As more and more states pass legislation legalizing cannabis for both medicinal and recreational purposes, issues regarding cannabis are being addressed more frequently by the courts. Domestic courts are no different, and unique issues regarding cannabis have become more prevalent in many domestic cases. From the highs of increased revenue from cannabis entities (and the valuation of those entities) to the lows of cannabis use and parenting issues, cannabis and family law often intersect in unique ways.
Since the sale of marijuana for recreational use first began in January 2014, cannabis has grown into a multibillion-dollar industry with total sales exceeding $6 billion. As with most industries, owners of cannabis businesses have not been immune to divorce. In the context of a divorce, it is often necessary to value a business for purposes of equitably dividing the marital estate. The valuation of a cannabis business often presents distinct valuation issues. For instance, as most cannabis dispensaries are purely cash businesses and business deals are often not public affairs, it is often only in the context of a divorce that a full valuation of these businesses is ever performed. While most valuation methodologies are generally applicable to these businesses, the fact that many dispensaries still operate on a purely cash basis provides opportunities for owners to dissipate funds or mischaracterize income. However, as more and more local credit unions, and some banks, are becoming more willing to provide services to cannabis businesses, some of these valuation issues are diminishing. Additionally, as the industry has grown, many smaller entities are being forced out or bought by larger entities, requiring more complex valuation approaches.
In some respects, the comprehensive regulations regarding marijuana can make information regarding cannabis businesses more readily available than other businesses. For example, dispensary owners are required to track products from seed to sale through an electronic METRC inventory system and must make the businesses’ financial record keeping available for inspection and audit by the State Licensing Authority at all times. Working with a financial expert familiar with marijuana businesses or other primarily cash businesses is strongly advised in valuing the business for allocation in the divorce.
For purposes of calculating maintenance and child support, income from self-employment, proprietorship of a business, or joint ownership of a partnership equals gross receipts minus ordinary and necessary expenses. Since owners of marijuana dispensaries are not able to deduct many of the standard ordinary business expenses from their federal tax returns, issues can arise when determining income for the purposes of maintenance and support, as these tax returns are inherently unreliable as to income under the statutory definition.
One issue regarding marijuana businesses that was recently resolved as a result of a domestic relations case is whether and/or under what circumstances a receiver can be appointed over these businesses pursuant to C.R.C.P. 66. In the recent case of Yates v. Hartman, the Colorado Court of Appeals determined that a receiver may be appointed over such a business but only if the receiver possesses the proper licensure to operate a recreational or medicinal marijuana business.
The Marijuana Enforcement Division also recently enacted regulations regarding temporary appointee registrations for court appointees, such as receivers.
In contrast to the highs of the financial success of this industry, family law attorneys also face the lows of marijuana’s impact on parenting issues. The primary question is often how, or to what extent, should a parent’s use of marijuana impact the determination of parenting time and decision-making. This issue has largely yet to be addressed by the appellate courts.
In the one published opinion on point, the court determined that the father’s use of medicinal marijuana did not support a restriction of his parenting time.
However, the court was careful to note that it was not expressing an opinion as to whether medicinal marijuana use in general could constitute endangerment; but rather, that endangerment was not shown in that particular case.
As with any controlled or illicit substance, marijuana use poses certain risks and considerations when determining parenting time. Just like with alcohol, attorneys and the courts should consider how use of marijuana during parenting time may impact children. However, by statute, courts are not to consider the conduct of a party that does not affect that party’s relationship to the child. Unlike alcohol, reliable tests to determine whether a parent is under the influence of marijuana at any given time are not yet available. Thus, in the context of a domestic relations case, it is difficult, if not impossible, to determine whether a parent has been using marijuana during their parenting time or at other times when marijuana use may not impact parenting of the child.
Prior to the legalization of recreational marijuana, marijuana use could be treated similarly to other illicit substances, such as cocaine, for which it was often easier to determine that any use of an illegal substance by a parent could be harmful to a child or impact the parent’s relationship to the child.
Use of medicinal marijuana further complicates the issue because the issue then becomes whether the use of a prescribed substance should impact the determination of parenting time.
Although generally abated by the legalization of recreational marijuana, early medicinal use was often met with careful scrutiny as a result of both patients and doctors liberally seeking and prescribing cannabis for marginally medicinal purposes.
The legalization and growth of the cannabis industry in Colorado has presented the opportunity for many unique intersections between cannabis law and family law. Family law attorneys have been faced with the highs (and challenges) of a new financial industry as well as the lows of how legalized marijuana use can impact families.
— Carolyn Witkus is president and shareholder, and Jon Eric Stuebner is an associate at Griffiths Law.