number two, we're going to recommend that they just open public comment for this rule.

Seth Adler: Okay.

Bob Hoban: That's a good result, not great result, because then the DEA could still come back and do perhaps what it wants, and then we end up right back here again. Then, perhaps the third outcome is that we believe the rule can stand, for either the procedural reasons, or because we don't have a problem with how they wrote it under the Controlled Substances Act.

Seth Adler: Right.

Bob Hoban: In which case, that might seem like a loss, but I would suggest very strongly to you ... And, this isn't just a lawyer being boastful, perhaps ... But, in the June 2nd response brief filed by the DEA's lawyers, they briefed this issue very thoroughly, and they agreed with all of our substantive points that cannabis is not a controlled substance, but marijuana is. And, that cannabinoids are not controlled substances, but only if they come from portions of marijuana. That the exempted parts of the plant are the exempted parts of the plant, and that the farm bill is something the DEA has no jurisdiction over, and that cannabinoids from other plants are legal substances. And, they agree that the Appropriations Act prevents them from interfering with farm bill hemp.

Seth Adler: We're on the same page.

Bob Hoban: We're all on the same page.

Seth Adler: Wow.

Bob Hoban: So, sometimes I ask, "Why are we here?"

Seth Adler: Yeah.

Bob Hoban: But, it's an exercise and a challenge, and we're up for that.

Seth Adler: I gotcha. And, you say, "Why are we here," in this lawsuit, as opposed to the philosophical question, "Why are we here?"

Bob Hoban: Correct.

Seth Adler: Which brings us to the final three questions for returning guests.

Bob Hoban: Sure.

Seth Adler: Now, these are different. Last question's always the same, but first question is, if you could change something about yourself ... Might be something you're already working on ... What would that be? What would you change about anything else if you could? And, on the soundtrack of your life, one track, one song that's gotta be on there. Always the same question. Alright. So, if you could change something about yourself, what would it be? Might be something you're already working on.

Bob Hoban: Yeah. It's just probably my eating habits.

Seth Adler: Really?

Bob Hoban: To be perfectly honest.

Seth Adler: You're like a slim guy, what are we talking about?

Bob Hoban: I am, but I'm a man of extremes.

Seth Adler: I see. If there's cake, there's no cake type of thing?

Bob Hoban: If there's cake, it's gone.

Seth Adler: Yeah.

Bob Hoban: It's all mine.

Seth Adler: Sweet-tooth guy, right?

Bob Hoban: Oh, yes.

Seth Adler: Not so much with the burgers, I would imagine.

Bob Hoban: No, I like a burger [crosstalk 00:27:24].

Seth Adler: But, you don't like four, is my point.

Bob Hoban: Yeah, that's right.

Seth Adler: That's the difference.

Bob Hoban: Yeah.

Seth Adler: You put me in front of four burgers ... No more burgers.

Bob Hoban: I wanna finish it. I wanna have that burger and those fries, and then I want the cake.

Seth Adler: Yeah.

Bob Hoban: Yeah.

Seth Adler: Yeah. That chocolate cake is where you're at.

Bob Hoban: That's right. So, eating habits, is a good thing.

Seth Adler: Let's just kind of be more healthy about the whole thing, right?

Bob Hoban: Yeah. Yes.

Seth Adler: Yeah. So, what would you change about anything else, if anything. And so, there are no rules here, so you can bend the space-time continuum, you're all powerful, whatever you wanna be.

Bob Hoban: Here's, honest to God ... I mean this sounds like it's a political message, but I just wish people would listen to each other, because at the end of the day ...

Seth Adler: I'm sorry, I wasn't listening.

Bob Hoban: I know you, I saw you looking out the window. At the end of the day, there is so much talking past one another.

Seth Adler: Mm-hmm (affirmative).

Bob Hoban: Whether it's in politics or business. What we do as lawyers, with and for our clients, people talk past each other all the time.

Seth Adler: Yep, yep.

Bob Hoban: It costs people so much time. So much aggravation, headache, and money, that if people would just listen to each other ...

Seth Adler: Yeah.

Bob Hoban: ... and focus on the issues. Even if you don't agree with them, then you can arrive at some sort of position that everybody would work with.

Seth Adler: I was just talking to Kate, in your office, about the same thing, which is ... And, she's great, of course. Kate is great.

Bob Hoban: Kate is the best.

Seth Adler: We are so busy shouting about what each of us thinks. It's insane, it's amazing.

Bob Hoban: It is.

Seth Adler: And, I don't know if I've told you this, but I read a spectrum of news. I read stuff all the way from the Left, I read stuff all the way from the Right, and everything in between.

Bob Hoban: Yep.

Seth Adler: You might be happy to hear that Reason is one of the magazines of choice, but ... What is everybody reading? What might they think from what they're reading? And now, how can I have a conversation with that person? As opposed to, "I won't read that," or if I read that, "Those people are crazy."

Bob Hoban: Yeah, yeah. I mean, you have to watch what you say in any given group, because you're gonna be put in a box, and then no one's certainly gonna listen to you.

Seth Adler: That's it.

Bob Hoban: Because, you've said what's on your mind, and that's just an unfortunate thing to be involved in. This notion that, somehow, you can't listen to the ... quote, unquote, other side of any debate.

Seth Adler: Yeah, yeah.

Bob Hoban: No. You're supposed to listen to the other side. If you're a young Democrat, go work for a Republican senator. Then, if you don't see it in the middle, and you pick one side or the other, you need that well-rounded perspective if you're going to do anything good for society, in my opinion.

Seth Adler: There is an example of this even in a conversation that you and I had. I think it was the last one that you and I had.

Bob Hoban: Sure.

Seth Adler: I kind of, with the Make America Hemp Again thing, and the red hat ... I'm like, "Okay. I know where this guy is."

Bob Hoban: Right, right.

Seth Adler: And so, you had said something, and then I said, "But, what about this?" And, I expected you to be like, "Nah." So, I just went on to the next thing, not expecting you to actually hear what I said.

Bob Hoban: Right.

Seth Adler: And, you're like, "Oh, yeah. I can see what you're saying. That's a good point."

Bob Hoban: Absolutely.

Seth Adler: And, you can hear me stop and be like, "Oh. I wasn't expecting to actually have a conversation."

Bob Hoban: No, no.

Seth Adler: So, that's what we gotta do.

Bob Hoban: Yeah.

Seth Adler: I mean, just listen. C'mon, right?

Bob Hoban: It really is.

Seth Adler: I'm with you.

Bob Hoban: Just give the courtesy of listening.

Seth Adler: Yeah.

Bob Hoban: And, trying to understand, even if you don't agree, you can probably understand.

Seth Adler: Yeah. Even if you don't agree, you can probably understand. Exactly. That's exactly it.

Bob Hoban: It sounds like a T-shirt [crosstalk 00:30:29].

Seth Adler: C'mon, now. I think too many words. We'll shorten it, we'll truncate it. Alright. So, most importantly, Bob. On the soundtrack of your life; one track, one song that's gotta be on there.

Bob Hoban: Well, I've gotta say, today, last night we lost a guy by the name of John Perry Barlow.

Seth Adler: Yes.

Bob Hoban: Long time singer-songwriter.

Seth Adler: Yeah.

Bob Hoban: [inaudible 00:30:47] rabbit, with Bob Weir.

Seth Adler: Connected with the Grateful Dead.

Bob Hoban: With the Grateful Dead.

Seth Adler: Certainly.

Bob Hoban: So, in honor of John, who I had the pleasure of meeting one time, and had a beer with ...

Seth Adler: Okay.

Bob Hoban: ... who is an interesting man, and multi-faceted beyond music, but he wrote a great sort of sequence of Grateful Dead songs called "Lost Sailor," "Saint of Circumstance."

Seth Adler: Sure.

Bob Hoban: So, I'm gonna go with Sailor-Saint.

Seth Adler: That's pretty good, man. And, appreciate the short-hand. And, if you don't know it, go put it on. And, especially if you do know it, go put it on.

Bob Hoban: Yes. No doubt. Thanks, Seth. I appreciate it.

Seth Adler: And, there you have Bob Hoban. Very much appreciate his time. Very much appreciate your time. Stay tuned.

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Cannabis Economy is a real-time history of legal cannabis. We chronicle how personal and industry histories have combined to provide our current reality.