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.

Los Angeles Cannabis rulesThe long-awaited proposed regulations under Proposition M for L.A.’s current and future medical (and recreational) marijuana operators are finally out. The 51 pages of initial regulations (that are now in a 60-day public comment period) cover the governance of cultivators, manufacturers, distributors, testing facilities, transporters, retailers, and microbusinesses in significant detail under Proposition M. If you forget what Proposition M is, see here. Though most of these initial regulations identically track initial state regulations under the Medical Cannabis Regulation and Safety Act (“MCRSA“), there are certainly some nuances that will affect medical cannabis businesses differently than in other jurisdictions. Equally important is that L.A. also issued its proposed zoning regulations, so we know where the city expects all operators to locate, which is incredibly important for those looking for eligible real property.

Here are the highlights from the proposed operator rules (we will cover L.A. zoning under Proposition M in a subsequent post):

  1. The City of Los Angeles Cannabis Department (“Department”) is going to issue Commercial Cannabis Activity Certificates of Compliance in four phases as follows: (1) Proposition M Priority eligible applicants (i.e., the ~135 Pre-ICO cannabis collectives currently operating in the City under Prop. D immunity from prosecution), (2) Non-Retail Registry eligible applicants, (3) a restricted phase “in which the number of Certificates of Compliance issued to General Public applicants may not exceed the number of Certificates of Compliance issued to Social Equity Program applicants”, and (4) an unrestricted phase “that commences after the Social Equity Program has been fully funded and implemented as determined by the City Council. City of Los Angeles Cannabis Department.”

This means Prop. D compliant dispensaries will have a lock on L.A.’s retail cannabis market unless and until general public applications are allowed in phase 3, which will only happen after non-retail applicants and social equity program applicants are approved, which could take years. And the number of additional Certificates that may issue in phase 3 is dependent upon and restricted by the number of Certificates that issue to applicants in the social equity program, which hasn’t been created yet.

  1. Prop. M Priority applicants or “Existing Medical Marijuana Dispensaries” (“EMMDs”) will have only 60 days from the date applications become available to get their applications into the Department and then that application window will forever close (if you don’t meet the 60-day deadline, you’ll be treated as a new retail applicant). Further, EMMD applicants will only be allowed to apply for Retailer Commercial Cannabis Activity, which may include Prop. D-compliant on-site cultivation. If one of these applicants also applies for on-site cultivation, it cannot expand its existing grow in any way and the current grow canopy size depends on its size documentation (if any) in the existing lease or in a Certificate of Occupancy issued to the applicant by the City prior to January 1, 2017. All on-site cultivation has to end on or by December 31, 2024 if the EMMD’s premises are not within a zone that allows for Indoor Cultivation Commercial Cannabis Activity. This combination of cultivation may also be problematic for EMMD applicants that don’t also apply for a Producing Dispensary permit from the state (where other combinations of cultivation and retail are not allowed under the MCRSA, though they will be under the Adult Use of Marijuana Act (“AUMA”) and if the Governor’s Budget Trailer Bill passes).
  2. EMMDs that can demonstrate “substantial compliance” with Prop. D will be allowed to continue operating at their one designated location while their application with the Department is pending, but they can’t make any changes at all to their structure or operations during that time. And “any mitigating circumstances due to gaps in operations, ownership change, location change or closure, tax payments, etc. must be described in detail for the Department to consider eligibility” for priority processing. If the City finds you’re not compliant with Prop. D. and, therefore, not eligible for priority processing, its decision is final.
  3. Retailers may possess up to three Certificates of Compliance, and that includes Certificates for Delivery. Though the City did not officially cap the number of dispensaries that may apply for Certificates from the Department in the future, that number will be curtailed by the number of approved Certificates issued to applicants in the social equity program, the rules for which haven’t been established by the City.
  4. All non-retail applicants “that were conducting Indoor Cultivation Commercial Cannabis Activity or Manufacture Commercial Cannabis Activity in the City of Los Angeles prior to January 1, 2016 . . . may continue to operate while their application is pending approval if a completed application is submitted to the [City of Los Angeles Cannabis] Commission within 30 days of the first date [on which applications are] made available to the public, the continuing operations of the applicant are the same activities in which the applicant is seeking a Certificate of Compliance for indoor cultivation or manufacture, the location or premises meets all of the adopted or proposed land use and sensitive use requirements of the City of Los Angeles and other eligibility requirements as listed, and the Department approves eligibility.” The Department will then close the Non-Retail Registry processing window permanently. To prove continuous operation by January 1, 2016, the City will ask for the same documentation as the state for priority licensing approval. Just like with EMMD applications, if the City makes a final determination that you’re not eligible for non-retail application processing, its decision is final. There’s no City cap on the number of Certificates a non-retail applicant can hold.
  5. There will be no volatile (Type 7) manufacturing in Los Angeles. Only non-volatile (Type 6) manufacturing will be allowed. And outdoor and mixed-light cultivation are also not allowed.
  6. There’s a robust list of background and financial information all applicants must supply to the City in their applications for Certificate of Compliance including, all “Owner” information, a list of all non-controlling owner information, your lease or right to occupy your real property for your license type, your hiring plan (which must include a plan for hiring L.A. locals), a premises diagram and security plan, and your business’s organizational structure.
  7. Any person convicted of illegal volatile cannabis manufacturing is banned for 10 years (from the date of conviction) from Commercial Cannabis Activity within L.A., and anyone who’s been convicted for violating any law involving wages or labor laws is banned for 5 years (from the date of conviction) from Commercial Cannabis Activity within L.A.
  8. No foreign companies (i.e., out of state or international) can apply for a Certificate from the City.
  9. As for operational standards, no business can provide physician recommendations to anyone, there can be no on-site consumption, no special parties or events can be held on-site, there are strict records retention requirements (including retention for no less than 7 years for all financial records), all businesses must follow the track and trace system for seed-to-sale, and retailers can be open only from 6 a.m. to 9 p.m.
  10. L.A. is finally going to allow delivery (which has been a long embattled issue in L.A.), and its regulations basically track those of the state (i.e, a brick and mortar dispensary can be the only one to deliver under the MCRSA and no specific distinction was made for delivery under the AUMA — yet). Deliveries cannot take place outside of the City without the City’s express approval.

These initial regulations will certainly change (at least a bit) as a result of stakeholder feedback and debate. But though you can’t take these regulations to the bank yet, they do provide valuable insight into how the City of Los Angeles sees the future of its cannabis market. I still maintain that if the City does not allow significantly more retail dispensaries in the near future, it will not reach its maximum market potential.

We’ll see how things play out over the next two months and we will definitely keep you posted in the meantime.

Oregon cannabis lawIn January, we put together a summary of 30 or so draft bills up for consideration in the 2017 Oregon legislative session. As predicted, many of these bills have fallen by the wayside; others have been revised or consolidated. As of today, Oregon has enacted four new laws related to marijuana, with three more bills pending. In addition, three draft bills wait in the wings, regarding industrial hemp.

Today, we are one month away from the state’s constitutional deadline for adjournment sine die, which is Monday, July 10. Everyone goes home at the end of that day, and if a bill hasn’t been approved by both chambers, we say “so long” until 2018.

Below is a summary of Oregon’s four new marijuana laws, its three proposed marijuana laws, and its three proposed hemp laws.

Oregon’s New Marijuana Laws

Senate Bill 1057

A few weeks back, we gave a comprehensive overview of Senate Bill 1057, the most impactful bill to date, and another large step in combining Oregon’s medical and recreational marijuana programs. The bill has since been signed into law by Governor Brown and because it was an “emergency” bill, it took effect on May 30.

Senate Bill 302

This bill quietly became law back on April 21. It 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, albeit much shorter, and it also took effect back on April 21. The takeaway here is the amendment, clarification, and reconciliation of statues related to minors possessing and purchasing both marijuana and alcohol. Pretty basic stuff.

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: it was signed into law by Governor Brown on April 17.

Oregon’s Proposed Marijuana Laws

House Bill 2197

This is a classic “gut and stuff” bill, which started out as a measure to promote cannabis research, but now, in its fourth proposed amendment (“Dash 4”), deals with intergovernmental taxation as to the state and Indian tribes. Specifically, it would allow 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 would make rebate payments to the tribes for the estimated tax on marijuana items sold by tribes. This one left the Joint Committee on June 5, and was referred to Ways and Means, which is what happens whenever a bill has a fiscal impact. It’s hard to say right now whether a version of this bill will become law, but it seems probable.

House Bill 2198

This 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 medical growers to sell up to 20 pounds of excess flower annually into the OLCC market. Like HB 2198, this one also recently made it out of the Joint Committee, and was referred to Ways and Means.

Senate Bill 56

This is the 2017 Oregon cannabis “Christmas tree bill” and it was given a “do pass” recommendation on June 6 by the Joint Committee, following its 39th proposed amendment (“Dash 40”). It’s now in the Senate Committee. The myriad of changes are too lengthy to summarize here, but a few notable planks include: (1) a requirement for the immediate suspension of any marijuana licensee for diversion of product to the black market; and (2) an allowance for limited processing by small, licensed OLCC producers (<5,000 square feet of canopy; water or mechanical extraction only).

Oregon’s Proposed Industrial Hemp Laws

Senate Bill 1015

This bill would allow hemp licensees to deliver hemp to OLCC processors, for non-THC based processing (which will be welcome news to both hemp and marijuana licensees). This bill was passed by the Senate on June 7, and does not create a fiscal impact. This means it will avoid the quagmire of Ways and Means, and should become law.

House Bill 2371

This bill would tidy up the industrial hemp regulatory scheme generally, which is a slender program with many gaps. Among other things, it would create a pilot research program, create a seed certification program, and provide for accreditation of testing laboratories for industrial hemp commodities, as well as products that are ingested, inhaled or topically applied. This bill was referred to Ways and Means on April 26, but seems likely to pass.

House Bill 2372

This bill would create on Oregon Industrial Hemp Commission, and nothing more. Like HB 2371, it was referred to Ways and Means on April 26, but is non-controversial and also likely to pass.

California Cannabis Law

California 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 plan to cover who is banning, who is waiting, 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 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 the County and City of San Bernardino, and before that, Marin 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.

Welcome to the California Cannabis Countdown.

Location. Santa Rosa is a city in Sonoma County. With a warmer climate than San Francisco and Oakland to go along with more reasonable home prices there’s no surprise Santa Rosa has seen a steady increase of its population over the last ten years. With its close proximity to the Russian River and all the fine dining and award winning wineries in Sonoma and nearby Napa County, Santa Rosa’s population will likely continue to grow. And who knows what business opportunities will come with the arrival of the SMART train?

History with Cannabis and Current Cannabis Laws. Santa Rosa has been making consistent progress when it comes to cannabis regulations. Perhaps not fast enough for some, but when you see what’s been going on in other parts of California (uh hum, looking straight at you Riverside), Santa Rosa is avant garde. In 2005, Santa Rosa adopted an ordinance allowing medical cannabis dispensaries. In March of 2016, the Santa Rosa City Council adopted an interim ordinance allowing commercial cultivation of medical cannabis. Upon seeing the benefits of properly regulating dispensaries and cultivators, Santa Rosa’s Department of Planning and Economic Development in August of 2016 issued an official zoning code interpretation allowing manufacturing (non-volatile), testing, distributing, and transporting within its boundaries. In order to continue stay on top of the latest developments in the cannabis industry the city of Santa Rosa also created a medical cannabis policy subcommittee that met on the last Thursday of every month. This type of forward thinking will benefit Santa Rosa in the long term (pay attention Riverside).

Proposed Cannabis LawsIn March of this year, the Santa Rosa City Council approved a resolution placing a cannabis business tax measure on the ballot to cover the City’s costs of regulating cannabis – residents will get to vote on June 06, 2017. The tax measure features the following tax structure:

  • For cultivators: for the first two years (if the ballot is approved) 2% of gross receipts or $5.00 per square foot of cannabis cultivation area, at the taxpayer’s election. After two years the tax is scheduled to increase to 8% of gross receipts or $25 per square foot.
  • For manufacturers: the initial two year tax rate will be 1% of gross receipts and will increase to 8% after the two year term.
  • For dispensaries: the initial two year tax rate will be 3% of gross receipts (only applicable to non-medical use) and will increase to 8% after the two year term.
  • For distributors: the initial rate will be 0% but distributors will be subject to the standard city business tax under Santa Rosa City Code Chapter 6-04) – after two years this rate will also be set at 8%.

Santa Rosa believes its tax structure strikes the right balance between encouraging cannabis businesses to enter the regulated market, providing tax certainty to cannabis businesses, and ensuring the city has adequate revenue to regulate its cannabis industry. With nearly 60% of Sonoma residents voting in favor of the Adult Use of Marijuana Act, there’s a strong likelihood Santa Rosa’s tax measure will pass as well. Santa Rosa has the right balance of geography (between the Emerald Triangle and the big cities of San Francisco and Oakland) and forward thinking legislators who understand the benefits of proper regulation and taxation to be an attractive destination for cannabis businesses.

 

 

 

Trial_by_Jury_UsherWe are business and corporate lawyers, not criminal lawyers. This means we know enough about the law to tell someone when he or she may need criminal defense services, but we do not provide those services. Still, the specter of federal criminal charges is ever-present in the cannabis industry. When cannabis clients ask us about theoretical legal risks, we advise them that both civil and criminal liability exposure exist, on a spectrum from asset forfeiture to actual imprisonment. And we advise them that if they were charged for a violation of the federal Controlled Substances Act (CSA), we would help them find them a criminal lawyer.

In Oregon, Washington and California, we represent large cannabis businesses and vanguard industry players. For this reason, ever since Donald Trump was elected—and especially once Jeff Sessions was appointed attorney general—the question of whether our clients could eventually need criminal lawyers became more likely than before. The theory among many lawyers and policy-makers, after all, is that if the federal government takes action, it would not start with state programs or even with individual users, but with marquee industry players.

It is well established under Supreme Court jurisprudence that the federal government can enforce the CSA against state-legal operators. It is also worth noting that the Rohrbacher-Blumenauer amendment only safeguards medical marijuana programs and participants. Therefore, if the feds sue an adult-use (“recreational”) operator and drag it into court, a jury would likely be instructed that if the operator traded in marijuana it had violated the CSA. And that is where things could get interesting.

Most people—and even many lawyers—are surprised to learn that juries are not required to follow the law. When a jury’s conscience takes over and tells it that someone does not deserve criminal punishment for his or her actions, regardless of the law, the jury can choose to acquit. In legal terms, this is known as “jury nullification“: a systemic public safeguard from government run amok. To the chagrin of prosecutors, when jury nullification occurs, the Fifth Amendment’s Double Jeopardy Clause also prevents the acquitted person from being re-tried for the same charge.

Jury nullification has been a thorn in the side of state and federal prosecutors from our country’s early days. It became common in trials under the immensely unpopular Fugitive Slave Act of 1850, which criminalized any action that interfered with the recovery of fugitive slaves by slave owners. It again became common in the 1920s, when the immensely unpopular Volstead Act criminalized alcohol possession, on the heels of the 18th Amendment. These examples beg a timely question: what other federal law has become immensely unpopular of late?

The possibility of jury nullification in a CSA case against a cannabis business is both fascinating and realistic. It is realistic not just because of the favorable polling for cannabis nationwide, but also because these juries would be empaneled in jurisdictions that voted to legalize pot in the first place. Imagine a hapless U.S. attorney being ordered to charge a popular cannabis farm in Humbolt County, California, which is America’s largest cannabis labor market. It would make for an interesting show, to say the least.

We tend to write more about law than policy on this blog, but the 29 states with medical marijuana programs, the 8 states with adult use programs, and the overlapping 46 states that allow some form of cannabis possession, are all acting at the direction of their citizens when it comes to marijuana, ignoring federal law. The Cole Memorandum, which has helped facilitate state-level legalization since 2013, likewise discounts federal law.

What’s to say a jury wouldn’t do the same? If you were on a jury would you convict for cannabis?

EDITOR’S NOTE: This article stems from a paper titled “Jury Nullification Risks for Federal Cannabis Enforcement: How History and Common Sense Protect the Recreational Marijuana Market.” The paper was written by Emily Baker, a third year student at Lewis & Clark Law School in Portland, Oregon.

Bye Bye
     “GOODBYE TO ALL THAT”

On Tuesday, Enrolled Senate Bill 1057 was signed by the President of the Oregon Senate and the Speaker of its House. The bill now sits on Governor Kate Brown’s desk, where it awaits signature. Anyone who has followed the Oregon cannabis story for the past few years knows Governor Kate Brown has never not signed a cannabis bill that made it to her desk — and, to be very clear, even if an Oregon bill goes unsigned and unvetoed for 30 days, it still becomes law. As to SB 1057, we fully expect its approval in the next 30 days, which is a big deal. That is because SB 1057 makes some sweeping changes, especially to Oregon’s medical marijuana program.

Below is a bullet point list of the bill’s key provisions, cribbed from one of the Staff Measure Summaries for the Joint Committee on Marijuana Regulation. I have highlighted provisions of emphasis in bold, and points of superior emphasis in bold + italics.

  • Allows Oregon Liquor Control Commission (OLCC) authority to prevent the illegal transfer or diversion of marijuana from OLCC licensees.
  • Allows an OLCC marijuana licensee to be designated by the OLCC as an exclusively medical licensee.
  • Increases the number of commissioners on the Oregon Liquor Control Commission from five to seven.
  • Specifies one of the additional commissioners must be from western Oregon and the other new commissioner from eastern Oregon.
  • Limits the number of commissioners from one political party to four.
  • Allows specified OLCC licensed marijuana producers an additional 10 percent of their existing canopy square footage to produce marijuana for medical use.
  • Requires marijuana producers who do utilize this additional canopy square footage to donate for free 75 percent of the marijuana produced, and allows the remaining 25 percent to be sold to OLCC licensed marijuana businesses.
  • Prohibits an OLCC regulatory specialist from carrying a gun, conducting inspections of primary residences not licensed by OLCC, or ensuring compliance with Oregon Medical Marijuana Program (OMMP) registrants.
  • Allows OLCC to issue a letter of reprimand or to proceed with an investigation of a former OLCC marijuana licensee.
  • Allows an OLCC marijuana licensee to transport marijuana items to, and exhibit at, trade shows or the 2017 Oregon State Fair under certain conditions.
  • Allows OLCC to require persons with a financial interest in a business with an OLCC marijuana license to submit specified information to the OLCC.
  • Adds an identification card from a federally recognized Indian tribe to the list of allowable documents verifying age when purchasing marijuana.
  • Requires marijuana produced and transferred within the OMMP system be tracked by the OLCC tracking system.
  • Specifies funding for the tracking system to be paid from the Oregon Marijuana Account prior to any other distribution.
  • Requires Oregon Health Authority (OHA) to impose an additional fee on marijuana grow sites, processing sites, and dispensaries to pay costs incurred by the tracking system.
  • Specifies timelines for tracking system phase in.
  • Directs OHA to create a database sharing OMMP registrant information with OLCC and the Department of Revenue.
  • Specifies information in the database is not eligible for public disclosure.
  • Moves marijuana labeling authority from the OHA to OLCC.
  • Clarifies that an OMMP cardholder may jointly possess six medical marijuana plants under OMMP in addition to four marijuana plants allowed under Measure 91.
  • Limits the allowable number of immature marijuana plants in possession of an OMMP cardholder to 12 unless their address is a registered medical marijuana grow site.
  • Limits the allowed number of immature medical marijuana plants at registered medical marijuana grow site to twice the number of allowed mature marijuana plants.
  • Allows the Oregon State Department of Agriculture to possess, test, and dispose of marijuana.

The fundamental current running through this bill is the continued transfer of Oregon medical marijuana to OLCC purview, something we have been writing about and predicting for quite a long time. (See our articles here, here, here, here and here.) In this legislative session, Oregon is making a conscious choice to regulate marijuana less like a public health issue (medicine) and more like a revenue commodity (alcohol). In speaking with OLCC and reviewing a few of the other bills in committee, we only expect this trend to continue. I note that this trend is happening not just in Oregon, but in Washington State too, and — like it or not — we expect most other states will follow this trend as well.

Because Oregon’s medical marijuana program continues to be a major source of grey and black market activity, the state is also making a concerted effort at controlling diversion through SB 1057. By requiring medical growers and processors to track their output in the OLCC system or forfeit their registrations, the state is attempting to put an end to 20 years of growers stacking patient cards for profit. As with moonshine stills in the 1930s, these growers will have to decide whether to: (1) meander into the bona fide regulatory fold; (2) continue making medicine for patients at a very small scale; or (3) recede to the illegal market and attempt to evade ramped-up enforcement.

As for compliance dates, each medical grow site, processing site and dispensary (if any OHA dispensaries still exist) must notify OHA prior to December 1, 2017 whether it has elected to remain in the medical program—subject to increased costs and OLCC tracking—or whether it will apply for an OLCC license outright. If the person or entity stays in the OHA program, seed-to-sale tracking must begin on or before July 1, 2018, or OHA will revoke the registration. There is some nuance to all of that (see bill Section 44) but that is the general concept.

Like the notion of taxing medical marijuana sales, eradicating the Oregon Medical Marijuana Program seems to be a third rail down in Salem. So expect the legislature to continue to chip away at the program with bills like SB 1057. At this point, entrepreneurs should be thinking about, and engaging in, the OLCC program exclusively. As we said in October, the OHA regime will soon recede to strictly limited, patient-caregiver relationships. The money there is gone.

Marin County Cannabis
Marin County Cannabis: fog with a bit of sun

We’ve written recently about Marin County in our Cannabis Countdown series. We started with a history and update of Marin County’s medical cannabis ordinance. We then followed up with an update when the County Administrator rejected all ten applicants for medical cannabis dispensary licenses in Marin County (unincorporated Marin that is). Of the ten applicants that were denied, eight filed appeals to the rejections by the County Administrator and seven presented oral arguments before the Marin County Board of Supervisors and the public on May 23rd (one applicant withdrew its appeal before the hearing).

Before hearing the appeals, the County Administrator and Marin County Board of Supervisors released their reasoning behind their rejection of the applicant’s request for medical cannabis dispensary licenses. Although they varied from applicant to applicant there were a couple of common threads our readers will find useful:

  1. Applicants that did not have prior experience running cannabis dispensaries were facing an uphill battle. Sure, people can learn on the job, but a lack of experience is not going to be viewed favorably. If an applicant did not have a substantial background running cannabis dispensaries it was one of the first things the Board of Supervisors pointed out.
  2. The tiniest details do matter, especially if you’re hoping to open up a cannabis business in a jurisdiction that’s apprehensive about allowing in cannabis businesses. The Marin County ordinance listed 17 criteria for review in determining whether to grant or deny a medical cannabis dispensary license (See Section 6.85.061 of Ordinance 3639). Make sure your application clearly and forcefully addresses every single one of these areas for review because if you don’t, your minor oversight(s) could very well be the cause for denying your application. This is something we know well from the hundreds of cannabis applications we have done in multiple states (mostly California, Washington and Oregon).
  3. Not every locality is ready to open up to for-profit cannabis businesses. Mind you, I’m not talking about recreational cannabis use under the Adult Use of Marijuana Act (AUMA) but for-profit medical cannabis businesses allowed under California’s Medical Cannabis Regulation and Safety Act (MCRSA). The Marin County Board of Supervisors was quick to point out if an applicant was well-positioned to convert from a non-profit entity to a for-profit one. They were concerned that a for-profit entity would be more concerned about sales than the health concerns of their patient members and being a good community partner. Such a concern may have been unfounded but it didn’t diminish the weight the board placed on the distinction between non-profit and for-profit cannabis businesses.
  4. This is California so don’t ever forget about traffic and parking. The Board considered either a likely increase in traffic or insufficient parking spots as an issue with every single applicant. America is a pretty divided country on many issues right now, but I’ve yet to see a pro-traffic party so be prepared to address this issue as everyone is concerned with it.
  5. Public support is important. What was clear from the start was that most of the applicants had learned their lessons from the public hearings previously held during the application process – which were overwhelmingly attended by those against cannabis businesses. There were many people in the audience there to support of the applicants, as demonstrated by stickers favoring certain dispensary applicants and more encouraging comments when the floor was open to the public. Practice, practice, practice. Although not a stated reason for their rejection, it was clear some of the applicants did not spend enough time properly preparing their oral arguments to the Board of Supervisors. Your attorney represents your business so select them wisely. It’s also important to highlight that tone matters. One applicant seemed to treat the Board with outright contempt. You may find yourself before that board again or word of your behavior will travel across the state and imperil your future endeavors; so take a deep breath before you tell a Board of Supervisors at a public hearing how you really feel. Not a good strategy.

Professionalism, tone, and demeanor are especially important because although the Marin County Board of Supervisors dished out heavy doses of stick, they also dangled a carrot at the end of the hearing by requesting the County Administrator’s office and its working group report back to the Board with suggestions for a medical delivery business licensing plan. There’s no denying that these hearings were a momentary setback for the medical cannabis movement in Marin County but there were some positives to take away. First and foremost, the Board of Supervisors reiterated its desire to provide Marin County residents with safe access to medical cannabis and to structure a licensing program to meet that need. Second, Marin County and its municipalities will want to address this issue or they will continue to lose significant tax revenue to neighboring counties. Yesterday was not a good day for cannabis in Marin County, but there are more days ahead.

Cannabis litigationCalifornia is in the process of transitioning from its gray market of medical cannabis collectives to a full-blown, heavily regulated regime under the Medical Cannabis Regulation and Safety Act (“MCRSA“). At the end of April, California dropped more than 200 pages of regulation for retailers, distributors, transporters, manufacturers, and cultivators, and it’s now taking public comment on the initial rules. Note that our firm will be hosting a free webinar on June 1 to discuss how applicants can secure licenses under the new regime. Though these rules will no doubt change before (and even after) they are finalized, what won’t change are NIMBYs  who don’t want cannabis businesses near them.

When cannabis businesses come into a community, there can and often will be all kinds of local impact and chaos. We’ve written in the past about various NIMBY lawsuits and how quickly local governments can flip when it comes to non-conforming uses and land use disputes, and that will be the case in California as well, just as it has been the case in all regulated cannabis states.

The entry of the cannabis industry to a state means an influx of entrepreneurs and, with them, an increase in rents in the areas in which they locate. And always there are the angry neighbors who don’t want to smell cannabis harvests every six weeks or so. Most cities and counties zone for growers and manufacturers to be on the outskirts of town or in industrial or agricultural zones and retailers to be in commercial or industrial areas. Occasionally, cities and counties will allow cannabis home farms, but that’s more the exception than the rule.

One of the first notable land use disputes since passage of the MCRSA took place in Santa Rosa, though it’s surely not going to be the last. Most importantly, there is much to be learned from that case. The city of Santa Rosa has welcomed California’s to-be regulated cannabis economy by allowing cultivators and manufacturers to operate in industrial zones. But at least one land developer cried wolf because the city is allowing medium-scale cultivation to move in next door to a long-time planned (but not yet built) residential development.

In February of this year, Fleuron, Inc. applied to and secured approval from the city (through a use permit) to build a 10,000 plus-square-foot cannabis cultivation and processing facility in an industrial zone (on Maxwell Court), part of which was supposed to transition into a residential area. A land developer, who pursued development of apartments for the past 13 years next to where Fleuron wants to build, opposed and appealed the city’s decision and went on record stating that “[i]t is impossible for housing to be built in an area with cannabis uses.” This developer also cited a variety of alleged issues attendant to cannabis grows, like nuisance, public safety, environmental and economic issues. Another nearby apartment land developer said that his investors are “nervous” at the prospect of having a marijuana cultivation site as a neighbor. And a nearby auto-body shop claims to have seen a recent 15% increase in rent attributable to cannabis operators coming in.

Just this week, the city council unanimously rejected the land developer’s appeal against the issuance of Fleuron’s use permit. The city’s mayor even stated that, right now, cannabis seems more “viable as a business than housing.” And council members touted Fleuron’s ownership as “well-regarded, professional businessmen following the rules Santa Rosa established.” Chalk this up as a clear victory for the cannabis industry. But there will no doubt be many more such fights as neighbors in the past have brought nuisance lawsuitsRICO actions, and lawsuits claiming bad odors. Our cannabis lawyers are aware of cases brought against cannabis businesses for creating “marred mountain views,” for making horse riding “less pleasant” during cannabis harvest time, and for loss of business at a hotel where guests allegedly cancelled their reservations upon finding out they were located next to a cannabis business that had not yet even opened.

Though many (most?) NIMBY lawsuits against cannabis businesses have little basis in reality or fact, this does not seem to stop determined NIMBYs from suing neighboring cannabis businesses to try to stop them from ever getting off the ground. NIMBYs are a fact of life in the cannabis industry (our cannabis litigation lawyers have defended enough of these to know this), but smart planning, transparency, and running a compliant business are usually enough to beat them.

Oregon Cannabis SeminarOn June 9, my Portland colleague Will Patterson and I will present at an all-day continuing legal education (CLE) event called The Business of Marijuana in Oregon. This will be my third year presenting at the event and my second year as chair. The roster of speakers lined up for this CLE is better than any year to date, and everyone, including non-lawyers, would be well served to attend. For a full event description, including topics, speakers and registration links, click here.

Looking back over the past few years, it is amazing to see how much things have changed in Oregon cannabis. At this point, the OLCC’s recreational marijuana program has begun to hit its stride, with over 2,500 applicants now on file with the state. We are proud to call many of these Oregon producers, processors, wholesalers and retailers our clients, alongside the many investors and ancillary service providers we represent.

Sometimes, it is said that pioneers get slaughtered and settlers get rich. Now that the Oregon regulatory groundwork has largely stabilized, we have begun to see a second wave of entrepreneurs move in on the local industry. Many of these entrepreneurs bring skills, capital and experience from other regulated markets, while others are new to the space. Over the next year or so, with the increase in market entrants, we expect to see a fair amount of market consolidation throughout the Oregon cannabis industry.

Oregon attorneys and business owners alike need to be familiar with the unique regulatory concepts and industry dynamics that will be discussed on June 9, in order to best serve the Oregon cannabis industry. These concepts include state administrative governance and pending legislation, developments in the highly dynamic federal sphere, and practical approaches to working with and in the cannabis industry.

We hope you will join us on June 9 for an eight-hour survey of Oregon cannabis that is both broad and deep. And if you are a Harris Bricken client or a friend of the firm, please click here to request a promotional discount code, which can be applied to either the webcast, or to in-person attendance.

See you soon.