Canna Law Blog ™

Canna Law Blog

LEGAL SUPPORT FOR THE CANNABIS BUSINESS COMMUNITY SINCE 2010

Marijuana Law Myths. Not Everything Changes With Legalization

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

As marijuana business attorneys, we constantly hear things about the laws related to marijuana — even from our own clients — that are both accepted wisdom and 100% wrong. In today’s post, we highlight three of the things people most commonly get wrong, all three of which were told to us at least once this past week at our Tribal Marijuana Conference.

1. If Marijuana is legal in my state, any limitation on access to it is a civil rights violation. The Huffington Post recently quoted Kirsten Velsaco, an Illinois medical marijuana patient advocate as being “sure” that Illinois’s practice of fingerprinting patient applicants “is illegal: a violation of civil rights and privacy.” It isn’t.  Marijuana Myths

To be perfectly clear, we agree that Illinois’s fingerprint requirement for patients is bad public policy as it unnecessarily and arbitrarily limits very sick patients’ access to medicine.  But just because something is really bad and really stupid and really unfair does not a civil rights violation make. Sorry.

A civil right is an “enforceable right or privilege, which if interfered with by another, gives rise to an action for injury.” To succeed in a civil rights action, a person with standing must claim that a “protected right” has been violated. Illinois law does not recognize anyone’s right to possess cannabis without first being fingerprinted. Illinois already requires purchasers of certain prescription and over the counter medications, like oxycodone and pseudoephedrine, to produce a photo ID at the point of purchase. Moreover, federal law does not recognize or confer any statutory or constitutional right to possess a Schedule I controlled substance, which marijuana still is.

Though claiming the fingerprint requirement is a “civil rights violation” grabs headlines, it gives patients incorrect impressions of their legal rights and obligations. For patient advocacy to be successful, credible, and effective, it is important to distinguish between what the law is and what the law ought to be. Disagreeing with legislative policy judgment is different from claiming that those judgments are “illegal.” Saying you are going to sue over something like this may actually cause people to hold back from taking the more effective course to try to get this law stricken: lobbying the politicians with the ability to change it.

2. Now that marijuana is legal in Washington, Oregon, and Alaska, it is legal to sell Washington-grown marijuana in all three states. We hear this one ALL the time, mostly from marijuana businesses that intend to do this, believing it to be legal. It isn’t and please, please do not do this, unless you want to go to federal prison. The same holds true for Washington D.C., where marijuana was just legalized. You cannot just take your “legal” marijuana there and start selling it.

Taking legal pot across ANY state borders by boat or by car or by air is a big deal as it amounts to unlawful interstate drug trafficking.

Before we talk about why this is the case, we first must note that possession of recreational marijuana for adults twenty-one and older will not be legal in Oregon until its new law goes into effect on July 1, 2015. Possession in Oregon until that time is illegal unless in accordance with Oregon’s current medical marijuana laws.

More importantly, taking marijuana from one marijuana legal state to another is a federal crime. Marijuana is still a Schedule I Controlled Substance. The U.S. Constitution gives the federal government the authority to regulate interstate commerce. This means that it can (and does) prosecute people for transporting marijuana across state lines, even if the transport is from one marijuana legal state jurisdiction to another.

We are not saying that you should expect FBI agents to be sitting at the borders waiting to arrest people for going from one state to another with marijuana, but this is to say that traveling from state to state with marijuana is not advised, particularly by boat or by airplane. More importantly, a business plan that assumes this is legal is a business plan that will set you up to fail, especially if you publicly reveal that your business does this.

This is also a good time to remind you that if you are going to drive from state to state, clear out your cars, your boats, your airplanes, your clothes and your luggage before going from a cannabis legal state to one that is not. State troopers in states like Nebraska, Kansas, and Idaho (and even Nevada where cannabis is legal for medical us but not recreational) love making easy money by arresting and fining people entering with marijuana from Colorado and Washington.

Transporting a Schedule I Controlled Substance, including marijuana, across any state line is a federal felony. This is the case even if your medical marijuana patient card is honored in the next state over, and even if you are moving between jurisdictions that have legalized recreational marijuana. Keep and consume your cannabis in the state where you purchased it, or you run the risk of federal criminal charges for transporting a controlled substance.

3. Now that recreational or medical marijuana is legal in my state my employer cannot fire me and my landlord cannot evict me for using it. This is generally wrong.

In most marijuana-legal states, employers can and will continue to perform drug tests. They are also free to insist on a drug-free work place. And landlords are also generally free to insist on their properties being smoke-free.

Court decisions in Washington, Oregon, and California, among other states, have upheld an employer’s right to refuse employment to, discipline, or terminate an employee for marijuana use, even if the employee is a valid medical marijuana patient under state law. The big problem here is that employers with zero-tolerance policies are not testing for impairment on the job; they are testing for marijuana use, even if that use occurred weeks prior.

What is often overlooked is that even residual amounts of marijuana in your system could be grounds for termination if your employer takes a hardline stance with its drug policy. It is critical to remember that if you consume marijuana in your home in accordance with state law, you can still be fired if your employer maintains a drug-free workplace. Take a look at your employer’s HR policies. If you plan to keep your job, marijuana consumption may not be an option.

As for landlords, if they have a clause in your lease that forbids any smoking on the premises, the laws in most states/cities allow them to enforce that. Check your lease and then decide how badly you wish to remain.

4. Marijuana retailers are not liable for bad product or for product that infringes on someone’s trademark, patent, or copyright. You would probably be shocked at how many cannabis retailers believe both of these things. They believe that only the company (typically the grower or the processor) that caused the problem with the cannabis or with the trademark is liable and that they are somehow immune from any liability for merely selling it. They are flat out wrong.

Though product liability laws in most states usually favor those not involved in manufacturing a defective product, there are many circumstances when retailers can be held liable for having sold a defective product, even if they did not know about any defect. Even a retailer that had no part in making the defective product it sold can be held liable for just having sold it.

In about half of the states, a retailer that sells a defective product can be subject to liability for harm caused to a consumer from a defect. What this means is that marijuana dispensaries can be held liable if someone falls ill from anything sold at retail, including edibles or tinctures.

Many state laws provide exceptions for retail sellers of products, but they do not absolve retailers of all liability. These laws typically provide that a product seller can be liable for damages caused to a consumer if the consumer’s harm was caused by the product seller’s own negligence, if the product seller made a warranty about the product and then breached that warranty, or if the product seller intentionally misrepresented the product it was selling.

Most states also have laws rendering retailers liable for defective products if it is unlikely that the injured consumer will be able to enforce a judgment against the product manufacturer. This means that if someone is injured by a defective medible and the manufacturer of that medible cannot pay damages to the injured consumer, the retailer will be required to pay those damages, even though it did nothing wrong. 

The same holds true for trademark violations. If you are selling product that violates someone else’s trademark or patent or copyright you can be liable for doing so.

If you are a marijuana retailer, you are wrong to assume that you cannot be held liable for the products that you sell. This means that you need to be careful in vetting the manufacturers from whom you buy and the products you sell. You also should have insurance to cover worst case scenarios.

 

 

 

Federal Tribal Marijuana Memo Changes Almost Everything

Posted in Federal law and policy
Tribal Marijuana Conference

AP Photo by Elaine Thompson. This photo shows some of the speakers during a moment of silence for a Tulalip tribal leader who had just passed away.

In December 2014, the federal government announced that when it comes to marijuana, it would not essentially treat Native American Tribes as it treats states. Since that announcement, a number of tribes have indicated an interest in tribal marijuana. My law firm just last week put on the first national Tribal Marijuana Conference, attended by more than 400 people, from more than 75 tribes and more than 35 states.

Clearly, marijuana on tribal lands is going to be a big deal.

The Department of Justice has stated it will not focus its resources on prosecuting growing or selling marijuana on tribal lands, even when state law prohibits it. This holds true for both medical and recreational cannabis, though the DOJ will enforce federal marijuana laws on tribal lands if the tribe requests that it do so. According to the DOJ’s tribal marijuana memo, the eight enforcement priorities previously outlined in the DOJ’s August 2013 Cole memo will guide federal enforcement of marijuana laws on tribal lands. It is important to note that none of this changes federal drug laws or the federal government’s ability to enforce those laws. Therefore, any tribe considering setting up a legalized marijuana regime should enact and enforce “robust regulations” so as to comply with the Cole and tribal marijuana memos and to increase its odds of avoiding unwanted federal intervention.

In a statement to the media clarifying the tribal marijuana memo, a Department of Justice spokesperson had the following to say:

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 newly liberal policies regarding cannabis on tribal lands could be a financial boon for a large number of tribes, especially those in states where marijuana is not yet legal or limited to few medical uses. The tribes in those states may be the only source for legal marijuana for all of the state’s citizens. In states like Washington and Colorado, with advanced cannabis regimes, the tribes should be able to compete with legal sellers by imposing lower taxes or relatively more liberal regulations. The tribal marijuana memo nowhere prohibits existing non-tribal cannabis companies from conducting business with the tribes or on tribal lands, and already there has been a stampede of non-tribal cannabis businesses seeking to “partner” with various tribes.

The tribal marijuana memo states that tribes “should” consult with the U.S. Attorney in their jurisdiction before implementing tribal-forged marijuana laws. There are 93 US Attorneys and we do not expect all of them to agree to the tribes within their districts legalizing marijuana and they each have plenty of power to stop it. The intersection of federal, state, and tribal law and jurisdiction is complex and we are recommending to our tribal clients that they work closely with their local U.S. Attorney in securing approval of their particular legalization regime.

The opportunities for Native American Tribes in the cannabis industry are vast and just has been true of casino gaming, fireworks, and cigarettes, many tribes will immensely benefit from cannabis while others will opt out entirely. Tribal leaders will be meeting in Las Vegas on March 12 to cement the formation of a Tribal Leaders Cannabis Association that will enable moving forward as a unified group in dealing with key issues. We will be posting more information regarding this meeting later this week.

They Said It On Marijuana, Quotable Saturday, Part XLXII

Posted in Advocacy, Federal law and policy

Marijuana Should be Legal

“If the citizens of Colorado decide they want to go down that road [legalizing marijuana], that’s their prerogative. I don’t agree with it, but that’s their right.”

Ultra-conservative presidential candidate, Ted Cruz

If marijuana is going to become legal in all states, either through federal or state-by-state changes, we are going to need the support of more than just those who consume cannabis and those who advocate for it. We are going to need the support of those who for purely policy reasons believe that it should be legal. Those policy reasons might include any of the following:

  • A belief that individuals, not governments, should be the ones making the choice on whether to consume marijuana or not.
  • A belief that the states, not the federal government, should be the decision-maker on whether marijuana should be legal or not.
  • A belief that a legal system that arrests African-Americans at least four times as often for marijuana as Whites is unjust and bad for the country and should not stand.
  • A belief that there is something really wrong with people in some states getting a criminal record for doing what people in other states can do legally.
  • A belief that it makes no sense for someone to get a criminal record for smoking pot.
  • A belief that marijuana should be treated no differently than alcohol, for various reasons.
  • A belief that marijuana should be treated no differently than cigarettes, for various reasons.
  • A belief that marijuana should be treated no differently than ice cream, for various reasons.
  • A belief that it is a waste of taxpayer dollars and government resources to arrest and prosecute anyone for marijuana.
  • A belief that marijuana should be legalized so that businesspeople and citizens can profit from it, rather than criminals.
  • A belief that marijuana should be legalized so that states and municipalities can tax it.

The point is that we should accept allies on the legalization issue no matter what their reasoning and even if they do not “like” it.

Do you agree?

Marijuana In Alaska Is Now Legal: What Does That Mean?

Posted in Alaska, Business Basics, Legal Issues, Licensing, Recreational Marijuana

On February 24th, Alaska became the third state to legalize adults using and possessing certain amounts of marijuana. Despite this development, you cannot start selling cannabis willy-nilly in Alaska. You will need to register with the state to cultivate, manufacture, and distribute cannabis for public consumption. And the Alcoholic Beverage Control Board (ABCB), the agency overseeing Alaska’s recreational marijuana program, has yet to formulate regulations to control commercial marijuana businesses in The Last Frontier. That is likely to change soon as the ABCB has to develop its marijuana rules by November 24, 2015 and must begin accepting applications to run marijuana businesses no later than February 24, 2016.  Alaska Marijuana

So how will Alaska regulate marijuana businesses?

Though many believe Alaska will implement regulations similar to those in Colorado and in Washington, Alaska likely will also afford itself its own unique set of rules better tailored to a state with just 700,000 people. Senate Bill 62 sets forth a litany of regulations that will modify Ballot Measure 2 as passed. Senate Bill 62 covers many aspects of the marijuana industry, ranging from packaging and labeling of products to restrictions on advertising to specific distance requirements not set forth in the original language of Ballot Measure 2. The following are the top ten highlights of the bill:

  1. License application fees will exceed $5,000.
  2. Municipalities that allow for marijuana activity will have to develop their own marijuana licensing fees and schedules that do not conflict with the bill.
  3. Retail marijuana businesses will need to be at least 200 feet from churches, school grounds, or correctional facilities, “measured by the shortest pedestrian route from the outer boundaries of the school ground or the public entrance of the church building or correctional facility.”
  4. Residency requirements of various durations will be imposed for corporate entities and individuals.
  5. If municipal zoning does not permit marijuana business activity, the state shall not issue a license to an applicant in a prohibited municipal zone.
  6. Retailers can sell up to one ounce of cannabis to a single person in one day and they must remain closed from midnight to 8 a.m.
  7. Advertising cannot appeal to “minors” and packaging must be childproof.
  8. An individual dose of THC in edibles must be ten milligrams or less.
  9. Vertical integration (cultivating, manufacturing, and retailing) will be permitted under certain circumstances.
  10. Licenses can be transferred if certain regulatory conditions and restrictions are met.

SB 62 proposes six different license types:

  1. Producers. Those who cultivate cannabis and sell it only to processors or retailers. Notably, the bill makes no mention of any plant or canopy cap.
  2. Processors. Those who purchase cannabis from producers and other processors to “refine, process, cook, manufacture, develop, label and package marijuana and marijuana products” and who “perform solvent-based extractions on marijuana.” Processors can sell their products to retailers and other processors.
  3. Retailers. Those who buy marijuana from producers and processors to re-sell to the public. Any marijuana sold to the public by a retailer cannot be consumed on the retail premises.
  4. Boutique producers. A producer licensed to grow up to 50 marijuana plants to sell to a broker for re-sale.
  5. Home growers. Individuals who cultivate cannabis at home and are permitted to sell that cannabis to a broker for re-sale.
  6. Brokers. Individuals who buy from producers, boutique producers, and home growers and then re-sell cannabis to processors and retailers only.

SB 62 also creates state certification for marijuana testing facilities by the Department of Environmental Conservation.

If SB 62 provides any insight into Alaska’s cannabis future, we should expect Alaska to have a relatively sophisticated and closely regulated marijuana regime. The key at this point for any marijuana business stakeholder in Alaska is to closely watch and adjust to both the legislature and the ABCB, as either one can and likely will be formulating regulations for marijuana businesses.

For more on recreational cannabis in Alaska, check out the following:

The First Ever Tribal Marijuana Conference Is Tomorrow. Please Join Us.

Posted in Events, Federal law and policy

The nation’s first ever Tribal Marijuana Conference will be taking place tomorrow — this Friday, February 27 at the Tulalip Resort Casino, just North of Seattle. We are expecting around 400 people from around 35 states and representing around 75 tribes. There will also be a large contingent of national reporters covering the event. Tulalip

Our all-star cast of speakers, tribal leaders, public policy experts, and leading tribal and cannabis lawyers from both the public sector and the private sector will be discussing the legalization of marijuana in Indian tribal jurisdictions. Needless to say, if you are interested in tribal marijuana, this will also be a critical event for networking.

The Tribal Marijuana Conference Brochure contains the complete agenda, along with the full list of speakers and their biographies.

There is still time to purchase tickets to this event through Eventbrite.com or at the door (via credit card or cash only). If you have any further questions please contact Megan at megan@harrismoure.com.

On the Saturday morning following the conference, there will be a meeting for conference participants to discuss forming a Tribal Cannabis Association.

If you want to read more about the conference and some of the issues related to it., please check out some of the articles that have been written on it (so far) below:

UPDATE: Last we checked, the Tulalip Resort was extremely low on rooms. If you wish to spend the night near the event, note that this Holiday Inn Express is about one minute from the Casino with regular shuttle service to the Casino.

 

 

 

DC’s Last Day of Marijuana Illegality – Sort Of

Posted in Federal law and policy

Marijuana Politics

At least to 64% of D.C. residents who in November voted for Ballot Initiative 71 (“I-71”) and the legalization of certain aspects of personal marijuana cultivation and possession, Muriel Bowser is proving to be what they needed in a mayor – a fighter. Mayor Bowser is standing her ground against certain U.S. Congress members and has stated that as of 12:01 AM Thursday, I-71 will become effective.

This means that today – Wednesday, February 25, 2015 – is the last day in the District that individuals can be prosecuted by D.C. police officers for possessing up to two ounces of marijuana on their person or for growing up to six marijuana plants in their homes.

Given Washington, D.C.’s unique nature as a federal district and not a state, with federal parks and property included within the District’s territorial boundary, the law’s implementation – and understanding the implementation – will be tricky. Individuals residing in and visiting our nation’s capital should take steps to ensure they fully understand how D.C.’s marijuana laws will be administered. One example of an important implementation issue is that though D.C. police officers are obligated to follow the new law, federal law enforcement officers are not. Such federal officers may continue to arrest individuals for possessing marijuana under federal law. Whether and how such federal arrests occur in D.C. will be an important issue as I-71 is implemented.

As we discussed in previously in Politics and Pot: Will D.C. Marijuana Initiative 71 Stand? and What’s Next For Marijuana Legalization In D.C.? and Legalized Marijuana in D.C.: President Obama Hopes to Have the Last Word–Literally, I-71 is limited in scope. On Thursday, the law implementing I-71 will allow individuals 21-years-old and older to possess up to two ounces of marijuana, use marijuana on private property, and transfer with no exchange of money or anything of value up to one ounce of marijuana to another person who is at least 21-years-old. D.C. residents can grow in their primary residences up to six marijuana plants, only three of which can be flowering or mature.

Importantly, selling marijuana will not be legal on Thursday morning, and the U.S. Congress has implemented measures that make progress on commercial marijuana activities difficult for the foreseeable future. In addition, any public use of marijuana remains illegal. Individuals may not smoke or consume products containing marijuana outside their homes in such areas as cars, restaurants, bars, or parks

While the District moves forward in implementing I-71, certain Congressional members continue to fight it. On February 24, the U.S. House of Representatives Committee on Oversight and Government Reform issued Mayor Bowser a letter signed by Committee Chairman Jason Chaffetz (R-Utah) and Subcommittee on Government Operations Chairman Mark Meadows (R-North Carolina). The letter details the Committee’s position that Mayor Bowser’s implementation of I-71 is “a knowing and willful violation of the law” and requests that Mayor Bowser provide the following by March 10:

  1. A list of any District of Columbia employee who participated in any way in any action related to the enactment of Initiative 71, including the employee’s salary and position, the amount of time each employee engaged in the action(s), and the action(s) taken by the employee. Please also provide a list of any employee who declined to participate in activities related to Initiative 71.
  1. The amounts of any funds expended by activity on enactment of Initiative 71, including, but not limited to, the transmission of Initiative 71 to Congress and developing rules for law enforcement or the general public.
  1. Any document or communication related to the enactment of Initiative 71.

The Committee appears to be preparing for what could be a David vs. Goliath legal battle on the specific issue of marijuana legalization in the District and the larger issue of whether D.C. residents have the right to pass and implement ballot initiatives without Congressional interference. Though the legal issues are undecided, there appears to be no question about Mayor Bowser’s resolve. Or the will of 64% of D.C. residents who voted in November.

Navigating Marijuana Business Violations: Handle With Care

Posted in Business Basics, Legal Issues, Licensing, States

As marijuana enforcement officers are getting more comfortable with their roles, they are stepping up their efforts of ensuring that marijuana businesses are in full compliance with all applicable rules. What this means for your business is that the odds just keep going up that you will likely get called out for a compliance violation. We have written previously (here and here) about what marijuana businesses should do to avoid compliance citations, but this post is on what marijuana businesses should do after receiving such a citation.Marijuana Citation

Let’s start with what not to do, which list includes the following:

  • Do not argue with the enforcement officer issuing the citation. This is virtually guaranteed not to help you and it could very well end up hurting you.
  • Do not call anyone from the state to try to explain why you violated anything or to try to explain how you were not in violation. Again, this can only hurt you.
  • Do not ignore the citation. There are important time-intensive deadlines and policies and procedures that are enclosed with the notice of violation and failing to follow them will only compound your problem.
The best way to defend against a compliance citation is to gather up all relevant and exculpatory evidence and present that truthfully and calmly and persuasively at your settlement conference or hearing. In most situations this will mean that you should work with your attorney on the following:
  1. Establishing your record of compliance with the rules overall. If you can show that you have done your best to try to comply and that the citation against you was for something out of the ordinary, you will likely do better with the state.
  2. Provide an audit trail demonstrating that you have a strong working knowledge of the rules and that you care about compliance. Typically this will include safety inspections, compliance check-ins, and workplace policies focused on compliance. A good audit trail can also often be used as a mitigation factor to reduce your penalties.
  3. If you received a written warning before you received the formal notice of violation, you are going to want to show the efforts you made to try to cure the problem for which you received the warning.
  4. Provide evidence of the efforts you undertook to comply with the rule for which you were cited.
  5. Research and then make any good legal arguments about how the rule you allegedly violated should be interpreted according to the specific agency’s rule-making history and day-to-day business.
No matter how insignificant you consider your violation, you should do whatever you can to try to get the violation thrown out or the penalties reduced. Any citation that sticks will be a mark against you and enough of those marks can lead to your license being suspended or revoked. Bottom Line: Do what you can every day to prevent compliance citations and, if you get one, do what you can to get it dismissed or its severity reduced as soon as possible.

State Limitations on Early Stage Cannabis Business

Posted in Business Basics, Legal Issues, Recreational Marijuana, Washington

A couple of recent events have us thinking about the different ways retailers and cultivators are doing business in the cannabis market. First, a few of our clients have asked us about situations involving groups of retailers banding together to negotiate with producers and vice versa ­— groups of producers teaming up to negotiate prices and supply contracts with retailers. Then, Washington’s Liquor Control Board released emergency rules that, among other things, severely limited the ability of Washington marijuana businesses to enter into standard sales agreements. How are these things connected?

Let’s examine the guild-like behavior of certain businesses. A group of producers, like six or seven, approach a retailer as a group. They negotiate a standard sales agreement where the retailer buys a few pounds per month for a few months from their producer group. The producer group does not specify responsibility for delivery; it just guarantees that at least one of them will deliver in accordance with the agreement. The same thing is happening on the opposite side, where groups of retailers are working together to negotiate prices with producers and to set up regular purchases.

Marijuana Pricing

It makes sense that new businesses would be tempted to enter into these arrangements. Competition is hard and survival is even harder when participating in a new market. Marijuana supply and demand is still trying to find their proper equilibria, and businesses that are on the brink of failure with large stocks of inventory or great need of inventory might be willing to do business at a loss. The slow deaths of those businesses affects everyone’s prices. It is tough to survive.

A guild that jointly agrees on prices and negotiates as a unit can help with some of these problems. It can keep prices manageable and decrease cut throat competition and maybe even prevent free falling prices.

The big problem with these arrangements is exactly what makes them enticing — they are anticompetitive. An even scarier term to apply to them is price fixing. Price fixing is an agreement among competitors to raise, lower, or otherwise stabilize the price range or any terms. It is also a per se violation of state and federal antitrust laws. In most sates, an antitrust lawsuit brought by an aggrieved party against the companies that worked together to “stabilize” prices could yield triple damages for the aggrieved party. The companies that are forming these groups are taking serious and potentially costly risks.

In response to all this, the State of Washington has put into place as an emergency rule (effective prior to public comment) WAC 314-55-018, which says that “No industry member or employee thereof shall sell to any retail licensee or solicit from any such licensee any order for any marijuana tied in with, or contingent upon, the retailer’s purchase of some other marijuana. . . .” This rule seems to bar any type of multi-delivery transactions. If I contract with you that says I will pay you $2,000 per pound for two deliveries, a plain reading of this new rule would render that contract in violation of the rules, as it is conditions my purchasing marijuana from you now on my purchasing marijuana from you later. What could Washington have been thinking? We do not know think it was necessary to use such a blunt force rule.

Both government and marijuana market participants are not yet ready to stop experimenting. Sometimes this is a good thing, but not always, as it can land some in hot water. Marijuana prices are starting to stabilize. In the meantime, just try not to violate the antitrust laws.

Big Tobacco Won’t Be Big Marijuana (Yet)

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

Last year, I went to Las Vegas with two other cannabis business lawyers from my firm. We were there to attend the National Association of Tobacco Outlets’ (NATO) annual trade show held at The Paris Hotel. We at Canna Law Group thought it might be a good idea to go to such an event to try to gauge Big Tobacco’s interest in the emerging cannabis industry. Walking from booth to booth, it was obvious that Big Tobacco was embracing (dare we say, gripping onto?) the concept of vaporizing — branded as a new way to avoid actual cigarettes while still getting your tobacco fix, maybe even with a fruity flavor depending on your vape of choice. I could not help but think how most of the booths were virtually identical to the cannabis booths I have seen at various Canna-conventions and cannabis-oriented trade shows where vaping cannabis-based oils is already all the rage. There is a clear but uneasy synergy between marijuana and Big Tobacco, with the biggest differences being current laws and what goes into the vaporizers. Big Marijuana vs. Big Tobacco

Wanting to learn more, my colleagues and I began networking with the Big Tobacco folks. From your basic tobacco company representative there to pedal product to the big-wig executives with real decision-making power, the feelings regarding cannabis among those with whom we spoke were mixed at best. Some actually requested that we not discuss marijuana with them while others expressed mild to serious interest in investing in the Washington and Colorado cannabis marketplaces. Big Tobacco does not have much interest in getting into the marijuana industry.

Yet.

This past week a Bloomberg News article by Leonid Bershidsky, entitled, Big Tobacco’s Future as Big Marijuana, has been showing up on countless news sites on the web. The article is on the inevitability of Big Tobacco swallowing-up or destroying “mom and pop” marijuana businesses across the country and eventually totally dominating the marijuana industry, once legalization becomes more widespread. I vehemently disagree.  Marijuana may one day be a  natural step for Big Tobacco, but that day is a long way off and Big Tobacco’s inevitable domination is anything but certain.

Big Tobacco will not pull the trigger on marijuana until federal laws change and such a change is at least 3-5 years off. Congress is not likely to legalize marijuana federally until at least half of the states have themselves done so. Until that time there is just no way Big Tobacco investors will bet their financial lives on relatively unprofitable and federally illegal marijuana ventures.

Even if Big Tobacco wanted to get into marijuana markets right now, they would have trouble due to the various states’ tough restrictions on who can and cannot participate in the cannabis industry. Barriers to entry like residency requirements, investment caps, and actual industry experience would all work to keep out almost anyone from Big Tobacco. I also question how many cannabis medical patients would purchase marijuana for medical use from an entity associated with or backed by Big Tobacco. The same holds true for recreational users, though probably to a somewhat lesser extent.

Most importantly, I have faith that before Big Tobacco seriously considers jumping into marijuana, the moms and pops of the cannabis world will have expanded and become stronger despite federal prohibition. More and more individuals with serious business acumen are getting into the industry and their willingness to risk it all in the face of federal raids and asset forfeitures will give them all sorts of operational and branding advantages over Big Tobacco when it comes to brand recognition and advanced product development. Though I do not dispute that Big Tobacco will eventually make its way into the marijuana industry in some shape or form, it will not be anytime soon and the small marijuana businesses you see today will do just fine when that time eventually comes.

Marijuana Commercial Leases: This Industry Is Different, You Know

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

As so many of you know, few landlords are willing to rent to marijuana businesses. They are afraid of the very real possibility of losing their property in a federal civil asset forfeiture action. The federal government has been known to seize property being used for cultivating, manufacturing, or selling marijuana. In the last seven years, the Feds have seized \ more than a billion dollars in personal and real property allegedly tied to federally illegal drugs, including marijuana in states where marijuana is legalMarijuana Commercial Leases

If you are a landlord or a marijuana business tenant, you should know what you can do to help avoid federal intervention, including asset forfeiture.

Under federal law, forfeitures can be civil or criminal:

The 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 manufacturing, cultivating, and distributing cannabis are federal crimes, real property that facilitates those crimes is subject to asset forfeiture.

Civil forfeitures of real property are brought as judicial forfeiture actions that require a court to oversee the seizure. In these civil cases, the government has the burden of proving that the property is subject to forfeiture. The government does not need to prove the landowner is guilty of a crime. It merely needs to show a “substantial connection” between the property and the crime.

Federal law does provide what is known an “innocent owner defense” to the forfeiture of real property. This defense provides that property will not be forfeited if the owner can show that it did not know about the conduct giving rise to forfeiture or that when it learned of the conduct giving rise to the forfeiture it did all that it reasonably could to terminate such use of the property.

Here’s the big problem though in states where marijuana is legal for either medical or recreational use. In those states, the innocent owner defense is usually not available because the state typically mandates that the lease explicitly allow for the growing, manufacturing, or selling of marijuana. And, in most marijuana-legal states, having a lease that allows for marijuana activity is also required to receive a state license to operate.

There are though many things that both landlords and tenants can to prevent asset forfeiture or federal intervention altogether, including those discussed below.

Real property leases that involve a cannabis business should include “escape clauses” that specifically list out federal intervention, changes in federal enforcement policy, forfeiture threats, and federal enforcement actions (such as DEA raids or DOJ criminal charges or administrative actions) as defaults that constitute lease violations. This sort of provision will give the landlord fodder for appeasing the Feds.

Commercial leases typically contain a permitted use provision governing the activities permitted on the leased property. The permitted use provision for a cannabis business should specifically identify the activities allowed on the property. If the tenant is a marijuana retailer, the permitted use provision should explicitly permit  “retail sale of marijuana.” Leaving the permitted use vague will likely mean that marijuana tenants run the risk of breaching the lease by conducting an activity not permitted on the property, which itself could invite federal scrutiny.

Marijuana commercial leaseholds should provide for a strict code of conduct for property use. The typical Commercial Broker’s Association lease states that any illegal activity on the property will constitute a default in the lease, so just pulling one of these provisions “off the shelf” is not appropriate. We typically write our commercial marijuana leases to forbid only those actions that violate state law — not federal law.

Your marijuana lease should also include provisions relating to hours of operation, how the tenant treats of its neighbors, odors, loitering, use of hazardous substances, the number of people permitted on the property, and compliance with state and local regulatory rules and with the Cole Memo.

Federal marijuana prohibition coupled with the fluidity of state marijuana regulatory schemes make standard commercial lease agreements wrong for leases involving marijuana businesses. You instead need a lease that deals with the realities of running a marijuana business.