Cannabis lawyers
Jeff Sessions: Titling at Marijuana Windmills

On Monday, the National Conference of State Legislatures (NCSL) adopted a formal resolution that Congress enable financial institutions to serve marijuana businesses. The most interesting thing about the resolution was its forcefulness: it did not ask Congress to pass a banking bill specific to cannabis, or even to revisit the FinCEN guidelines for financial services. Instead, NCSL cut to the heart of the issue, telling Congress to deschedule marijuana altogether.

NCSL is a big deal. The bi-partisan organization represents all state legislators and their staffers nationwide. And NCSL seems to get more progressive on cannabis policy with each passing year. Last year, for example, NCSL issued a resolution that marijuana be removed from Schedule I, but not descheduled entirely. Next session, NCSL may adopt a separate resolution calling on Congress to “make medical cannabis policy a national priority to expand access to affordable medicine.” That resolution is rooted in fighting opioid addiction.

The timing of the NCSL action is important. We know that recently, Attorney General Jeff Sessions received recommendations on marijuana enforcement policy from a Justice Department task force. Sessions is keeping those recommendations under wraps, probably because they provided him with nothing to support his enforcement animus (a finding confirmed on Friday by an Associated Press report). At this point, it’s clear that Sessions is on a quixotic, lonely mission, when it comes to the issue of cannabis.

Still, Sessions is not throwing in the towel. After failing to convince Congress to allocate funds for the prosecution of medical marijuana operators two weeks ago, Sessions wrote the governors of a number of states with “serious questions” about their state cannabis programs. This letter was sent while federal agency representatives held veiled meetings about marijuana policy with state and local officials in Colorado. What exactly those meetings covered has not been ascertained. We do know, however, that Sessions has been using bogus weed statistics in the hopes of furthering his aims.

With Sessions working around the edges to promote his retrograde War on Drugs agenda, it is heartening to see legislative groups like NCSL proclaim that states are having none of it. Going forward, states will continue to set the trend on cannabis legalization, although Congress may find itself having to act sooner rather than later to re- or deschedule marijuana. Ironically, the catalyst for that action may be Attorney General Sessions, who continues tilting at windmills in his own strange reality.

Washington State Cannabis LawyersThe Washington State Liquor and Cannabis Board (LCB) yesterday rescinded its interim policy prohibiting a business or individual from owning multiple cannabis producer licenses. Now, a business and its principals can own up to three cannabis production licenses, which is up from just one license.

Though the LCB’s own rules (WAC 314-55-075) state that “any entity and/or principals within any entity are limited to no more than three marijuana producer licenses,” as of 2014, it restricted cannabis producers to no more than one producer license. Our Washington State cannabis lawyers never liked that restriction as we thought it encouraged illegal grows and bad behavior. See Washington LCB Producer License Roll-Back May Encourage Black Market Growers

The LCB announced its decision to rescind its one producer license policy at yesterday’s LCB meeting and noting how Washington State cannabis producers had been pushing to be able to expand and how the LCB’s own rules (WAC 314-55-075) allow ownership of up to three producer licenses. The LCB said it was time for the Board to “get out of the way” of Washington State cannabis producers.
We wholeheartedly agree.

To be clear, this shift in LCB policy towards producer licenses does not mean the LCB will be accepting new producer applications or expanding canopy space for existing producers; the LCB will not issue producer licenses to any new applicants nor will its policies on canopy space change. What this announcement does mean though — and this is a big deal — is that anyone who already holds a Washington State producer’s license will now be free to expand its cannabis production capabilities and canopy by purchasing other licensed producer businesses (up to two more). We know there is a massive pent-up demand for such purchases and sales because hardly a week goes by without one of our Washington State cannabis producer clients telling us of their desire to expand their production operations (mostly to better achieve economies of scale), and we also get frequent calls from companies (and clients) wanting to sell their production operations.

What we predict will happen in the market is a massive consolidation of smaller and/or struggling cultivators who will sell their businesses to larger-scale producers that are well organized and well capitalized. For years we have suspected this market consolidation of cannabis producers would occur in Washington and we see it likely to happen in other states as well.

If you are contemplating buying or selling a Washington cannabis production business/license you should be sure to check out the following:

 

 

California cannabis distribution lawUnder California’s now-repealed Medical Cannabis Regulation and Safety Act (“MCRSA”), would-be distributors would have had a field day (which became the subject of great debate industry wide). Under the MCRSA, California’s cannabis cultivators and manufacturers would have had to sell their products to licensed distributors who would then sell those products to licensed retailers. MCRSA distributors had to be separately owned from other licensees and the MCRSA draft rules mandated that distributors take title to all product. All of that has changed with passage of the Medicinal and Adult Use Cannabis Regulation and Safety Act (a/k/a MAUCRSA, SB 94, or the Governor’s Budget Trailer Bill), which combines medical and adult use cannabis laws and rules, repeals the MCRSA, and forces withdrawal of the MCRSA draft rules.

Under MAUCRSA, cannabis licensees can vertically integrate and even act as their own distributor. This ultimately means California cannabis distributors won’t really act as distributors as we know them from the alcohol model. Instead, cannabis distributors will mostly help transport product and be the arbiters of product quality assurance.

Under the common three-tier system of alcohol distribution in the U.S., you have three main actors: importers or producers, distributors, and retailers. Essentially, producers (brewers, winemakers, importers, etc.) sell their products only to wholesale distributors who then sell to retailers (bars, liquor stores, grocery stores, etc.). Only retailers can sell to consumers. The alcohol distributor is crucial to the distribution chain and therefore immensely powerful. The distributor is solely responsible for setting up the relationship between retailers and producers and it does this by negotiating prices and providing brand selection between the two. Why have this three tier model? The main reasons for doing this in the alcohol industry were to limit consumer overconsumption with high taxes (you have more taxable events by having a middle man) and by giving profit access to more players.

California’s version of a cannabis distributor under MAUCRSA seems to have all of the obligations of an alcohol distributor but not really any of the benefits of exclusivity or control between licensees. MAUCRSA defines “distribution” as the procurement, sale, and transport of cannabis and cannabis products between licensees. As of now, distributors are the only licensees that can transport inventory between licensees and the only licensees that must make sure third-party testing is completed and that all product packaging and labeling meet state requirements. Interestingly though, cannabis licensees are not required to sell their cannabis or cannabis products to a distributor and may directly sell to any licensee authorized to sell cannabis and cannabis products to purchasers. Despite this, all cultivation and manufacturing licensees must go through a distributor for testing and packaging and labeling quality assurance and distributors can charge fees for these services. Distributors will also be the ones to collect and remit taxes on behalf of cultivators and retailers and they must secure a Board of Equalization permit (in addition to state licensing) to do so.

Under the MCRSA, it seemed existing alcohol distributors and those acting like distributors under Prop. 215’s medical cannabis collective model were well-positioned to become power players in California’s cannabis industry. But now with passage of the MAUCRSA, it’s likely California will issue a slew of cannabis distributor licenses to actors of all sizes and these distributers will become one-stop-shops for mandatory quality assurance and little more. If California wants to avoid the same sort of distribution problems that befell Nevada in the early days of its adult use sales, it will need to issue a large number of distributor licenses. There may end up being some market for a distribution only model (in the alcohol sense) for distributors that can help their cultivator and manufacturer customers expand their markets and gain market share or that can help retailers secure top quality products and brands at good prices. But now that it will be so easy for cultivators, manufacturers, and retailers to get around distributors to forge their own relationships with each other, the role of cannabis distributors in California is far from the alcohol model.

To help you better understand what is going on with California cannabis and what MAUCRSA means for your cannabis business, three of our California attorneys will be hosting a free webinar on Tuesday August 8, 2017, from 12 pm to 1 pm PT. From our Los Angeles office, I will be moderating two of our San Francisco-based attorneys (Alison Malsbury and Habib Bentelab) in a discussion on the major changes between the MCRSA and the MAUCRSA, including on vertical integration and ownership of multiple licenses, revised distributorship standards, and what California cannabis license applicants can expect more generally from California’s Bureau of Cannabis Control as rulemaking continues through the remainder of the year. We will also address questions from the audience both during and at the end of the webinar.

To register for this free webinar, please click here. We look forward to your joining us.

Oakland cannabis lawyersCalifornia has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we cover who is banning cannabis, who is waiting to see what to with cannabis, and who is embracing California’s change to legalize marijuana — permits, regulations, taxes and all. For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your California cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on San Francisco and before that Sonoma County, the City of Davis, the City of Santa RosaCounty and City of San BernardinoMarin CountyNevada County, the City of Lynwood, the City of CoachellaLos Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey County and the City of Emeryville.

Today’s post is on the City of Oakland.

Welcome to the California Cannabis Countdown.

Location. With a burgeoning nightlife, beautiful Lake Merritt, and a slightly more reasonable cost of living than San Francisco, there’s much to love about Oakland. But yes, losing the Raiders and the Warriors is going to hurt – perhaps another category for chronic pain and suffering?

History with Cannabis and Current Cannabis Laws. Ever since the voters of California passed the Compassionate Use Act in 1996 (Proposition 215), Oakland has been on the forefront of legalizing cannabis use. In 1998, the Oakland City Council passed Resolution No. 72516 C.M.S. in support of the Oakland Cannabis Buyers Collective when the federal government sued the collective (and five other entities) seeking an injunction to get the collective to cease distributing and manufacturing cannabis. By making an attempt to come to the aid of a medical cannabis collective, Oakland firmly signaled it would fight for Oakland residents’ right to medical cannabis. In November of 2004, Oakland residents passed ballot measure Z. Ballot Measure Z was a continuation of Oakland’s dual-pronged approach to cannabis: focusing on social justice reform and proper regulation. The ballot measure made citations and arrests of private adult cannabis use Oakland’s lowest law enforcement priority and set the groundwork for establishing a system to license, tax, and regulate cannabis. Oakland followed up Measure Z by enacting Ordinance No. 12694, which established a community oversight committee with the role of assisting the city council in fulfilling the objectives of Measure Z.

Medical cannabis dispensaries in Oakland are currently regulated under Title 5, Chapter 5.80 of the Oakland Municipal Code, which became effective in July of 2011 and was most recently amended on March 28, 2017. The City of Oakland — more than most California jurisdictions — has shown a willingness to assist those most disadvantaged by the disparate enforcement of cannabis laws. When Chapter 5.80 was amended in March of this year, the City Council sought to remedy the disadvantages faced by residents via an equity permit program, which provides as follows:

  • Defines an equity applicant as one whose ownership has an annual income at or less than 80 percent of Oakland’s medium income adjusted for household size and has either lived in any combination of Oakland police beats 2X, 2Y, 6X, 7X, 19X, 21X, 21Y, 23X, 26Y, 27X, 27Y, 29X, 30X, 30Y, 31Y, 32X, 33X, 34X, and 35X for at least five of the last ten years or was arrested after November 5,1996 and convicted of a cannabis crime committed in Oakland;
  • Allows Oakland’s City Administrator to issue no more than eight new brick and mortar dispensary permits per year, with half of those dispensary permits going to equity applicants;
  • Allows applicants to apply for an onsite cannabis consumption permit;
  • Allows for delivery-only cannabis dispensaries;
  • Requires applications for cannabis dispensaries be subject to a public hearing.

Medical cannabis cultivation, distribution, testing, and transportation are currently regulated under Title 5, Chapter 5.81 of the Oakland Municipal Code, which became effective in July of 2010 and was also amended on March 28, 2017. Chapter 5.81 also included an equity permit program. Other of its highlights include the following:

  • A collective or cooperative of qualified patients or primary caregivers may cultivate medical cannabis covering an area of no more than 250 square feet inside a residential unit or if in a nonresidential building on one parcel of land without a permit (subject to numerous operating standards);
  • Allows for usage of both volatile and non-volatile solvents in manufacturing medical cannabis products;
  • Permits facilities that hire and retain formerly incarcerated Oakland residents to apply for a tax credit or license fee reduction based on criteria established by the Oakland City Administrator;
  • Mandates that no cannabis or cannabis odors shall be detectable by sight or smell outside a permitted cannabis facility;
  • Allows for more than one medical cannabis operator to situate on a single parcel of land, however, each such cannabis operator must obtain a permit for its applicable permit category; and
  • Requires cannabis cultivation and manufacturing applicants to obtain approval from the Alameda County’s Department of Environmental Health and its Department of Agriculture.

Proposed Cannabis Laws: On July 20th of this year, Oakland’s Cannabis Regulatory Commission met to discuss the ongoing implementation of the Equity Permit Program to see if it is accomplishing its goals. The Commission is also in the process of assisting the City Council with adopting a regulatory structure for the adult use of cannabis. Some of the issues the Commission highlighted for the City Council to review are the following:

  • Whether Oakland will create a licensing category for micro-businesses. Under California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA), a micro-business operator may act as a cultivator, retailer, distributor, and non-volatile manufacturer.
  • Whether the Oakland City Council will limit or cap the number of adult use cannabis dispensaries?
  • Whether to allow cannabis dispensaries to operate as both a medical and an adult use dispensary?

To help you better understand what is going on with California cannabis and what MAUCRSA means for your cannabis business, three of our California attorneys will be hosting a free webinar on August 8, 2017 from 12 pm to 1 pm PT. Hilary Bricken from our Los Angeles office will moderate two of our San Francisco-based attorneys (Alison Malsbury and me) in a discussion on the major changes between the MCRSA and MAUCRSA, including on vertical integration and ownership of multiple licenses, revised distributorship standards, and what California cannabis license applicants can expect more generally from California’s Bureau of Cannabis Control as rule-making continues through the remainder of the year. We will also address questions from the audience both during and at the end of the webinar.

To register for this free webinar, please click here. We look forward to your joining us!

Bay Area Cannabis LawyersWith California’s recent passage of its Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a the Governor’s Trailer Bill, a/k/a SB 94), California has combined government oversight of its medical and adult use cannabis industries into one master regulatory regime. MAUCRSA is almost guaranteed to make California’s cannabis industry more business friendly and less bureaucratic and protectionist, but questions remain about how the California Bureau of Cannabis Control (and its sister agencies) will fill in the gaps posed by the MAUCRSA legislation. Though we have 200 plus pages of proposed regulation under the now repealed MCRSA, those rules will need to go back to the drawing board to accommodate MAUCRSA’s changes stemming from Proposition 64 (one of San Francisco attorneys attended a state stakeholder meeting this past Monday, and that was pretty much confirmed). The big question is whether California will significantly revise the rules already proposed under MCRSA.

The short answer is nobody really knows, but there’s a good chance that many of the operational standards from MCRSA will remain.

We say this because regulators knew it was pretty much inevitable MAUCRSA would pass. We also say this because California’s regulators are on a tight timeline to begin accepting applications for licenses in January 2018 and slashing and burning MCRSA proposed regulations is not a good way to finish by that date. We expect the proposed MCRSA rules will not change much regarding the application process, except where necessary to make them better line up with MAUCRSA.

In turn, here are the top ten issues (among many others) we see with which California regulators will have to grapple when revising MAUCRSA rules:

  1. “Premises” and Multi-Tenant Operations. MAUCRSA defines premises as “the designated structure or structures and land specified in the application owned, leased, or otherwise held under the control of the applicant or licensee where the commercial cannabis activity will be or is being conducted. The premises shall be a contiguous area and shall only be occupied by one licensee.” MAUCRSA’s definition of premises is pretty much the same as in the proposed MCRSA rules, but it is not clear whether MAUCRSA rules will permit multi-tenant operations on the same parcel of land. Proposed MCRSA cultivator rules explicitly allowed for multi-tenant cultivation, but the MCRSA retail and manufacturing rules were silent on it. We’ll now have to see if the revised draft MAUCRSA rules will continue to permit multi-tenant operations.
  2. Local Approval Process. Under MCRSA, proof of a “local permit, license, or authorization” was required before you could receive your California state operational license. Though this has changed under the MAUCRSA, you still must be in compliance with local laws to secure your California state cannabis license. Among other things, the state of California will notify relevant local governments when a license applicant applies from within their borders. California’s cities and counties will then have 60 days to tell the state whether the applicant is in compliance with local laws. If the applicant is not in compliance, the state will reject the license application. If the local government stays silent, the state will presume the license applicant is in compliance with local laws, but will still not renew the license if the local government at any time notifies the state that the licensee is out of compliance with local laws. What we don’t know is how active local governments will be in communicating with the state about local law compliance. We expect litigation will emerge against local governments that “allow” cannabis operators to proceed via their silence, but then later object to those operations because of changes in local laws.
  3. Prohibited Products and Potency. The California Department of Health’s proposed manufacturing rules had a pretty aggressive list of prohibited products and everyone wants to know whether that list will change. Under MCRSA, California was not going to allow cannabis-infused alcohol, caffeine, or nicotine products and no cannabis product made of “potentially hazardous food.” Potentially hazardous food means any food “capable of supporting the growth of infectious or toxigenic microorganisms when held at temperatures above 41 degrees Fahrenheit.” This would mean products that must be refrigerated at less than 41 degrees and any dairy or meat products would not be allowed. MCRSA edibles also can’t contain more than 10 milligrams of THC per serving or more than one hundred 100 milligrams of THC per package of finished product. And, for non-edible manufactured cannabis, no finished package can contain more than 1000 milligrams of THC. Unfortunately, the consensus among our California cannabis attorneys is that it is unlikely MCRSA regulations will ease up on these restrictions.
  4. Advertising. Though MCRSA said nothing about cannabis business advertising other than that state agencies would generally regulate it, MAUCRSA heavily restricts it — there’s also bill in the California legislature to kill off cannabis business branded merchandise of all varieties.  What we don’t know is if regulators will further tighten advertising rules now that they have a roadmap from the state to do so. Specifically, under MAUCRSA both medical and adult use cannabis operators must:
    • Accurately and legibly identify the licensee responsible for advertising content.
    • Use a method to confirm age if involving direct, individual communication by the licensee.
    • Be truthful and appropriately substantiate their factual claims.
    • Not advertise or market cannabis in any of the following ways:
      • On billboards located on an Interstate Highway or State Highway that crosses the border of any other state;
      • In a manner intended to encourage people under 21 to consume marijuana;
      • With symbols, language, music, gestures, cartoon characters or other content known to appeal primarily to people under 21;
      • On an advertising sign within 1,000 feet of a day care center, K-12 school, playground, or youth center; and
      • Through free giveaways of marijuana or marijuana accessories as part of a business promotion.
  5. Non-Storefront Retail Delivery. Pursuant to MAUCRSA, “delivery” means the commercial transfer of cannabis or cannabis products to a customer and the retailer’s use of any technology platform it owns and controls. The MCRSA retailer rules required retailers to have brick and mortar storefronts from which to deliver cannabis product to patients. MAUCRSA on the other hand allows California cannabis retailers to “conduct sales exclusively by delivery” from a physical location that doesn’t have to be open to the public. Since the MCRSA regulations didn’t contemplate such a model, California cannabis regulators will need to craft rules regarding such operations, which will have huge ramifications for those delivery-only retail operators.
  6. Anti-Competitive Behavior. MAUCRSA zeroes in on preventing anti-competitive behavior between licensees, probably because, unlike MCRSA, MAUCRSA currently allows for near total vertical integration for almost all licensees and doesn’t yet limit the number of licenses a person can have in a given category (outside of Type 3s, see below). Specifically, MAUCRSA states that, it “shall be unlawful for any person to monopolize, or attempt to monopolize, or to combine or conspire with any person or persons, to monopolize any part of the trade or commerce related to cannabis. The Attorney General shall have the sole authority to enforce the provisions of this subdivision.” Though the Attorney General’s office will be the one to enforce here, there’s nothing to stop California’s regulating agencies from creating additional rules to prevent exclusive or long term contracting between licensees or to prevent cannabis licensees from exerting undue influence over each other. We have yet to see those rules, but they’re bound to arise as they have in other states with highly regulated cannabis regimes.
  7. State Due Diligence on “Owners.” MAUCRSA slightly changes and consolidates the definition of owner. “Owner” now means a “person with an aggregate ownership interest of 20 percent or more in the [entity] applying for a license or a licensee, unless the interest is solely a security, lien, or encumbrance; the chief executive officer of a nonprofit or other entity; a member of the board of directors of a nonprofit; and an individual who will be participating in the direction, control, or management of the person applying for a license.” MAUCRSA requires owners go through increased vetting (as opposed to those considered “non-owners”), but the consensus among our California cannabis attorneys is that the state will up the ante on background checks during the application process for those considered non-owners.
  8. Self-Distributorship. The MCRSA mandated cannabis cultivators and manufacturers go through separately owned third party distributors to get their products to market with retailers. MAUCRSA undoes this standard, for better or worse as I told L.A. Weekly, by allowing cannabis licensees to be their own distributors — with the exception of Type 5 licensees (i.e,. large scale growers), which won’t exist for the first five years of the program. The proposed MCRSA rules thoroughly covered how distributors could interact with licensees and operate. We don’t yet know whether those comprehensive regulations (like being able to take title to cannabis products and mandating separate storage facilities for inventory) will remain under MAUCRSA regulations now that almost all licensees can distribute their own products.
  9. Continuing Operations. The proposed MCRSA rules all had the following “continuing operations” standard: “All applicants that were in operation prior to January 1, 2018 . . . may continue to operate while their application is pending if a completed application is submitted to the Department no later than 5:00 p.m. Pacific Standard Time on July 2, 2018, and the continuing operations of the applicant are the same activities in which the applicant is seeking licensure.” MAUCRSA does not have this standard, which is somewhat problematic for those securing local permits, licenses, and approvals right now–though it does have a temporary licensing standard that will likely fill the gap here to make sure there is no shortage of product or access to cannabis when 2018 rolls around, but the procedures around securing those temporary licenses need to be fully created.
  10. Limitation on Type 3s and Total Plant Canopy. The MCRSA required the California Department of Food and Agriculture (“CDFA”) to limit the number of Type 3 cannabis licenses. Type 3s are mid-size grow facilities between 10,001 and 22,000 square feet of plant canopy. MAUCRSA has this same limitation requirement. Under the proposed MCRSA cultivation rules, the CDFA limited “a person … to one Medium Outdoor, or one Medium Indoor, or one Medium Mixed-Light license., and all cultivation licensee applicants to no more than 4 acres of total plant canopy statewide. It is not yet known whether the CDFA will keep these limitations in place.

To help you better understand what MAUCRSA means for your cannabis business, three of our California attorneys will be hosting a free webinar on August 8, 2017 from 12 pm to 1 pm PT. I will moderate San Francisco-based Alison Malsbury and Habib Bentaleb in a discussion on the major changes between the MCRSA and MAUCRSA, including on vertical integration and ownership of multiple licenses, revised distributorship standards, and what California cannabis license applicants can expect more generally from California’s Bureau of Cannabis Control as rule-making continues through the remainder of the year. We will also address questions from the audience both during and at the end of the webinar.

To register for this free webinar, please click here. We look forward to your joining us!

California cannabis rulesAt a Sacramento conference I attended last week, a panel of California’s cannabis regulators discussed the status of the state’s new cannabis laws under the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA” a/k/a SB 94) that aim to reconcile California’s 2015 Medical Cannabis Regulation and Safety Act (MCRSA) and the 2016 Adult Use of Marijuana Act. MAUCRSA comes on the heels of a comprehensive set of proposed MCRSA regulations (see here, here, herehere, and here) and a slew of pubic hearings and commentary on those proposed rules. According to regulators, they are now incorporating public comments as well as MAUCRSA into their efforts to finalize the licensing rules before licenses begin to issue in January 2018.

Here are some of the potential changes to the MAUCRSA regulations discussed at Monday’s panel:

  1. The MCRSA proposed rules will be withdrawn in full, and new MAUCRSA rules will likely come in the fall that cover both medicinal and adult use. Some regulations likely will change from their current MCRSA form, but what likely won’t change is the license application requirements, and the state expects to begin issuing temporary licenses in early December for applicants with prior local approval. The temporary licenses will be good for only four months, though, and these licensees will still have to go through the full application process.
  2. Based on public feedback received to date, the regulators expect some cultivation rules to change, including the definitions for “mixed light,” “indoor,” “outdoor,” and “owner.” Also, the requirement for 42% renewable source energy for indoor grows will likely be revised to define exactly what qualifies as a renewable source and to potentially alter the percentage mandated, though it is unclear whether that would increase or decrease.
  3. MAUCRSA allows individuals to hold both medicinal and adult use licenses but only if there are located at “separate and distinct” premises. The MAUCRSA regulations will aim to clarify what “separate and distinct” means, and regulators on the panel didn’t seem to want a strict interpretation of that term so as to require entirely separate parcels, but instead discussed the possibility of allowing “physical barriers” of some sort between separately licensed medicinal and recreational activities.
  4. Under California’s existing Compassionate Use Act, medical cannabis operators have utilized mostly non-profit mutual benefit corporations as the preferred corporate form for compliance. What MAUCRSA doesn’t do is explicitly clarify how these non-profits might transition to for-profit companies without jeopardizing their licenses or prior local approval or triggering regulator scrutiny. The regulators acknowledged that this omission in MAUCRSA may foreclose specific regulation on the subject until further “cleanup” legislation is handed down from the legislature.

Though the public comment period on the MCRSA proposed rules has already passed, regulators stressed that they welcome further feedback from cannabis industry stakeholders ahead of their releasing proposed MAUCRSA regulations in the fall. They made clear that public input is an essential element of making sure California “gets it right” on developing and regulating a successful and safe recreational and medical cannabis industry.

To help you better understand what MAUCRSA means for your cannabis business, three of our California attorneys will be hosting a free webinar on August 8, 2017 from 12 pm to 1 pm PT. Los Angeles-based Hilary Bricken will moderate two of our San Francisco-based attorneys (Alison Malsbury and Habib Bentaleb) in a discussion on the major changes between the MCRSA and MAUCRSA, including touching on vertical integration and ownership of multiple licenses, revised distributorship standards, and what California cannabis license applicants can expect more generally from California’s Bureau of Cannabis Control as rule-making continues through the remainder of the year. They will also address questions from the audience both during and at the end of the webinar.

To register for this free webinar, please click here. We look forward to your joining us!

Oregon Cannabis laws
Oregon’s Cannabis Laws

Last week, the 2017 Oregon legislative session came to an end and it wound up basically how we thought it would. During the five-month term, the Oregon legislature passed a raft of cannabis bills related to medical marijuana, adult use pot, and industrial hemp. In addition to the new laws (which I’ll get to in a minute), this session was notable for the dissolution of the aptly named Joint Committee on Marijuana Regulation. The Joint Committee was created over two years ago for the express purpose of implementing Oregon’s Measure 91. Now that the Joint Committee has dissolved, you can expect to see fewer bills on cannabis going forward: most of the work to shape legislation and public policy is done in committee.

With no more Joint Committee and only a short legislative session to look forward to in 2018, industry players can only prepare for what probably feels like water torture at this point: the seemingly never-ending treacle of administrative rule-making by the Oregon Liquor Control Commission (adult use / recreational, and now medical marijuana); Oregon Health Authority (strictly medical marijuana) and Oregon Department of Agriculture (industrial hemp). Each of these agencies will make rules to implement and interpret Oregon’s revised cannabis statutes, as summarized below.

Senate Bill 1057. This was the big one, which, among other things: (1) requires medical growers use the METRC tracking system; (2) establishes immature plant limits for medical growers; (3) allows OLCC licensees to declare themselves as exclusively medical cannabis growers; and (4) assigns all cannabis labeling operations to OLCC. For a full list of the SB 1057 provisions and our take on their impact go here.

Senate Bill 56. Because the immature plant limitation in Senate Bill 1057 had many people freaked out, especially medical growers in transition to OLCC, the legislature quickly scrambled to pass SB 56, which suspends the immature plant limitation for a premises at which an OLCC application was pending as of June 23, 2017. This one seemed to make sense to everyone. The new law also allows for limited cannabis processing by small, licensed OLCC producers (<5,000 square feet of canopy; water or mechanical extraction only) and provides for the immediate suspension of any marijuana license for diversion of product to the illegal market.

Senate Bill 302. This bill removes provisions related to marijuana offenses from the state Uniform Controlled Substances Act. It also removes and/or reduces various criminal penalties related to marijuana crimes by unlicensed operators. The thrust of this bill was to treat marijuana crimes more like alcohol crimes, and it achieves that purpose. Because penalties for marijuana offenses were scattered throughout the Oregon statutes, this one has an enormous amount of tedious, conforming amendments, to something like 125 statutes.

Senate Bill 303. This law is similar in nature to SB 302. It amends, clarifies, and reconciles statutes related to minors possessing and purchasing both cannabis and alcohol. Generally speaking, it should have little effect on the cannabis industry.

Senate Bill 863. This one concerns consumer privacy, and it serves as a further attempt by Oregon to shield its citizens’ information from the federal government. The new law prohibits marijuana retailers from recording, retaining and transferring “information that may be used to identify a consumer.” This bill was short, sweet and non-controversial.

Senate Bill 1015. This new law provides that industrial hemp growers may transfer hemp to OLCC licensed processors. Similarly, industrial hemp handlers may transfer both hemp concentrates and extracts to processors. Expect a fee and some forms.

House Bill 2197. This is a neat bill that passed toward the end of the session. It allows the Oregon Department of Revenue to enter into agreements with the governing body of federally recognized Indian tribes (read: The Confederated Tribes of Warm Springs). Under those agreements, the State of Oregon would make rebate payments to the tribes for the estimated tax on marijuana items sold by tribes. Let’s wish the Warm Springs tribe luck.

House Bill 2198. HB 2198 is the only bill on this list that is not yet a law. It currently sits on Governor Brown’s desk for review, and we expect she will sign it. If she does, the bill would establish an Oregon Cannabis Commission, to report back to the legislature on the status and condition of the Oregon Medical Marijuana Program (which the legislature keeps curtailing). The idea here is to find a way to help medical marijuana patients who might otherwise be left behind. Among other things, this bill contains the controversial “20 pound amendment” which would allow designated Oregon medical marijuana growers to sell up to 20 pounds of excess flower annually into the OLCC market. It also makes changes to miscellaneous items, like the buffer rule related to schools and cannabis dispensaries.

Buying a Los Angeles Cannabis dispensary
Buying a Los Angeles cannabis Dispensary? Due diligence is key.

With California’s recent passage of the Medicinal and Adult Use Cannabis Regulation and Safety Act (“MAUCRSA“), we finally know California will be combining its regulatory oversight of medical and adult use cannabis. We also know potential licensees no longer need to prove prior compliance with local laws to receive a state cannabis — which was the case under MCRSA, which has been repealed. This does not mean state licensees get to violate local laws. Instead, MAUCRSA lays out a sort of local vigilance program where the state notifies local governments of incoming licensees and the local governments then have to let the state know whether those licensees are complying with local cannabis laws. Local law is still king in California.

If you’ve been following the situation in Los Angeles, you know LA has an embattled history with its medical marijuana dispensaries. In addition to other enforcement measures, one of the City’s biggest battles has been enforcing Proposition D (a mere immunity-from-prosecution ordinance), which was essentially replaced this past March with ballot initiative Measure M that will finally regulate cannabis businesses within the City’s borders. Among other directives, Measure M ensured that Proposition D-compliant dispensary collectives would receive “priority” status for whatever local approval mechanism the City would design under Measure M. Despite the passage of Measure M, the question remained as to whether the City would increase the number of dispensaries and how exactly the City would regulate its cannabis operators.

Last month, Los Angeles released proposed Measure M regulations. Under those regulations (which are in a 60-day comment period), dispensaries that can prove “substantial” compliance with Proposition D will receive priority processing in the first round of the City’s issuance of “certificates of approval.” Though there has already been a fair amount of stakeholder dissent surrounding the use of certificates of approval and backlash against the proposal of a non-retail registry for cultivators and manufacturers, what has not been discussed as much is whether Proposition D-compliant dispensaries can essentially “flip,” or partner with third parties on, one or more of their certificates of approval (which include delivery and cultivation).

Even before institution of Measure M, folks were looking to “buy” Proposition D-compliant dispensaries, but ever more so now that owning such a dispensary gets priority processing from the City and because L.A. may not actually increase its number of dispensaries based on some restrictions in the proposed Measure M regulations.

If you are looking to get in on a Los Angeles cannabis dispensary you need to be thinking about due diligence. Due diligence on Los Angeles dispensaries is difficult because California’s existing MMJ laws under Prop. 215 do not require much operational or corporate accountability or tracking on either the state or local level. Also, because most of these entities are non-profits, there’s no equity to buy or sell. So you need to check the entity’s bylaws to make sure you can either take over the entity by paying a membership fee or that you can do some kind of director swap with an attendant asset purchase and that the entity will not need to give notice to thousands of patient members for you to do so. Given the unregulated nature of existing operators on a state level, you also need to make sure that the dispensary has been paying its taxes to the IRS (under 280e) and that it has been paying the Board of Equalization. Lastly, many Los Angeles dispensaries are not compliant with Proposition D and this too could cause you all sorts of problems. What makes for a compliant Proposition D dispensary? This is not entirely clear. Some believe that being on the 2013 City-issued list (which shows 134 dispensaries) proves compliance. Others believe the June 2017 map of dispensaries issued by the City Controller is the proof you need. Proposition D says that to prove compliance, a Los Angeles dispensary must show the following:

1. Was operating as a medical marijuana dispensary in the City by or before September 14, 2007;
2. Had a business tax registration certificate (“BTRC”) or tax exemption from the City by or before September 13, 2007;
3. Was registered as a medical marijuana dispensary with the City Clerk by November 13, 2007 pursuant to the then existing pre-interim control ordinance number 179027;
4. Notified the City Clerk by February 18, 2011 of its intention to register under the city’s Medical Marijuana Ordinance 181068, as amended by temporary urgency ordinance 181530;
5. Has not ceased operations at its identified location for any of the following reasons: (1) court or government enforcement order to shut down or (2) lack of a lease or utilities (in the name of the dispensary or one of the managers/directors of the dispensary for the benefit of the dispensary) to the property. There are exceptions to this requirement if the dispensary ever relocated (which they were allowed to do) or if it temporarily closed down because of a shutdown letter from the Feds or the City prior to the temporary urgency ordinance 181530 but then re-opened;
6. Obtained its BTRCs for 2011 and 2012 (and has continued to renew those BTRCs with the City);
7. Has no outstanding or unpaid tax liability with or to the City (including any fines, penalties, etc.). There are some exceptions here on payments during the 2011 and 2012 tax years, and settlement agreements with the City are also exempt;
7. Has continuously complied with the various operational requirements in Proposition D;
8. Has had all dispensary managers over the years submit to the City livescan checks; and
9. From property line to property line, is at least 1,000 feet away from any schools and at least 600 feet away from any parks, churches, child care facilities, public libraries, youth centers, rehab facilities, and other dispensaries.
Under Measure M proposed regulations, the City will allow the dispensaries to explain any mitigating factors for non-compliance with Proposition D, but that’s definitely not a guarantee the dispensary will receive a certificate of approval.
If you are contemplating buying into or joining as an owner in any Los Angeles dispensary business, due diligence will be key. Proposition D compliant-dispensaries are valuable as they may end up being the only dispensaries in Los Angeles for a number of years. But don’t get sucked into investing in a Los Angeles dispensary that will not be able to prove its immunity under Proposition D–avoid this problem by doing proper due diligence.

California CannabisThere have been countless reports of how California’s medical and adult use cannabis markets under the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act (now, combined under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA“)) will generate billions of dollars in revenue. Unless more California cities and counties allow commercial cannabis activity within their borders, these numbers will prove far too high.

Our California cannabis clients are constantly asking us questions like, “where in California should I set up my cannabis business? Which California cities and counties are the friendliest towards cannabis? Who is regulating now for what I want to do?” And though the list of “welcoming” cities and counties continues to change, it seems the worst cities and counties for cannabis continue to remain the same, despite the will of the voters and the actions of the California legislature.

When it comes to cannabis the below is my list of the five worst California cities and counties for commercial cannabis activity — not shockingly, most on this list are in Southern California:

  1. Los Angeles County. The most populous county in the United States has for a long time had a complicated relationship with cannabis. Though at one point Los Angeles County passed comprehensive regulations for medical marijuana dispensaries, (which remain in the County Code to this day) it has since instituted a ban on dispensaries and, as of 2016, it has also banned all commercial marijuana activities within unincorporated areas of the County. In March of last year, the County voted to shut down all illegal dispensaries and it has vigorously pursued those shutdowns. It also adopted an ordinance that makes it explicitly illegal for landlords to rent to any marijuana operators. And just this month, the County again voted to extend the ban for an entire year on all marijuana-related business activity, though with this vote the County for the first time also outlined “reasonable regulations” for personal use of marijuana for medical purposes by individual patients. There is though some light at the end of the tunnel since the County expects eventually to pass comprehensive regulation for marijuana businesses. Though the MAUCRSA does not require local government approval of your cannabis business before you receive a California state license, eventual compliance with local laws is still required in the state licensing process. What this means is that unless and until L.A. County sets up its regulatory scheme, we shouldn’t expect a lot (or any) state-licensed or locally permitted commercial marijuana activity in the County.
  2. City of Riverside. In 2013, the City of Riverside won a landmark case before the California Supreme Court upholding its right to ban medical marijuana collectives within its borders under Proposition 215. And since the MAUCRSA does not prohibit cities and counties from banning marijuana businesses, Riverside is keeping with its prohibitions against cannabis businesses within city limits. City of Riverside voters rejected a 2015 ballot measure that would have allowed and regulated a small number of dispensaries in the City and since 2007, Riverside has shuttered 118 dispensaries — giving it the supposed distinction of being the only California city with a 100% closure rate. Riverside is keeping its ban on medical marijuana businesses in place for now, and though it has yet to make a decision about adult-use marijuana businesses, we can fairly safely predict that too will be a no-go.
  3. Orange County (and most of its cities). Though beloved cannabis reformer (and author of the Rohrabacher-Farr Amendment) Congressman Dana Rohrabacher hails from the OC, his home county and most of its cities are pretty bad when it comes to allowing for/regulating commercial cannabis activity. Orange County banned dispensaries (and all other medical marijuana activity) in 2010 after the Sheriff’s Department submitted a report to County supervisors stating that “dispensaries [were] responsible for an uptick in robberies, burglaries, weapons violations and money laundering.” Though some OC cities allow for small home grows for qualified patients and their primary caregivers, most OC cities (including its largest city, Anaheim)do not allow any commercial cannabis activity or they charge an arm and a leg for it (see Costa Mesa‘s approximately $94,000.00 price tag for cannabis permitting). And let’s not forget that botched dispensary raid in Santa Ana in 2015. Back in January of this year, the County did begin talking about regulation of marijuana businesses after passage of Proposition 64 but so far nothing has come of that discussion and OC cities mostly continue to opt for prohibition.
  4. Marin County. When it comes to cannabis business regulation and Marin County, two words come to mind: drama and disappointment. In December 2015, Marin County passed an ordinance (effective in February of 2016) giving its Board of Supervisors authority to license medical cannabis dispensaries in unincorporated Marin. This ordinance allowed up to four dispensaries in two zoned areas. Ten applications were submitted to the Marin County Board of Supervisors and open to public hearings. The County Administrator, Matthew Hymel, rejected all ten of the applications pretty much over substantive concerns with each application and because residents were concerned about having an over concentration of brick and mortar dispensaries within the county. Eight of the ten applicants appealed that decision and Hymel rejected all of those appeals. To date, the County hasn’t picked up the torch again on a revised approach to regulating marijuana dispensaries or other commercial cannabis activity.
  5. City of Pasadena. If you can’t beat ’em, take away their resources. This is what Pasadena has done in a concerted effort to choke out and shut down illegally operating cannabis businesses within its city limits. It was reported that, as of May of this year, “. . . there are 12 shops in Pasadena that sell marijuana . . . None of them have permits to operate. One of two dealers with numerous citations for illegal distribution said through it attorney that it will not stop selling pot until ordered to do so by a court. Even after sending cease and desist letters and suing half of the operators, these shops still are not closing their doors. In response, Pasadena decided through an ordinance to shut off utilities to illegal operators to force them to close (not surprisingly, Anaheim and L.A. have also used this tactic). Pasadena makes my list not because it is trying to enforce its own laws but because it has not given immediate or emergency regulation a shot. Instead, it’s choosing to waste additional time and tax payer dollars shuttering operators it could have re-located, regulated and taxed.
California cannabis seminar: june 22 and 23
California cannabis seminar: June 22 and 23

On June 22nd and 23rd in Santa Monica, Canna Law Blog’s own Hilary Bricken will be chairing and presenting at a day and a half long continuing legal education (CLE) event called “Medical and Recreational Cannabis in Southern California.” This will be Hilary’s third year heading up and presenting at this event. Robert McVay from our firm will also be speaking there. The roster of speakers lined up for this CLE is better than any previous year and everyone, including non-lawyers, would be well served to attend. For a full event description, including topics, speakers and registration links, go here.

Hilary’s talk will be on how California has borrowed from Washington and Oregon in creating its new cannabis regime. Hilary is particularly qualified to discuss this topic as she is licensed in both Washington and California and she often consults with our Portland, Oregon office on high level cannabis regulatory matters. Hilary began her career as a cannabis lawyer way back in 2010 in Seattle and she now heads up our California practice out of our Los Angeles office.

Robert’s talk is entitled, Investing in the Cannabis Industry, and it is described as follows:

How to raise money in California’s marijuana industry? Can entrepreneurs even raise funds under the current MCRSA or Proposition 64 regulatory rules? If they can, how do they do that? What should a solid marijuana PPM contain? What should the “Disclaimer” section disclose? What liability exists for investors? What kinds of questions should investors be asking? How should an investment deal be structured in the marijuana industry? Is that deal the same in every state? Are Kickstarter or other crowd funding sources possible for the marijuana industry? If not, why not?

It is amazing to see the pace at which California is attacking regulation of commercial cannabis activity under its Medical Cannabis Regulation and Safety Act. Even though the state is just beginning to take public comment on its initial rules, those rules already show great attention to detail. For our take on what you need to know and do now in California if you are looking to start a cannabis business there, check out 10 Reasons Why You’re Already Behind on California Medical Cannabis Licensing.

California cannabis attorneys and potential license applicants alike need to familiarize themselves with California’s unique regulatory concepts and industry dynamics and this seminar will help with that. These concepts include the licensing schemes under the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act (with an analysis of Governor Brown’s Trailer Bill), an analysis of the licensing models in Oregon and Washington from which California has already borrowed, government relations, emerging litigation trends and topics, and practical approaches to working with and in the cannabis industry through contracts. All of these issues will be addressed at this event and if you want to know what is happening and what is likely to happen with California’s cannabis industry, you shouldn’t miss it.

Please join us in Santa Monica on June 22nd and 23rd for a day and a half survey of California medical cannabis that will be both broad and deep. And if you are a Harris Bricken client, a friend of our firm or a steadfast Canna Law Blog reader, click here to request a promotional discount code, which can be applied to either the webcast, or to your in-person attendance.

We are proud to have so many clients among the pioneers in California’s brave new world of regulated medical cannabis (and, eventually, adult use cannabis) and we hope to see you soon in Santa Monica.