Canna Law Blog ™

Canna Law Blog

LEGAL SUPPORT FOR THE CANNABIS BUSINESS COMMUNITY SINCE 2010

Nevada: Pot Business Mecca

Posted in Business Basics, Medical Cannabis, Nevada, Recreational Marijuana

In 2000, Nevada became the 16th state to legalize medical marijuana. Since that time, Nevada has adopted regulations and approved dispensaries, cultivation facilities, and production facilities. Given the number of production and cultivation facilities approved, we believe Nevada has more in mind than just medical marijuana.

Though Nevada was slow to adopt regulations for its medical marijuana program (it took 13 years), voters appear to be much more progressive than previously thought. Nevada registered voters have attained approximately double the required signatures to approve a 2016 ballot initiative for recreational marijuana. This is going to mean big business for our state and our local economies, for the following reasons:

1. Tourism. Las Vegas is the sixth most visited city in the United States, with nearly 40 million visitors in 2013. Tourists are going to come here to take part in the Las Vegas marijuana scene under a recreational regime. Tourism experts expect Las Vegas will benefit from increased spending by the approximately 40 million tourists that visit the city each year and buy cannabis here and by an increase in tourists who would not have come but for legalization.

2. What happens in Vegas stays in Vegas. Las Vegas is known for being a city where people come to relax and let loose. What better place to legalize recreational marijuana? We can just imagine what the Strip will look like with recreational marijuana in play.

3. Recession Recovery. The recession hit Nevada harder than most other cities and an increase in tourism and business in general will provide Nevada with a much-needed influx of funds. All one needs to do is examine the tax revenue generated by both Colorado and Washington since opening their recreational storefronts to know that cannabis is a money-maker for states. With the increased growth in tourism and business, more restaurants and hotels will get built, and more houses for their employees, and on and on.

To find out more about Nevada’s journey with the legalization of medical marijuana, check out:

 

Tribes And Cannabis: This Will Be Big

Posted in Federal law and policy, Legal Issues, Medical Cannabis, Recreational Marijuana

Just last week — on the heels of the Cromnibus defunding enforcement of federal marijuana laws in states with medical marijuana programs — the federal government announced that Native American Tribes are free to legalize, cultivate, manufacture, and distribute cannabis on tribal lands without federal intervention. Though many tribes have no interest in getting into the cannabis business, the MoheganSuquamish, and Seneca Nation tribes, among others, have already expressed interest.

According to the Department of Justice, it will no longer prosecute federal laws regulating the growing or selling of marijuana on reservations, even when state law bans the drug. But it will enforce those federal laws if so requested by a given tribe. The memo (actually dated in late October 2014), authored by Monty Wilkinson, Director for the Executive Office for U.S. Attorneys, reflecting this new policy can be found here. According to Director A/G Wilkinson’s memo, the eight enforcement priorities outlined in the August 2013 Cole memo, in addition to consultation with tribal leaders, will guide U.S. Attorneys’ enforcement of federal marijuana laws on tribal lands. It is important to note that, just like the 2013 Cole memo, the Wilkinson memo does not represent a change in federal law or stymie in any way the federal government’s ability to fully enforce federal drug laws. What this means is that any tribe considering legalizing marijuana should be sure to enact and enforce robust regulations so as to stay in line with the Cole and Wilkinson memos and in order to avoid unwanted federal scrutiny.

The Department of Justice explains its new memo as follows:

… the memo was done in the interest of Native America community’s safety. This policy statement recognizes that Indian country is incredibly diverse, and different tribes will have different perspectives on enforcement priorities that are in the best interest of their community’s public safety … Some tribes are very concerned with public safety implications, such as the impact on youth, and the use of tribal lands for the cultivation or transport of marijuana, while others have explored decriminalization and other approaches.

The federal government’s more liberal policies regarding cannabis on tribal lands will likely be a financial boon for a number of tribes, especially those in states where cannabis is not yet legal. In those states, the tribes will be it for legal marijuana. We also see the tribes doing just fine in those states where marijuana has already been legalized. In those states, the tribes will be able to enact robust marijuana regulations without having to impose high taxes on marijuana, making their cannabis considerably cheaper than that of their non-tribal competitors.

The possibilities for Native American Tribes in the cannabis industry are vast and just as many tribes have done immensely well with gaming, fireworks, and cigarettes. So much so that we also expect many do to well in the cannabis industry.

 

Illinois Medical Cannabis: Here Comes The Strict Enforcement

Posted in Illinois, Legal Issues

Nearly a year ago, we warned of how Illinois was serious about strictly enforcing its medical cannabis laws. In that post, we mentioned the case of Dr. Brian Murray of Good Intentions, who had been accused of violating the Illinois Medical Practice Act by “pre-approving” medical cannabis to his patients.

The Chicago Tribune recently reported that Dr. Murray has been barred from practicing medicine without supervision for at least two years and fined $10,000. Though Dr. Murray contended that he intended to establish a bona-fide physician-patient relationship with his patients, it appears that he did act in violation of the state’s rules.

Illinois regulators from the Department of Financial & Professional Regulation and the Department of Public Health have often stated that they do not want to see doctors advertising as “marijuana doctors.” Dr. Murray and Good Intentions apparently posted signs stating that “medical marijuana may be right for you,” and pre-qualifying patients for medical cannabis.

Illinois’ tough approach has its downsides, including, causing many doctors to be unwilling to sign off on a cannabis certification for their patients, for fear of running afoul of regulators. This denial of certification puts patients in the tough (and oftentimes expensive) position of having to seek out a second doctor in an effort to secure a certification. This issue was extensively discussed at the Chicago town hall meeting a number of us attended in August. We are hearing a lot of buzz around Chicago that there will soon be a few websites that list marijuana-friendly doctors so that patients will know where to go if their initial doctor will not issue them a certification. Our fear is that the regulators will use those lists in deciding doctors to target.

The cannabis doctor situation here is not so good.

Medical Marijuana in the Omnibus Bill

Posted in Federal law and policy, Legal Issues, Medical Cannabis, Recreational Marijuana

Medical marijuana advocates have been jubilant for the last few days because of Congress’s move to disallow the Department of Justice from enforcing federal law in medical marijuana states. How did this happen and what does it really mean?

Congress passes annual appropriations (spending) bills to fund the federal government, including the activities of all agencies in the executive branch of government. These large bills are made up of individual funding bills, so they are known as “omnibus” appropriations bill. This year, buried in Section 538 of the appropriations bill, Congress included this:

None of the funds made available in this Act to the Department of Justice may be used, with respect to the States of Alabama, Alaska, Arizona, California, [every other medical marijuana state], to prevent such States from implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

The Drug Enforcement Agency, which has been the bane of medical marijuana patients and cultivators for years, is an agency within the Department of Justice. Though we are not experts on the federal budget or on whether there are ways that the DEA and DOJ can get around this, the plain reading of this section is that the DEA can no longer use federal funds to make raids or arrests based on medical marijuana conduct.

Two thoughts:

First, this is a sea change for places like California that have unregulated medical marijuana industries. Since August 2013, the Department of Justice has maintained the position that it would leave alone marijuana businesses in states that regulated sufficiently to protect against several federal government priorities, but it has made no promises to stay away from states that did not have comprehensive marijuana regulations in place. This spending bill did not include any language about state regulations; it just says that there needs to be a state law that “authorizes the use, distribution, possession, or cultivation of medical marijuana.” This could well prove to be a boon to marijuana entrepreneurs in states like California that have yet to adopt a real regulatory system for medical marijuana.

Second, the verbs used are interesting. The spending bill talks about the use, distribution, possession, or cultivation of medical marijuana. The Federal Controlled Substances Act refers to those that “manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance.” The key word there is manufacture. It would be a real stretch for the Department of Justice to argue that certain types of marijuana processing are “manufacturing” and not “cultivation,” therefore they could still enforce against them. That argument does not hold a lot of water, but we do not put anything past the DEA and its goals to maintain current systems of prohibition.

In the end, this bill is a big step. Apart from screwing D.C. voters on recreational marijuana, it is the most positive piece of marijuana legislation to come from Congress (by far) since we started our cannabis law practice in 2010. Nonetheless, we are taking a wait and see approach on how the DEA and the Department of Justice, but we are hoping that they accept this with open arms.

One final caveat: this is just an annual spending bill. It does not change the Federal Controlled Substances Act. If something like Section 538 does not make it into next year’s appropriations bill, medical marijuana can again be a target. More permanent legislation is still necessary to legalize medical and recreational marijuana on the federal level, so now is not the time to relax and declare victory.

 

Five Basics On Becoming A Cannabis Business Lawyer

Posted in Business Basics, General, Legal Issues

Nearly every day, one of our cannabis business lawyers gets an email or a phone call from a lawyer somewhere in the United States wanting to know how they too can become a cannabis business lawyer. Our immediate answer is to tell them to first spend the years necessary to become a business lawyer and then work on marijuana law and marijuana industry expertise. The real key to being a good cannabis business lawyer is to first be a good business lawyer and then learn the “extras” necessary for cannabis business law expertise.

Two of our cannabis lawyers, Robert McVay and Hilary Bricken, will on December 19 be speaking on “Establishing a Marijuana Law Practice” at a Washington State Bar Association seminar. As part of that seminar, they were asked to write a short article on the same topic, and the following is that article, also published here on the Bar Association’s website.

5 Things to Consider Before Starting a Marijuana Practice

In November 2012, Washingtonians voted in favor of Initiative 502 (I-502), which legalized the possession of certain amounts of marijuana by adults 21 and older. I-502 also legalized the commercial cultivation, manufacture, and retail sale of marijuana. Though I-502 created a legal marijuana economy in Washington, it had no effect on the federal Controlled Substances Act.

Should lawyers opt to practice in the ever-changing area of marijuana business law, here are five issues to consider before starting such a practice.

Federal law and priorities. The federal Controlled Substances Act is governed by 21 U.S.C 801-971 (the Act). Most business lawyers probably have never read the Act, but being familiar with it is a requirement for those contemplating practicing in the marijuana business space. You have to know the consequences your clients face should the federal government take an interest in their businesses. On Aug. 29, 2013, U.S. Deputy Attorney General James Cole issued an enforcement policy memorandum that lists out the enforcement priorities of the Department of Justice regarding marijuana. That memo also stipulates that the federal government currently plans to tolerate states with “robust” marijuana regulations. Though the memo is useful guidance, remember that it does not represent a change in federal law or marijuana’s status as a Schedule I controlled substance.

Federal prohibition leads to significant business conflicts. Federal prohibition causes substantial conflicts when actually doing business in the marijuana industry. Because of federal banking laws (namely, anti-money-laundering laws), marijuana businesses have great difficulty obtaining bank accounts, loans, and traditional types of institutional financing. Federal prohibition can also affect the willingness of institutional investors or commercial landlords to participate with marijuana businesses due to their trepidation regarding federal arrest, prosecution, and asset forfeiture of real and personal property. Lastly, the Internal Revenue Service taxes marijuana businesses pursuant to Internal Revenue Code Section 280e, which denies standard business deductions to illegal businesses, including marijuana businesses in states where they are legal. IRS 280e tax calculations can skew any unprepared marijuana business’s balance sheet into the red, and attorneys need to be cognizant of this when advising their clients.

Know state marijuana regulations. Practitioners must be vigilant regarding state marijuana regulations to keep their clients in compliance. WAC 315-55 is broad, covering everything for a marijuana business from security requirements to package, labeling, and quality assurance standards. Be sure to study up on those regulations to prepare your clients for success. And be certain to have a system for keeping clients updated, as the Washington State Liquor Control Board constantly amends the rules in response to perceived need.

Know where you want to focus. Like any other legal practice, a marijuana business practice does not cover just one subject and it certainly isn’t static. Marijuana business law includes commercial litigation, corporate transactional work, corporate formation, land use, intellectual property and patent law, environmental law, and so on. One practitioner cannot and should not do it all in a marijuana business practice. As a result, realize your limitations and figure out for yourself the area of the law on which you want to spend your time becoming an expert.

Build up your professional referral network. Because no one lawyer can do it all in any practice, it is paramount that you familiarize yourself with other competent professionals to help your clients move their cannabis business forward. For example, your clients will need significant help when it comes to tax preparation for their business. Consequently, you should be building up your contact list with competent accountants familiar with not only those tax obligations set forth under I-502, but also with those tax requirements set forth by 280e. In addition to CPAs, be prepared to add other attorneys to refer your clients in cases where conflicts arise, in addition to having competent referrals in areas outside of your practice area. Other useful referrals include business consultants, architects, insurers, real estate brokers, and security companies, just to name a few.

They Said it on Marijuana, Quotable Saturday, Part XLI

Posted in General

“Los Angeles residents are going to vote on a tax on anything sold in a medical marijuana dispensary. If the measure passes the city could be solvent within 45 minutes.” –Conan O’Brien

Though meant to be humorous, there is a lot of truth to this joke.

Like it or not, higher level arguments regarding the freedom to choose and the benefits to everyone to not arresting young people for marijuana often get pushed aside by those who want to focus on the taxes that will come with legalization. So we will go with that argument in this post.

Though we would never claim any study on how much legalized marijuana will generate in taxes can be terribly accurate, we will point out that the most cited study hypothesizes that it would create three billion dollars a year in taxes. That’s billion with a “b.

If you figure each new public school teacher costs $60,000 a year, that would allow for hiring 50,000 more teachersaround the country. And if you figure rent at $800 a month, this would be enough money to house around 312,000 homeless families. We could go on and on and we do not even like taxes.

So laugh all you like people, but this tax issue is a serious one.

What do you think?

Marijuana Law Seminar: December 19, Live in Seattle and Via Webcast

Posted in Events

Two of our cannabis business lawyers, Hilary Bricken and Robert McVay, will be speaking on December 19 at what is looking to be an excellent marijuana law seminar. The seminar is being put on by the Washington State Bar Assocition, which describes it as follows:

Join us for a 1/2 day CLE about Marijuana Law in Washington.  Alison Holcomb (the architect of I-502) will speak on issues likely to be addressed during the upcoming legislative session.  Learn how to establish a marijuana law practice from two attorneys – Hilary Bricken and Robert McVay of the Canna Law Group. Finish your 2014 ethics credits with an entertaining session led by CLE Chair Philip Buri and WSBA’s Chief Disciplinary Counsel Doug Ende.

You can attend live or by webinar. Go here for more information and here for the full agenda.

We will see you there.

Oregon Town Hall on Pot Tonight

Posted in Business Basics, Events, Licensing, Oregon, Recreational Marijuana

Oregon Public Radio is putting on a town hall meeting tonight (Thursday, December 11) to discuss cannabis in Oregon. The event will be at Rontoms in SE Portland and OPR is saying to come at 7:30 p.m. with the discussion starting at 8:00 p.m. 

Our own Hilary Bricken will be one of the guests along with the following:

This event will explore the following “three big themes”:

  1. Should Oregon End Medical Marijuana?
  2. Should Oregon Cities Tax Pot Locally?
  3. How Will Oregon’s Pot Culture Change?
If you cannot attend in person, please follow on twitter where the following journalists will be live tweeting the event:
  • Lauren Dake, The Columbian politics reporter (@LaurenDake)
  • Lizzy Duffy, OPB News blogger (@LizzyDuffy)
  • Anna Staver, Statesman Journal state political reporter (@AnnaStaver)
  • Peter Wong, Portland Tribune Salem bureau reporter (@CapitolWong)
  • Dirk VanderHart, Portland Mercury Reporter (@dirquez)

To join the discussion on Twitter, follow the hashtag #ORpot.

We look forward to seeing you there!


MMJ Job Discrimination: Rhode Island Court Will Decide

Posted in Legal Issues, Medical Cannabis

Imagine that you can’t make it to work because the degenerative disk in your back is having the equivalent of a bad hair day. Imagine that you go to your doctor to get something for the pain. Imagine that you are then able to show up for work because the OxyContin you were prescribed is working just fine. Imagine that you decide to tell your supervisor the whole story at work and, to your surprise, you are fired from your job!  

May a person with a disability be discriminated against based solely on the type of medication he/she is prescribed? A woman in Rhode Island is asking a court to answer that question in a lawsuit against a prospective employer, after having been denied an internship solely because she was a cardholder under Rhode Island’s medical marijuana program. She was taking medical cannabis for persistent migraines.

Certainly, there are differences between the person in the Rhode Island case and the employee taking Oxy described above. In the Rhode Island case, the putative intern did not yet have the job (the position was a two-month internship), though she alleges that an offer was imminent. She had gone through several interviews and believed she was in the throes of the hiring process when she disclosed to the company’s human resources department that she was a cardholder under the state’s medical marijuana program. A few days later she was informed that she would not be offered the position because of her status as a cardholder. She then assured the company that she would not bring medical marijuana to the workplace and would never go to work under the influence of medical marijuana. Her potential employer was not persuaded.

The Rhode Island case is based on several legal theories, the strongest being the anti-discrimination provisions in the state’s medical marijuana law, which prohibits schools, employers, and landlords from discriminating against a person based on his or her status as a [MMJ] cardholder. Several states include similar language in their statutes, including Arizona, Connecticut, Delaware, Illinois, Maine, Minnesota, Nevada and New York.

The Rhode Island action also alleges a violation of the Rhode Island Civil Rights Act. This statute prohibits discrimination against individuals based on race, color, religion, sex, disability, age or country of ancestral origin. Illinois, for example, also has a Civil Rights act, but the word disability does not appear in its law. This legal theory would therefore be difficult to argue in a similar case brought in Illinois. Conspicuously absent in the Rhode Island case is any reference to federal law. The Americans With Disabilities Act would otherwise provide a foundation for a claim, but since marijuana is still prohibited by federal law, discrimination plaintiffs will find no relief in federal law.

Though every state’s approach to civil rights and employment discrimination is different, in the blossoming field of state-legal marijuana litigation, courts in jurisdictions even beyond Rhode Island will be looking to the outcome in this case for guidance in their own matters.  We will be keeping an eye on it too and reporting back on any developments.

Marijuana Investments: Securities Law 101

Posted in Business Basics, Legal Issues

Most of the cannabis business clients hire us with at least a vague understanding of what they want to get out of the representation. Whether it is for trademark registrations, corporate drafting, or a legal compliance audit, they understand enough about the law to know what help they need. Businesses and individuals involved in fundraising transactions often come to us without having any real clue about the securities law concerns. This makes sense as securities law is a challenging, complex, often misunderstood area of law, even by lawyers.

This post is intended to give a quick idea of when securities law issues may arise in your transactions so that you will better know when you need securities law help.

Federal and state securities laws are intended to protect investors. The need to protect investors became starkly apparent after the 1929 stock left so many investors penniless. Federal securities acts were passed in 1933 and 1934, with the express goal of making sure that investors receive full and fair disclosures from businesses before they invest. If investors have good information, we as a society are okay with their taking on the risk of an investment. But investors who have been lied to or not provided with enough information to understand fully the risks of their financial contributions have been provided with several legal avenues they can pursue against the company or individual that sold them the securities. In addition to federal securities laws, most states have passed their own securities laws, known as blue sky laws because they seek to protect investors against “speculative schemes which have no more basis than so many feet of ‘blue sky.’”

When working on anything investment-related, the first question is always whether it involves a security. What is a security? The federal definition and statute can be found here, and an example of a state law definition can be found here. In brief, securities are things like corporate stock, llc membership units, corporate bonds, etc. They are intangible rights to profit-sharing payments or guaranteed debt payments granted by businesses in exchange for money that the business takes in to grow or expand its operations. This is a very rough and simplistic description of a complicated issue, so rely on the text of the laws themselves and on your legal counsel’s assessment of those laws.

Securities laws are generally written so as to require that a securities offering have a huge, substantial registration and information filing unless it comes under one of many exceptions. The majority of securities offerings, especially those from small businesses, are exempt from those sorts of massive formal filings, but even those that are exempt typically require notice-type state and federal filings. And even those involving a transaction that does not require government registrations or notices still usually need to make certain specific informational disclosures to investors about the business before being able to engage in raising money.

At minimum, every business (cannabis or otherwise) that seeks to raise money through either a debt or an equity offering must inform its investors of its basic business plan, what it intends to do with the capital it is raising, its financial projections (including expected return window for the investor), and a list of risk factors that may lead the business to be unable to repay the investor. These risk factors are key, and they need to be drafted by securities counsel. They are not boilerplate, as each business has its own risks. They look scary and are the types of statements that should ward away risk-averse investors. That is sort of the point, as risk-averse people should not be investing their funds into private companies, an inherently risky proposition.

For cannabis businesses, the risk factors look even scarier. They will say things like: “the federal government may raid us, seize all of our equipment and inventory, and arrest all of our employees, officers, and investors, including you.” Companies are not supposed to downplay the risks of the investment. It may seem counterintuitive, but notifying investors at the outset of the full extent of their risks is what provides the company with legal protection. If the company ends registrations not being able to pay back its investors, it needs to be able to say that the investor knew all of the risks and knew that its investment was anything but guaranteed.

Sales of stock among investors also have securities laws implications, especially of company stock issued in a non-registered offering. Take a look at the SEC’s description of this issue.

Cannabis companies are hot commodities in the small business investment world right now. Many cannabis companies are desperate for capital and many investors see the cannabis industry as “the next big thing.” Be wary of any company looking for investment that is unwilling to disclose fully the risks of that investment or that in any other way fails to comply with applicable securities laws.