Features

Mitchel Kay – PTS 

The multifaceted legal perspective as a cannabis GC 

The day will come, Mitchel Kay believes, when cannabis use will be perceived as no different from alcohol. It will be just as acceptable for an adult to order a THC-infused beverage instead of a standard cocktail, beer or wine. In some places, it practically is. By increment, he notes that societal norms are changing. 

Mitchel Kay | General Counsel & Corporate Secretary |  PTS 

Mitchel Kay | General Counsel & Corporate Secretary |  PTS

And the law—it’s been changing too, rapidly at the state level—but more akin to a sedated sloth-like pace at the federal level. When and if the pace picks up, Kay says his employer will be positioned to reap the benefits. 

PTS Corp., as in Progressive Treatment Solutions, is already distinguishing itself as a vertically integrated, seed-to-sale cannabis company with current operations in Arizona, Illinois, Ohio and Michigan. Kay, having stepped away from more traditional legal roles on the East Coast, became PTS’ general counsel and only in-house lawyer in January 2021, is cautiously optimistic about further progress and relishes the challenges. 

“I’m finding it enjoyable to get my proverbial fingerprints in shaping at least a corner of this nascent industry and having the opportunity to work alongside some of the industry’s top thought leaders,” he tells Vanguard from PTS headquarters in the Greater Chicago Area in May. “This industry currently faces every hurdle and headwind you can think of, so instituting best practices and sensible and strategic solutions – all while working in a Federally illegal industry—takes time, patience, and resilience.” 

Onward they push 

That said, enough obstacles have been overcome to make him optimistic about where the industry is headed. 

Kay having counseled PTS as an outsider in 2018, became its general counsel in time to help formalize a Michigan operation that now includes a production facility and six dispensaries. On his watch, PTS established its Arizona vertical operation and then moved into Ohio, where it currently has one facility each for cultivation and dispensing (and growing!). 

PTS will continue to grow, albeit prudently and in select locales, he says while noting how other seemingly strong cannabis companies have gone belly-up, oftentimes from being too aggressive in a business fraught with variables and uncertainties. Traditional financing is hard to access, with major banks unwilling to enter the market on the limited FinCen guidance and anemic and untraditional capital market opportunities.  

Although the Biden administration effectively abides by the 2018-rescinded Cole Memo (which prevents the federal government from using its resources to enforce federal marijuana prohibition in marijuana-legal states), banks and other lenders still fear such arrangements could bring sanctions from the federal government that still deems marijuana illegal and prohibits transport across state lines. 

While Kay is bullish that the recent DEA announcement recommending cannabis be moved to Schedule III will pass all hurdles and result in effective rules prior to any potential new Executive administration in 2025, the risk of this not being finalized is very real.   

This shift to Schedule III would remove the industry from being subject to the Internal Revenue Code’s Section 280E, which forbids a company from deducting otherwise ordinary expenses from gross income associated with the trafficking of products outlined in Schedule I or II of the Controlled Substances Act. Then, of course, there are the state laws which, like New England weather, seem always changing—though often to the industry’s advantage. 

Stickler for compliance 

At least in the four states where PTS operates, cannabis is fully legal for recreational and therapeutic purposes, though rules and regulations differ. In Arizona, for example, the normal sales tax of 5.6 percent is augmented by a 16-percent excise levy.  

Illinois’ excise tax at the retail level is 10 percent but with higher rates for higher THC and 20 percent for cannabis-infused products such as PTS tonic, gummies, chocolates and extracts. Neighboring Ohio was a latecomer to legalization; its voters approved adult-use just late last year with a 15.75-percent sales and excise tax. Michigan is among the most pot-friendly states; it charges a 10 percent excise tax with no additional local levies. 

But that’s just taxes, and, as Kay explains, regulatory compliance extends to labor, employment, marketing, and many other areas. Then there is his keeping tabs on any and all other matters: banking, due diligence on prospective mergers and acquisitions, real estate and what-not. 

“The industry is still in its infancy and changing incredibly fast,” he says. “The last three months are different from the six months before, and those months differ from a year ago. This means the next few months and years will also look drastically different. This not only impacts the business as a whole, but how legal and compliance function—which new risks need to be considered? What terms are most important in our contracts?  How are we monitoring and complying on a state-by-state level?” 

A perfect fit 

The constant changes and stressful situations aside, the 38-year-old Rutgers Law School (‘12) and the University of Michigan (‘08) graduate can easily see a career spent in this industry. He says he’s enjoying this role, having gained invaluable experience and perspective from his prior in-house and private practice roles.     

Kay credits the executive team and business partners for their support and collaborative nature, as well as their outside counsel, such as Ohio-based Frantz Ward LLC and Chicago-based Tabet, DiVito & Rothstein, who assist on varying fronts.   

Kay reviews the internet daily for industry news, citing the importance of staying current with the latest current or future changes on the federal, state, and local legal levels. He will be among the speakers at the International Cannabis Bar Association’s Cannabis Law Institute in July, as well as at the Association for Corporate Counsel’s October Annual Meeting in Nashville. 

“The industry is quite fractured in terms of competing interests,” he says. “Particularly as we see the battle between state-sanctioned cannabis programs and the proliferation of psychoactive hemp products.” 

But it’s not just the legalities that consume him. As he emphasizes, any in-house lawyer must understand and work well with every department. 

“Collaboration is also something I highly covet – and something I can accomplish with excellent colleagues,” he says. “Looking at any issue solely through the guise of a legal lens often misses the bigger picture and value.” 

“Our goal is the normalization of cannabis.  We are confident we will get there,” Kay says. 

While work is paramount, Kay says the family is the most important part of his life and credits his wife, Rachael, their 2-year-old daughter, their dog, Murray, and his parents, Wendy and Michael, for keeping him grounded. He and his wife have enjoyed exploring Chicago and the Midwest, having made wonderful new friends. Kay, having previously lived in Italy (twice) and England, also finds joy and an opportunity to decompress in traveling (albeit much abridged since the arrival of his daughter).   

Published on: July 2, 2024

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