Canna Law Blog ™

Canna Law Blog

LEGAL SUPPORT FOR THE CANNABIS BUSINESS COMMUNITY SINCE 2010

Shame on the Washington Post for Opposing Marijuana Legalization

Posted in District of Columbia, Federal law and policy, Legal Issues, Recreational Marijuana

In a relatively surprising turn of events this past week, the Washington Post urged D.C. voters to reject legalization of marijuana under Initiative 71 this fall.

The Washington Post supported decriminalizing marijuana so as to eliminate “harsh criminal penalties” and “unfair targeting of young black men,” but it now opposes legalization because of “questions” about legalization’s impact on health and society.

One major problem with the Washington Post’s argument is that it is a catch-22 in that so little is known about marijuana’s effects largely because its illegality blocks research.

In Marijuana Decriminalization Versus Legalization: A Difference That Matters, we discussed how decriminalization helps maintain black and gray market activity to the detriment of states and their surrounding communities and to the benefit of criminals. Legalization, on the other hand, gives states the opportunity to strictly regulate and control marijuana so as to maximize public health and safety, and to promote responsible production and consumption of marijuana.

In its editorial, the Washington Post wrongly criticizes existing legalization efforts — specifically in Colorado:

It’s not been a year since Colorado became the first state to allow recreational marijuana use and, as the Smart Approaches to Marijuana has catalogued, there have been negative consequences, including increased instances of impaired driving and increased use by youth. With marijuana already decriminalized, there’s no reason for the District to rush the next step; why not at least give Colorado a bit more time to provide lessons?

The editors should have read their own paper where its criminal justice reporter, Radley Balko, in Since marijuana legalization, highway fatalities in Colorado are at near-historic lows wrote on how highway fatalities are at a near all-time low since the state legalized marijuana. At minimum, the editors should have noted that driving when impaired by marijuana is not nearly as dangerous as driving when impaired by alcohol.

More importantly, the editors should have read last month’s Colorado Department of Public Health and Environment report that showed a decline in teens using marijuana since legalization. The Post editorial fails to cite from where it pulled its purported facts.

Legalization and regulation gives marijuana consumers safe and controlled access to marijuana, whether for recreational or medicinal purposes. Legalization facilitates education about and research into the effects of marijuana on health, safety, society, and society’s youth. It also is the best way to reduce a black market that thrives on legal gray areas like decriminalization.

If we are going to end the Federal prohibition against marijuana and the absurdly ineffective “war on drugs,” we need to see more states legalizing and regulating marijuana. We therefore hope the Washington Post changes its mind about Initiative 71, or at least stops its campaign of misinformation against it.

 

They Said it On Marijuana, Quotable Saturday, Part XXX

Posted in General

Singer/actress/comedienne Bette Midler is a long time advocate for marijuana and she had this to say about marijuana, via twitter.

FDA claims marijuana’s as toxic as alcohol. 41,682 alcohol related deaths last year. Marijuana, 0. Guess nobody’s died of the munchies.

Reminds us of a hearing our cannabis lawyers had many years ago against a city seeking to shut down a medical dispensary. We were fighting the city to keep the dispensary open. The city put a police officer on the stand to talk about why the dispensary needed to go and he listed public safety as one of the reasons, explaining that marijuana just isn’t safe.

On cross-examination we got him to admit that his particular city had many bars and there had been no effort to shut those down. We then got him to confirm that he was aware of many people having died from alcohol abuse. We then went for the zinger, hoping he would tell the truth, which he did: he was not aware of a single person anywhere having died from ingesting marijuana.

Thanks Bette.

Illinois MMJ: Some Cities Comply with State Law, Others Defy It

Posted in Illinois, Legal Issues, Litigation, Medical Cannabis, Washington

Oregon and Washington: A Tale of Two Recreational Marijuana Laws” and “Our Nation’s Capital: Marijuana Microcosm.” Today we focus on two Illinois municipalities: East Peoria City and Orland Park. One is making honest efforts to follow state law, the other is blatantly ignoring it.

In East Peoria City, the city council recently convened to address the discrepancies between state law and its own zoning ordinance addressing medical marijuana businesses. After the Compassionate Use of Medical Cannabis Pilot Program Act was signed into law by Illinois Governor Quinn in August 2013, East Peoria City’s Zoning Board of Appeals got to work writing its own zoning ordinance to require a special use permit, and to prohibit marijuana businesses from locating near churches and parks. After state law was amended to eliminate the prohibition of such businesses in the vicinity of parks and places of worship, East Peoria City acted to align itself with state law. A special use permit is still required in East Peoria City, but such zoning measures are kosher under the Act, so long as the ordinance is “reasonable.”

Contrast that with the village of Orland Park, which will not be allowing any cannabis facilities within its borders because a local ordinance prohibits licensing any business that operates in violation of federal law. Like the local officials our law firm has targeted in Wenatchee, Washington, Orland Park lawmakers are similarly refusing to license marijuana businesses because federal law still prohibits the cultivation, distribution, and use of marijuana. Though a state spokesperson stated that it was not “immediately clear” whether the Orland Park measure constitutes an “unreasonable prohibition” in violation of the Act. our take is that, yes, an outright ban is unreasonable. Section 140 of the Act specifies that any zoning ordinance must not conflict with the Act — if the purpose of the Act is to bring relief to patients with chronic and debilitating diseases, how does a ban serve that purpose? Moreover, as we’ve argued in the Wenatchee case, the feds can’t require local officials to enforce federal law, and the two laws (federal prohibition, state-legal MMJ) can stand side by side.

These issues are nothing new (read here) but they are a real thorn in the side of entrepreneurs trying to set up shop. It’s hard enough to find a property that complies with the 1000 and 2500 foot buffers and is owned by a landlord who will allow your canna business – getting a city business license shouldn’t be the highest hurdle. It is heartening that in Illinois at least, most municipalities are happy to play by the rules. It will be interesting to see what happens to those cities that won’t.

Marijuana Gets Its 15 Minutes of Fame, But Beware The Reality TV Shows

Posted in Business Basics, Intellectual Property/Branding, Legal Issues, Medical Cannabis, Recreational Marijuana

As marijuana legalization sweeps the nation reality TV is pursuing legalized marijuana businesses. It should not surprise us that America wants an inside look at these cutting edge “ghanjapreneurs.” Though a reality TV show may seem like a huge opportunity for a marijuana business (just look at Weed Wars), the devil is always in the details. Our lawyers have handled legal matters for all sorts of reality TV shows, ranging from Whale Wars to Deadliest Catch, to Real Weddings to Off Road Truckers, but what we are seeing with marijuana reality shows would put the most aggressive Hollywood agent to shame.

So, if you are thinking of getting your fifteen minutes of fame as a “to-be-famous” marijuana business, you should at least be aware of the following:

1. You need the right attorney to review and negotiate your reality TV contract. Do not, I repeat, do not use a criminal defense lawyer or your “family’s” regular lawyer to review and negotiate your reality TV contract. You need a lawyer who has experience in dealing with networks and production companies because a poorly negotiated TV contract will just keep on costing you.

2. You will forfeit your privacy rights. Think of the typical reality TV show — viewers want to see it ALL: every meltdown and every fight. And, in the marijuana industry (where Federal prohibition looms large), you might want to consider the repercussions of the public seeing everything you do. We would not recommend any marijuana business relinquish such rights unless it is a well-oiled machine with stellar employees that follow every single state and local law, and even then being on TV may make you a target for the feds. If you nonetheless still want to push forward with your shot at fame, you should at least negotiate a contract that prohibits specific unwanted invasions of privacy — for example, no filming of marijuana transactions with terminally ill patients or no filming of plant maintenance during certain hours of operation.

3. You will need to protect your intellectual property before it is aired it for all to see. Make sure you have done what you can to protect your brand and your other intellectual property before the world sees and tries to copy what you’ve got. This advice holds particularly true in the marijuana industry since one cannot obtain national trademark protection for cannabis brands.

4. Vet the production company scouting your business. Research the other party with whom you plan on doing the TV deal. Research the production company, its relationships, its prior shows, and its past history with other TV prospects. MTV obviously has a different agenda than, say, the History Channel and your business should be comfortable with the agenda before signing on the dotted line. It is not uncommon for a business to sign a multi-year exclusive agreement with one production company before realizing that company will never get a show off the ground. The business is nonetheless legally prevented from signing with another show.

5. Embrace full disclosure. The standard reality TV contract typically has a provision regarding your need to disclose nearly everything. That provision (or some other provision) also states that your omitting any relevant information constitutes a breach by you of the contract. Make sure you know exactly what you are signing and make sure that you can live up to whatever you sign.

6. Warnings and releases for reputational damage and embarrassing depictions; exclusivity clauses; and communication limitations. Though these provisions vary from show to show, the foregoing have become pretty much standard in reality TV contracts so as to protect the production company and the network. What this means is that if you sign a standard reality TV contract, you are consenting to the production company and network using your worst and most embarrassing moments without any chance of recourse for that use. And again, these contracts typically mandate that you work only with the production company and network for longer than usually makes sense. Many reality TV show contracts restrict your right to communicate with the world outside of the show so as to prevent you from spoiling any upcoming surprises or revelations on the show. The devil is in the details.

7. Mind your reputation at ALL TIMES. When you sign on for a reality TV show, you are putting your business on blast speed. For the marijuana industry, this can be a dangerous thing, especially where states are currently experimenting with regulations that may or may not prove effective. Just imagine if the infamous Maureen Dowd column had played out on TV and it was you who supplied her with the edibles. One little misstep can lost profits or a failed business.

Don Williams once said, “Fame and riches are fleeting. Stupidity is eternal,” and never was that phrase more true than for reality TV shows. The marijuana industry is already under a magnifying glass and any marijuana business thinking of signing up for the Real World of pot should think long and hard not only about putting their own legal rights at issue, but also about the reputation of the industry as a whole and about how their footprint can make all the difference in the momentum of legalization.

Just don’t say that we didn’t warn you.

Lights, camera, action….

 

 

 

From Where Can You Legally Get Your First Marijuana Crop? Good Question.

Posted in Business Basics, Federal law and policy, Florida, General, Illinois, Legal Issues, Medical Cannabis, Nevada, Oregon, Recreational Marijuana, Washington

We are always getting questions from our clients on how to manage their cannabis businesses in the context of legalization. How do we protect our brand name? How do we license our brand to other states? How do we make sure we are complying with packaging and labeling regulations? Are we allowed to advertise? How do we handle our employee issues? The list goes on and on.

As our cannabis lawyers increasingly do legal work in newly legalized states, however, one legal question seems to dominate our discussions: where are growers supposed to get their start-up inventory in a “legal” marijuana marketplace? The answer is typically anything but straightforward and it definitely varies from state to state, though most states are willing to look the other way when it comes to where ”legal” growers obtain their initial crops. The below is a brief run-down on how various states treat this seed issue.

Florida: Florida’s recently passed Compassionate Care Act makes no mention of where its five regional dispensing organizations are to obtain their initial high-CBD crops. The Florida Department of Health had this to say about the issue:

The statute does not address source material, and providing pathways for obtaining it is not within the Department’s lawful rule making authority … The Department of Health will not prosecute those who seek or possess clone plants, seeds or cuttings.

Ultimately, the state’s expectation is that growers will obtain their marijuana plants either from other states where marijuana is legal or from within Florida itself — if the qualified plants already exist in the state.

Illinois: Illinois’ medical marijuana pilot program makes no mention of where cultivators should obtain their initial crops and its Department of Agriculture’s FAQs provides as follows:

Q: Do the rules address where initial seeds/clones can come from?

A: No.

So in other words, you are on your own in having to figure out from where you should source your initial seeds and clones.

Nevada: The Division of Public and Behavioral Health will not turn a blind eye regarding from where cultivation facilities obtain their genetics and plants for growing their initial crop. Instead, the state expects cultivators to get their starting plants only from Nevada patients with a valid patient registration card (see NRS 453A.352 (5)). Since Nevada patients currently can possess no more than twelve plants, it is difficult to see how this will work.

Oregon: The Oregon Health Authority has the following to say on its medical marijuana FAQ page about growers sourcing their initial crops:

Q: Where do I get the seeds or plants to start growing medical marijuana?

A: The OMMP is not a resource for the growing process and does not have information to give to patients.

Similar to Illinois, so in other words, you are on your own in Oregon when it comes to finding your plants and seeds for growing.

Washington: I-502 producer licensees are given a 14 day window in which to obtain their initial inventory. Plants, starts, and clones can be brought in from anywhere so long as they are not in a flowering state. Washington completely failed to mandate where growers are to obtain their initial “legal” crop and it can hardly tell growers to make a mad grab for plants from the black market when such a directive is outside of its “rule-making authority.” So, growers in Washington have been left to their own devices when it comes to getting their initial “legal” plants.

Though the above list does not cover nearly every legal marijuana state, it does show that states with regulated marijuana regimes are still grappling with immense gray areas regarding some pretty important issues, such as from where initial crops must come. This is a legally very important question because obtaining start plants or seeds from overseas or from other states amounts to international and interstate drug trafficking — the exact activities the federal government has said it will target for arrests and prosecution. In the end this issue is just another product of the state versus federal conflict over marijuana legalization. And, unless and until Federal prohibition of marijuana is repealed, state licensed growers will need to cross their fingers in hoping that acquiring their initial “legal” inventory will not put them in hot water with Federal law enforcement.

How To Deal With Your State Marijuana Regulators: Fess Up

Posted in Business Basics, Legal Issues

Regulated businesses like marijuana, alcohol, production of nuclear fissile material, etc., are subject to intense levels of scrutiny. That scrutiny doesn’t always come from regulators, though, as businesses keen on avoiding any penalties often hold themselves to higher standards. This is a good thing, and informed, inquisitive compliance teams (either internal or external) can save them from significant heartache down the line. Even the best businesses can sometimes break the rules. Sometimes a rogue employee will steal marijuana for his own use. Sometimes a financier can lie about his state of residency to avoid scrutiny where state residency is required. Inaccurate product tallies can be entered into the software traceability system. And so on.

Clients often come to our cannabis lawyers with these issues, asking us what they should do. How do they fix the problem? Invariably, we advise full voluntary disclosure to the regulating agency. This may seem like buying your own ticket to jail, but voluntary disclosure can be the difference between a slap on the wrist and losing your business.

In fact, many state regulations explicitly provide for mitigating penalties when the business has demonstrated business policies and/or practices that reduce the risk of future violations. These same states typically treat voluntarily disclosing rule violations as a business policy that reduces the risk of future violations.

In our experience, we have found time and time again that voluntary disclosures lead not just to reduced penalties, but virtually always lead to no penalty at all. When our clients have gotten into trouble and we have disclosed the situation to the appropriate regulatory body, the investigators and enforcement officers at the regulatory bodies have worked with us to resolve the issue without filing a formal complaint. Money can be returned to an out of state investor and that investor’s ownership in the business terminated.  An incorrect entry in the traceability system can be remedied through allowed amendments to old entries. Marijuana stolen by an employee and reported can be accounted for.

Regulatory agencies know that while the goal is 100% compliance, the reality is that even the best companies are made up of humans that are sometimes prone to make mistakes and a 99.9% compliance and a 0.1% violation rate with full disclosure is still pretty good. This is especially true where the voluntary disclosure also includes information about the business having implemented a stricter compliance plan in an effort to eliminate such violations in the future. Regulators too are human and they appreciate companies that have strong compliance systems in place, do their utmost to comply with state regulations, and promptly and honestly report any and all compliance failures.

One word of caution: voluntary disclosures of the same rule violation can sound either benign or alarming based on how it is communicated. There is a delicate art to telling your regulator that you messed up. When we go to the regulators, we want to be able to tell them what our clients did before the violation to prevent the violation, but why it happened anyway. Most importantly, we want to be able to explain to the regulators in great detail exactly what our client will be doing not just to prevent the particular violation, but to beef up its compliance systems overall.

Real Property Forfeiture For Marijuana Tenants: Your Marijuana Leasehold Is Key

Posted in Business Basics, Federal law and policy, Legal Issues

Why do commercial landlords still hesitate to rent to marijuana businesses? In addition to the remote possibility of a landlord getting arrested and prosecuted by the U.S. Department of Justice (DOJ) for violating the Federal Controlled Substances Act, landlords face the very real threat of losing their property via a civil asset forfeiture. The federal government can and does sometimes seize property used for cultivating, manufacturing, or selling marijuana. In recent years, the Federal Government has netted at least one billion dollars from seizing personal and real property used for to manufacture or distribute Federally illegal drugs, including marijuana in states where marijuana is legal. Whether you are a commercial landlord or a marijuana business tenant, you need to know what you can do to help fend off Federal intervention, including asset forfeiture.

First though, a brief overview of how asset forfeiture works. Forfeiture can be either civil or criminal. Forfeiture of real property used to violate the Federal Controlled Substances Act is governed by 21 U.S.C §§ 881 and 18 U.S.C  §§ 983 and 985. Pursuant to 18 U.S.C §881(a)(7):

“[t]he following shall be subject to forfeiture to the United States and no property right shall exist in them … [a]ll real property, including any right, title, and interest (including any leasehold interest) in the whole of any lot or tract of land and any appurtenances or improvements, which is used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, a violation of this subchapter punishable by more than one year’s imprisonment.”

Since cultivating, manufacturing, and distributing marijuana are Federal crimes, real property used to facilitate the commission of those crimes is subject to asset forfeiture.

In civil asset forfeiture cases involving real property, the government actually sues the property itself and the property owner is treated as a third party claimant. Civil forfeitures of real property are initiated as judicial forfeitures, meaning a court with competent jurisdiction must oversee the seizure. The burden of proof is on the government to show by a preponderance of the evidence that the property is subject to forfeiture. Civil asset forfeiture of real property does not require that the government prove that the landowner is guilty of any crime; it is enough if the government shows that there is a “substantial connection” between the property and the crime alleged. By contrast, criminal forfeiture is against a person only after a conviction (beyond a reasonable doubt) for an underlying criminal offense.

Nonetheless, 18 U.S.C §983(d) creates what is known as the “innocent owner defense” to asset forfeiture of real property. “An innocent owner’s interest in property shall not be forfeited under any civil forfeiture statute. The claimant shall have the burden of proving that the claimant is an innocent owner by a preponderance of the evidence.” The term “innocent owner” means an owner who (i) did not know of the conduct giving rise to forfeiture; or (ii) upon learning of the conduct giving rise to the forfeiture, did all that reasonably could be expected under the circumstances to terminate such use of the property (emphasis added).”

In many states where marijuana has been legalized (either for recreational or medical use) the innocent owner defense is usually not available because the marijuana-legal state mandates that the lease explicitly allow for the cultivation, manufacture, or retail sale of marijuana. And, in most if not all, marijuana-friendly States, having a lease that allows for marijuana activity is a requirement to receive an operational license from the state. So then what can landlords and tenants do to prevent asset forfeiture or Federal intervention altogether?

First, as we noted in our post, Marijuana Commercial Leaseholds: Any Resemblance to Regular Leaseholds is Purely Coincidental real property leases that involve a marijuana business should include “escape clauses” listing Federal intervention, changes of Federal enforcement policy, forfeiture threats, and/or Federal enforcement (be it a raid by the DEA or filing of criminal charges by the DOJ) as defaults that constitute lease violations or cancellations.

Leases typically contain a permitted use provision to govern the activities that can take place on the leased property. The permitted use provision for a marijuana business should accurately identify the activities allowed on the property. For example, if a tenant is a marijuana retailer, the permitted use provision should reflect this by explicitly permitting “the retail sale of marijuana.”  If the permitted use is unclear, tenants run the risk of breaching the lease by conducting an activity not permitted on the property, which itself could invite Federal scrutiny.

It is also prudent for a marijuana commercial leasehold to set out a strict code of conduct relating to the use of the property. The typical Commercial Broker’s Association lease provides that any illegal activity on the property constitutes a default so just pulling one of these “off the shelf” is not the way to go. One reliable way to handle the illegality issue is to write a lease that explicitly forbids only those actions that violate state (not Federal) law.

Moreover, it is important to include in a marijuana lease provisions relating to hours of operation, the tenant’s treatment of its surrounding commercial neighbors, loitering, odors, the use of hazardous substances at the property, the number of people permitted on the property, and constant compliance with any and all state and local regulatory rules and with the recent Cole Memo from the DOJ.

The bottom line: Federal marijuana prohibition and the fluidity of state law marijuana regulatory schemes mean that standard commercial lease agreements are not sufficient to sustain and protect the landlord/tenant relationship involving a cannabis business. You instead need lease that accounts for the realities of running a marijuana business. Or prepare to face the consequences.

 

MMJ: A Money-Maker for States? Not Really.

Posted in Colorado, Medical Cannabis, Nevada

Opponents of marijuana legalization often view state legislators’ enthusiasm for such measures as simply a way to shore up (often depleted) state coffers. In reality, however, it seems that states are usually just looking to break even — at least in the case of legalizing cannabis for medical use. Taxes collected on recreational marijuana are much higher than for medical.

On the medical side, legislators realize that implementing a bureaucratically-heavy licensing regime comes with substantial cost. Applications must be reviewed, patient databases created, and regular monitoring and auditing performed. And, as Clark County, Nevada recently made clear, it hopes that the application and licensing fees and the taxes it collects will cover those costs. That county (which includes Las Vegas) does not expect a windfall from its burgeoning MMJ market. Similarly, Illinois has set up a medical cannabis fund, designed to recoup the direct and indirect costs associated with implementing, administering, and enforcing its Compassionate Use of Medical Cannabis Pilot Program Act. Application and licensing fees and the 7% privilege tax levied at the time of sale from grower to dispenser will go into the fund, with any excess used to support crime prevention programs. Implicit in these tax schemes is the idea that the state should not be getting rich off patients with chronic illness.

Clark County manager Don Burnette is quoted as saying there is “uncertainty” surrounding the issue, and that it is difficult to predict what the market will bear. He is exactly right. Until patients are signed up for cards and dispensaries are open for business, no one can be quite sure what will happen. As Coloradans are learning, even when the market is functioning, surprises can still happen. That state had forecasted that many individuals would move over from medical to recreational pot upon the opening of retail establishments in January, a projection which so far has not come true.

Bottom line here is that the motives behind marijuana taxation are not so clear-cut as detractors and others would make it seem and in pushing for either medical or recreational marijuana in your state, it is important that you realize the difference between the typical tax regimes for the two.

We do foresee many of the issues surrounding marijuana taxation becoming less controversial over time. After all, how many people these days question alcohol taxes or pay attention to where those revenues go? In a few years’ time, the answer will be the same for cannabis: not many.

They Said it On Marijuana, Quotable Saturday, Part XXIX

Posted in General

 

“Insanity is doing the same thing over and over again and expecting a different result.”
   - Albert Einstein

Okay, so Einstein didn’t say this about our nation’s marijuana laws, but he should have as it really is time that we start thinking about marijuana in a more rational and scientific way. As more and more states legalize cannabis in a piecemeal fashion, we need to start formulating a national policy that makes sense.

Seattle Medical Marijuana Dispensaries Given Extension to Operate

Posted in Legal Issues, Washington

Last week the Seattle City Council unanimously approved an extension for Seattle medical marijuana dispensaries that will allow them to continue operating until either July 1, 2015 or January 1, 2016, depending on what action is taken by the Washington State Legislature in the upcoming legislative session. This news should come as a big relief to owners of Seattle dispensaries who have been unable to obtain licensure under I-502.

To date, the Washington State Legislature has failed to reconcile the state’s existing medical marijuana system withthe new I-502 recreational marijuana regime. Because recreational licenses were issued via a lottery, many established dispensary owners were left in limbo with an existing business, but no license to operate under the recreational system. The ultimate blow to the State’s medical system came in April, when the Washington State Court of Appeals held that medical marijuana activity is illegal under current State law, and upheld the City of Kent’s ban.

To accommodate dispensaries that were open before November 16, 2013, but did not win a retail license in the lottery, the City Council originally voted to allow these businesses to operate in a transitional period until January 1, 2015. At that point, the dispensaries would either need to obtain a license under I-502 or close their doors.

However, as the I-502 licensing process has slowly progressed, and the State Legislature has failed to address the fate of medical marijuana in Washington, many dispensary owners have been left unable, but certainly not unwilling, to participate in the recreational system. We hope that the City Council’s extension buys dispensary owners enough time for the State Legislature to come to a consensus on medical marijuana. However, we do have to caution everyone that there is a Washington State Appellate Court decision finding medical marijuana dispensaries illegal in Washington State.