California CannabisOn January 18, 2017, California state regulators attended a cannabis event in Sacramento to discuss cannabis policy and what lies ahead for California. Though previous reports indicated that California cannabis licensing could be delayed for an additional year, state regulators at the event promised a licensing program would be operational by January 1, 2018.

Lori Ajax, the Chief of the California Bureau of Medical Cannabis Regulation (soon to be renamed again to the Bureau of Marijuana Control under Proposition 64), told the audience:

We will not fail. We will make this happen by Jan. 1, 2018, because we have to […] It may not be pretty. But we will get there.”

Since Prop 64 passed last November, California regulators are now in charge of crafting comprehensive regulations and issuing state licenses to not only medical marijuana businesses but to recreational cannabis businesses as well. This includes 17 license types for medical businesses and 19 licenses types for recreational businesses, covering cultivation, manufacturing, retail dispensaries, distribution, testing, and transportation. The authority to regulate and license these cannabis businesses is divided among ten California state agencies.

The California Department of Food and Agricultural will oversee cannabis cultivation activities, and it created a new division, the CalCannabis Cultivation Licensing program, to issue permits and develop regulations for cultivators, including setting up a track and trace system for all cannabis plants that enter the California market. Amber Morris, a branch chief for CalCannabis Cultivation Licensing, was also in attendance at the event in Sacramento and she said that California state departments are working with economists to create a tiered permit fee program that will assign fees to cannabis cultivators based on the size and scale of their businesses.

A big challenge faced by state regulators is the lack of banking available to cannabis businesses and affiliated companies. Ajax expressed her hope that there would be some clarity on the matter by the time state licenses are issued, stating that banking is “a challenge for us, too. As we set up our online permitting system, we would like to accept credit cards. We don’t want to have to accept wads of cash.”

The banking issue has been high on the mind of California lawmakers, as we get closer to statewide regulation. In December, California Treasurer John Chiang wrote a letter to President Donald Trump seeking guidance ahead of California’s licensing program. In his letter, Chiang wrote that the new program could “exacerbate” the banking problem because California’s cannabis economy will be so large.

Due to federal prohibition on marijuana and anti-money laundering regulations issued by the Financial Crimes Enforcement Network (FinCEN), banks are reluctant to work with cannabis businesses. The banking challenge is not unique to California and it affects businesses in legal marijuana states across the United States. Several U.S. senators sent a letter to FinCEN in December asking for more guidance and explaining how the dearth of cannabis banking promotes tax fraud and creates a public safety issue because cannabis businesses are forced to deal in large amounts of cash.

Under the new California cannabis licensing program, state agencies will need to collect fees from licensed cannabis businesses. Yet most of these agencies have only one office — in Sacramento — which means anyone paying their fees in cash will need to carry that cash with them all the way to the capitol. To address this issue, California legislators recently introduced new legislation to increase the number of government offices that can accept payments from cannabis businesses for state fees and taxes. The legislation, known as the Cannabis Safe Payment Act, is sponsored by the Board of Equalization (BOE), which has been collecting sales tax from California medical marijuana businesses since 1996.

The BOE currently accepts payments in cash from cannabis businesses at its 22 offices across the state. However, to reach these offices, many California cannabis cultivators have to travel great distances with “bags of cash” in their cars, which BOE Chairwoman Fiona Ma agrees “is not the safest method of paying your taxes.” Thus, Ma states that the BOE’s “priority has to be increasing safety—for the business owner, the public, law enforcement, and state employees by enabling cannabis businesses to pay their taxes and fees in as many a safe and secure locations as possible.” Under the Cannabis Safe Payment Act, California counties that receive approval by board of supervisors and tax collectors will be able to accept cash payments from local cannabis businesses on behalf of the BOE and other state agencies.

With promises from the Marijuana Bureau to begin issuing state licenses by January 1, 2018, collaboration from state agencies to develop regulations and set permit fees, and efforts from state lawmakers to alleviate banking challenge, California legislators are showing they are hard at work creating a viable state licensing program for cannabis businesses. For cannabis businesses planning to take advantage of California’s new cannabis program, a lot of work lies ahead and you should start preparing now.

Oregon Cannabis researchLast week, our client, Newcleus Nurseries, made headlines with the launch of the Oregon HUB, alongside Phylos Bioscience, an agricultural genomics firm focused on cannabis. The HUB is billed as “a cutting edge research, development, and innovation campus.” It seeks to follow the path of Oregon’s disruptive wine industry, which brought quantitative analysis to an artisan approach. We are pleased to be a part of the HUB endeavor: due to federal policies related to cannabis, there is a severe shortage of scientific research on the plant. If that is going to change, private actors must step in.

Today, nearly all federally sponsored cannabis research is conducted by the National Institute on Drug Abuse (NIDA), under a mandate from the Drug Enforcement Administration (DEA). If you are disappointed that a research institute named for drug “abuse” is leading the charge on cannabis, and that all research is overseen by a law enforcement agency (the DEA, no less), we are too. Sadly, it is also easier for researchers to gain federal permission to study heroin and other Schedule I drugs found in the federal Controlled Substances Act, than to study cannabis. That remains true despite a slight softening in DEA policy last year.

Interestingly, the marijuana studied by NIDA is grown at the University of Mississippi, which historically has produced about 40 pounds a year. NIDA maintains a monopoly over that marijuana, and routinely refuses to supply it to researchers who have obtained all other necessary federal permits. (Those permits in turn come from other agencies with no apparent game plan or incentive to assist on this issue.) The more one explores this, the stranger it gets: as of 2011, NIDA was distributing marijuana (joints) to exactly four people for personal use.

Needless to say, the federal system for cannabis research remains an embarrassment. Even if the federal government were freely granting access to third-party researchers with respect to the NIDA weed (which it most emphatically does not), that crop likely represents a limited perspective on the plant. Because of hybridization and other factors, today a virtually limitless selection of cannabis genotypes and phenotypes exist. Scientists should have the ability to canvass them freely.

It has been observed that expanding research should be promoted by cannabis advocates, prohibitionists and everyone in between. Advocates should welcome the opportunity for scientific inquiry to validate their position that the plant has medicinally valuable effects, or is benign; while prohibitionists should seek validation of their view that pot is a gateway drug, or has no medical value. Ultimately, if one does not ascribe ulterior motive, it is difficult to understand the federal government’s mulish resistance to research.

Given the lay of the land, it is up to states and private actors to take the lead on cannabis research. The opening of the HUB campus in Oregon is one promising development, as is proposed Oregon House Bill 2197, which directs the Oregon Liquor Control Commission “to enter into an agreement with a nongovernmental entity that conducts or funds research on cannabis and cannabis-derived products.” Given all of the roadblocks at the federal level, we applaud the handful of states and private actors who have taken the lead on cannabis research — just as they have in all other aspects of ending prohibition.

Cannabis Business LawyersAs cannabis business attorneys, we tend to have a good pulse on what is going on in the cannabis industry and especially on the false claims people make about the cannabis industry. I’ve previously written about the top ten industry red flags and the top ten industry red herrings. In this post, I discuss the top six bogus claims we keep hearing about the marijuana industry:

  1. President-elect Donald Trump and appointee U.S. Attorney General Jeff Sessions will not impair state-legal marijuana. Nobody can know or even predict what this new administration will do with state-legal marijuana. President-elect Trump has been all over the place on cannabis and who’s to say whether he will remain consistent on states’ rights when it comes to marijuana (despite his campaign rhetoric)? What we do know is that so long as Congress continues to renew the medical marijuana protections in the appropriations riders, state law-compliant MMJ operators are unlikely to be shut down by the Department of Justice. Unfortunately, the same cannot be said of recreational marijuana businesses. Both a lot and a little has been made out of Jeff Sessions‘ confirmation hearing, but the bottom line is that he really didn’t say much one way or the other that helps to discern what will happen with cannabis in the next four years. In the end, it’s anyone’s guess as to what Trump and Sessions have in store for state-legal marijuana.
  2. CBD-Oil is legal everywhere in the U.S. Many “CBD” companies tout this claim and many consumers believe it to be true. CBD is not legal everywhere. The DEA considers CBD with active THC to violate the federal Controlled Substances Act and it recently made this clear when it announced that it considers CBD derived from hemp to be illegal and made clear that it will be stepping up enforcement actions against online and interstate CBD sales. We’ve previously written on how the FDA goes after anyone making medical claims for CBD, whether for humans or pets.
  3. Florida medical marijuana is going to be huge. I have been getting a steady stream of calls and emails from folks wanting a Florida medical marijuana license or to start preparing for registration to start a Florida cannabis business under Amendment 2. Far too many of these people see Florida as an opportunity for nearly guaranteed riches. The problem is that Florida cannabis is already dominated by seven Charlotte’s Web nurseries and this will not change unless Florida opens its medical marijuana marketplace to others. Not only that, even if Florida allows new applicants for cannabis licenses, its application process will surely be expensive, lengthy, and full of red tape. So though Florida’s cannabis industry will eventually be huge, in the meantime, patience is called for and you should avoid any and all “how to get rich quick on Florida cannabis” seminars and pot “colleges.” In the meantime, here’s our primer on some of what you can and should do now to prepare for Florida licensing/registration.
  4. I’m just a landlord to a marijuana business so I cannot be criminally liableUnfortunately for landlords, they can face criminal prosecution for aiding, abetting and conspiracy under federal law and also asset forfeiture. Just look at what happened to the landlord in the Harborside case if you still believe otherwise — thankfully, that case was eventually dismissed. If you are a landlord to a cannabis business, you should get educated on your criminal liability and on federal and state forfeiture laws. Most importantly, your lease agreement should be drafted to ensure your tenant behaves.
  5. Yesterday, I was a criminal defense attorney. Today, I’m a marijuana securities and business lawyer. We hear of this sort of claim constantly and guess what, 99 times out of 100, you would be better off using a business lawyer with no cannabis experience than a criminal cannabis lawyer who now claims to know complex business and securities laws overnight. The sad truth is that criminal cannabis lawyers in states that have legalized cannabis are finding themselves without clients and they are having to scramble to re-brand themselves as cannabis business lawyers. But branding and reality are two very different things, and firms with actual expertise in both business law and marijuana regulatory law are far too often called on to clean up expensive messes left by these unqualified lawyers. For tips on how to choose an experienced cannabis business attorney, go here.
  6. The cannabis industry is worth billions so I need to invest now, now, now. I never tire of writing about the hustlers and hucksters who insist investors immediately dump gobs of money into the marijuana industry. I received an email just last week with the following advertisement:

 

The $100 billion marijuana industry is dominated by penny stocks. With legalization sweeping the country, these penny stocks have already begun skyrocketing in price. Take action TODAY, and you have a once-in-a-generation opportunity to turn a tiny $50 investment into an absolute fortune.

Federal illegality makes it difficult to secure a bank account and the IRS continues to tax the industry to death under 280e. Cannabis investors can face criminal liability (just like landlords) and they can find themselves subject to asset forfeiture for financially supporting illegal entities and activities. Due to the newness of this industry, fraud is not uncommon. Investment in the ancillary, support sectors (like tech or real estate development) is a bit more straightforward and a bit less risky, but all investors in cannabis need to be vigilant, especially until we get a better feel for what the Trump administration has in store for us. For more on marijuana stock fraud and scams, see here and here.

So the next time you hear anyone make a too-good-to-be-true statement about the cannabis industry, at least be sure to check it out before buying in.

Cannabis attorneysEmployment law is often unforgiving of medical marijuana patients. Workers are in many instances subject to the same consequences of using marijuana in cannabis-legal states as in states where cannabis remains illegal. Federal illegality has thwarted attempts by employees in many instances to guard against termination or other negative action linked to their consumption of cannabis.

It is therefore notable that an administrative law judge in New Jersey last month ordered an employer to reimburse an injured employee for his purchase of medical marijuana permitted by New Jersey law. Though not a binding rule of law, the judge’s decision is an undeniably positive outcome for medical marijuana patients and could be a harbinger of things to come as marijuana goes mainstream. This week’s Cannabis Case Summary breaks down the administrative law judge’s decision and what it might mean for the future.

The plaintiff in the case, Andrew Watson, worked for 84 Lumber, where he sustained a serious hand injury on the job. Watson’s psychiatrist/neurologist recommended Watson use medical marijuana to treat the pain from his injury. He then purchased around two and one-quarter ounces of medical marijuana over the course of three months, all legally under New Jersey law. Because 84 Lumber refused to cover the cost of the cannabis under its workers’ compensation policy, Watson was unable to continue using marijuana as a pain reliever. Instead, per the company’s policy, Watson relied upon prescription opiates to cope with his chronic pain.

Watson then brought his case before administrative law judge Ingrid L. French to secure reimbursement for the amount he had spent on marijuana and a ruling that his future purchases of medical marijuana to treat this injury would be covered by his employer. Watson argued that medical marijuana was both effective and a fit substitute for the more dangerous and addiction-linked opiates he was prescribed as an alternative. The judge ultimately sided with Watson, stating on December 15 that reimbursement was appropriate and that Watson’s future medical marijuana expenditures should be covered.

The administrative law judge’s conclusion raises interesting questions. Does it make sense for companies in medical marijuana states to make effort to expressly cover medical marijuana as an alternative to (often more costly) pharmaceuticals to treat pain or other ailments? Can employees bank on this reasoning to carry the day if they decide to obtain medical marijuana as an alternative to narcotic painkillers? The answer to both questions is uncertain and will be affected by political as well as legal shifts in the United States. Nonetheless, the outcome in this case should be encouraging to medical marijuana patients in New Jersey and beyond.

It should be noted that the decision in this case was rendered by an administrative law judge. Such an opinion has similar but different effect than a decision by a state or federal judge. New Jersey is, however, known for its robust state administrative law. The persuasive authority of this decision should not be discounted nor overestimated.

Good news for medical marijuana patient Watson is good news indeed, but the overall place of this decision in the mosaic of favorable rulings amidst continued federal prohibition is inherently precarious.

 

Oregon Cannabis lawsThe 2017 Oregon legislative session begins two weeks from tomorrow, on Wednesday, February 1. Already, there are many proposed bills, measures and resolutions posted on the legislature’s website, ranging from marquee bills to tackle the state budget shortfall and its gun registry loopholes, to resolutions naming an official state horse (the Kiger Mustang) and a dog (the Border Collie). For our faithful readers, there is also a generous helping of cannabis bills. We count 28 of them.

Back in October, we wrote that issues surrounding public consumption, like cannabis cafés and special event (temporary) licenses, would be up for discussion. As shown below, that has proven to be true. We have also written time and again (and again and again) about the need to merge Oregon’s medical and recreational marijuana programs. That appears to be up for serious consideration as well. Finally, we have written about the state’s burgeoning industrial hemp program, which is also addressed.

Below is a compilation of the 28 introduced cannabis bills, sourced from the Oregon legislature’s website. Each bill is linked to its summary page, and you can click through to the text of any proposal of interest. When reading a bill, it’s important to understand that any text in bold letters would be new, while language in [italics and brackets] would be removed from existing law. It’s also important to note that each proposed bill has a specific enactment date: some are “emergency” laws, effective on passage, while others would take effect at a future date. Finally, some of these bills would sunset after a certain period; others are proffered as evergreen.

As in the 2016 short session, many of the bills listed below will fall by the wayside as the senate and house convene and begin to knock heads. Others will be revised, consolidated or otherwise modified, but it is altogether certain that we will see some changes in Oregon cannabis law this session.

Draft Senate Bills

SB 56. Authorizes Oregon Liquor Control Commission to require cannabis-related licensees, certificate holders and applicants for licenses and certificates to submit information related to persons who hold financial interest in business operating or to be operated under license or certificate.

SB 108. Modifies certain definitions for purposes of regulating cannabis. Imposes tax on retail sale of marijuana seeds. Conforms terms throughout statutes governing regulation of cannabis.

SB 130. Waives fees for obtaining a medical marijuana card for veterans who have total disability rating of at least 50 percent as result of injury or illness incurred or aggravated during active military service, and who received discharge or release under other than dishonorable conditions.

SB 300. Establishes Oregon Cannabis Commission to fulfill duties, functions and powers relating to medical use of marijuana. Directs Oregon Health Authority to transfer duties, functions and powers relating to Oregon Medical Marijuana Act to commission. Makes commission operative January 1, 2018.

SB 302. Removes provisions related to marijuana offenses from Uniform Controlled Substances Act. Moves crimes, penalties, defenses to crimes and procedural provisions in Uniform Controlled Substances Act that apply to marijuana offenses to Control and Regulation of Marijuana Act. Adjusts penalties for certain crimes. Makes corresponding changes to statutes referencing controlled substances to clarify applicability to cannabis and cannabis-derived products.

SB 303. Amends, clarifies and creates consistency in statutes setting forth prohibitions and procedures related to minors possessing, purchasing, attempting to purchase or acquiring alcoholic beverages or marijuana items.

SB 304. For purposes of laws regulating cannabis-related businesses, standardizes language with respect to issuing, renewing, suspending, revoking or refusing to issue or renew licenses.

SB 305. Clarifies law requiring notice to Oregon Liquor Control Commission when person licensed by commission to engage in cannabis business is convicted of violation of state law or local ordinance of which possession, delivery or manufacture of marijuana item is element.

SB 306. Repeals provisions regulating marijuana grow sites, marijuana processing sites and medical marijuana dispensaries on June 30, 2018. Updates and creates provisions providing for licensing of marijuana grow sites, marijuana processing sites and medical marijuana dispensaries by Oregon Liquor Control Commission.

SB 307. Provides for regulation by Oregon Liquor Control Commission of consumption and sale of marijuana items at temporary events, including licensure of premises on which temporary events are held. Provides for regulation by commission of consumption of marijuana items at cannabis lounges, including licensure of premises where cannabis lounges are located. Prohibits licensing temporary events or cannabis lounges in cities or counties that have not adopted ordinances allowing for the consumption of marijuana items at temporary events or cannabis lounges. Excepts from prohibitions on public use, including restrictions set forth in Oregon Indoor Clean Air Act, consumption of marijuana items in designated areas of premises for which temporary event or cannabis lounge license has been issued. Applies current law regulating licensed marijuana producers, processors, wholesalers and retailers to new types of licensees. Makes certain exceptions.

SB 308. Establishes Task Force on Social Consumption of Cannabis.

SB 319. Authorizes local governments to allow medical marijuana dispensaries and marijuana retailers licensed by Oregon Liquor Control Commission to be located within certain distance [500 feet] of schools.

SB 342. Clarifies total number of mature marijuana plants and immature marijuana plants and total amount of usable marijuana, medical cannabinoid products, cannabinoid concentrates and cannabinoid extracts that patients and caregivers registered under Oregon Medical Marijuana Act may possess.

SB 570. Creates crime of intentionally administering marijuana item to body of person who is under 18 years of age. Punishes by maximum of 20 years’ imprisonment, $375,000 fine, or both. Creates crime of knowingly administering marijuana item to body of person who is under 18 years of age. Punishes by maximum of 1 year’s imprisonment, $6,250 fine, or both.

Draft House Bills

HB 2151. Allows property tax exemption for food processing machinery and equipment newly acquired by persons engaged in business of producing cannabinoid edibles, alcoholic beverages and alcoholic liquors.

HB 2197. Directs Oregon Liquor Control Commission to enter into agreement with nongovernmental entity that conducts or funds research on cannabis and cannabis-derived products. Specifies terms of agreement. Requires public dissemination of data, information, analysis and findings procured pursuant to research.

HB 2198. Changes name of Oregon Liquor Control Commission to Oregon Liquor and Cannabis Commission. Changes composition of Oregon Liquor and Cannabis Commission by adding commissioners from cannabis retail industry. Specifies that Oregon Health Authority may not register marijuana grow sites, marijuana processing sites and medical marijuana dispensaries. Creates within authority, for purposes of administering Oregon Medical Marijuana Act, Medical Use of Cannabis Board. Becomes operative June 30, 2018. Repeals provisions regulating marijuana grow sites, marijuana processing sites and medical marijuana dispensaries on June 30, 2018. Updates and creates provisions providing for licensing of marijuana grow sites, marijuana processing sites and medical marijuana dispensaries by Oregon Liquor Control Commission. Makes other technical changes to laws regulating cannabis. Creates alternate registry system administered by State Department of Agriculture for growers that produce marijuana for registry identification cardholders. Directs Oregon Liquor and Cannabis Commission to coordinate with department for purpose of regulating marijuana producers.

HB 2199. Eliminates provision indicating that cannabis-related business licenses may be for term other than one year. Qualifies provision providing that cannabis-related business license expires upon death of licensee.

HB 2200. Changes name of Oregon Liquor Control Commission to Oregon Liquor and Cannabis Commission. Changes composition of Oregon Liquor and Cannabis Commission by adding commissioners from cannabis retail industry. Directs commission to coordinate with State Department of Agriculture for purpose of regulating marijuana producers. Makes other technical changes to laws regulating cannabis. Specifies that Oregon Health Authority may not register marijuana grow sites, marijuana processing sites and medical marijuana dispensaries. Repeals provisions regulating marijuana grow sites, marijuana processing sites and medical marijuana dispensaries on June 30, 2018. Updates and creates provisions providing for licensing of marijuana grow sites, marijuana processing sites and medical marijuana dispensaries by Oregon Liquor and Cannabis Commission.

HB 2201. Corrects and conforms definitions for “cannabinoid concentrate” and “cannabinoid extract” in laws regulating cannabis.

HB 2202. Modifies statute under which lien may be imposed against building or premises used to illegally produce, process, sell or use marijuana items.

HB 2203. Changes distribution of moneys collected by Department of Revenue as tax imposed on retail sale of marijuana items.

HB 2204. Changes statutory limitation on local government’s authority to impose local tax or fee on retail sale of marijuana items. Specifies that if electors of city or county approve ordinance imposing tax or fee, governing body of city or county may amend ordinance, without referring amendment to electors, to adjust rate of tax or fee.

HB 2205. Directs State Department of Agriculture to solicit proposals from third party vendors to create for producers of cannabis efficiency standards for energy and water consumption and certification protocols for meeting those standards.

HB 2371. Specifies that, for purposes of statutes regulating seeds, agricultural hemp seed is flower seed. Directs Director of College of Agriculture and dean of College of Agricultural Sciences of Oregon State University to establish program for labeling and certification of agricultural hemp seed.

HB 2372. Establishes Oregon Industrial Hemp Commission.

HB 2556. Restricts sale and delivery of marijuana paraphernalia. Creates violation for unlawful sale or delivery of marijuana paraphernalia. Punishes by maximum of $2,000 fine.

Altogether, the index above seems to support the sentiment that Oregon is committed to getting it right with cannabis. We will continue to offer updates as events unfold. In the meantime, please let us know if you have comments on any of the specific bills listed above, or on the Oregon legislature’s approach to cannabis this session.

Arkansas CannabisArkansas voters’ decision to approve state-legal medical marijuana evidences a shift in attitudes towards medical cannabis that transcends stereotypical red-state/blue-state division on progressive cannabis reform. Arkansas will soon join Florida and Louisiana as traditionally “southern” states to embrace some form of medical marijuana legalization.

The Arkansas Medical Marijuana Commission is developing rules and regulations that will shape the trajectory of medical cannabis in the state. Though medical marijuana is now enshrined in the Arkansas state constitution, the Commission’s implementation of the law will largely determine the character and viability of the system.

Investors and entrepreneurs looking to capitalize on Arkansas medical marijuana should consider several questions raised by the legalization amendment itself and by the actions the Medical Marijuana Commission has taken since the November vote. The Commission has yet to promulgate final rules, and it will not do so for at least a few more months. But the rules trickling in already shed some light on several challenges and opportunities facing early movers in Arkansas’ medical marijuana industry.

Do I have to be an Arkansas resident to enter the industry? Not necessarily. Issue 6 as passed requires an individual applying for a dispensary or cultivation license to have been a resident of Arkansas for the past seven consecutive years and a rule adopted by the Commission requires applicants establish residency through two forms of identification. However, Issue 6 requires only that 60% of the individuals owning an interest in a medical marijuana dispensary or cultivation operation meet the residency requirements. This means that even though the individual named as the applicant on the form must be a long-time, continuous resident of Arkansas, that individual can recruit non-resident investors if Arkansas residents make up 60% of the syndicate. Interestingly, Issue 6 states that 60% of owners must be Arkansas residents – not that 60% of the cannabis company must be owned by Arkansas residents. Accordingly, a group of six Arkansas residents could own a medical marijuana facility with as many as four non-residents even if the four non-residents own a disproportionate share of the ownership interest.

Residency rules are more and less restrictive for other medical marijuana stakeholders. For example, “visiting qualified patients” (defined as visitors and those who have lived in Arkansas for less than 30 days) may receive medical marijuana from Arkansas dispensaries if they present a valid medical marijuana registry identification card from another state. On the other hand, members of the Arkansas Medical Marijuana Commission must be residents for ten years.

Are there capital requirements to obtain an Arkansas cannabis license? Capital requirements are a big obstacle to entering the Arkansas medical marijuana market. The Commission recently approved a licensure and renewal fee of $100,000 for dispensaries and cultivation operations. This is in addition to the several thousand dollar –- and only partially refundable -– application fee. The fees are steep, especially considering the uncertainty surrounding the mostly unknowable and uncertain market and regulatory environment of the fledgling Arkansas medical marijuana industry. The Commission also required proof of assets or a surety bond of $1,000,000 and proof of $500,000 in liquid assets to obtain a license. We see these high financial barriers as likely to limit the growth of Arkansas’ cannabis industry, while at the same time leading to experienced and well-funded non-residents taking a large stake in it by providing necessary start-up capital. Our cannabis business lawyers are already getting a slew of calls and emails from cannabis industry veterans from outside Arkansas looking to get in and from Arkansas residents looking for experienced outside help and funding.

What else should I know before getting into an Arkansas cannabis business? In addition to the usual concerns about federal illegality of marijuana and obstacles to operating a marijuana business like lack of banking, investors in Arkansas should beware that the Arkansas Medical Marijuana Commission has yet to complete its work creating rules and much could change. Ultimately, the Commission’s final rules will not be finalized for a few months and all manner of restrictive local land use codes, ordinances, and other laws could result. Nonetheless, the potential for a vibrant medical marijuana industry in Arkansas is undeniable and investors and entrepreneurs should pay close attention. After all, Arkansas is famous for its diamonds in the rough.

Cannabis lawyerThe confirmation hearing for Alabama Sen. Jeff Sessions, Trump’s nominee to serve as the U.S. Attorney General, begins this morning at 9:30 a.m. ET. You can view the live feed here. Sessions is opposed by civil rights groups and championed by law enforcement, which, together, signal poorly for marijuana. On the specific issue of federal marijuana prohibition, we wrote on his nomination day that the Senator has been hostile to marijuana for a long time.

If each member of the Senate Judiciary Committee votes with his or her party, Sessions will pass by a vote of 11 to 9. That seems likely, as there have been no reported signs that any Republicans will defect, either in the committee or on the Senate floor. Still, Democrats have the opportunity to ask some tough questions on a variety of topics. It is our sincere hope that somebody takes the opportunity to drill down from civil rights to marijuana legalization, and specifically, to enforcement of the Federal Controlled Substances Act (CSA).

As it stands, a hostile, Sessions-led Department of Justice (DOJ) could attempt to kneecap marijuana policy reform nationwide. Its options would include everything from suing states to block implementation of marijuana programs, to leveraging the CSA’s asset forfeiture provisions against pot businesses and related parties. These actions would likely be massively unpopular, but they would be well within the power of a hostile administration – even one that ostensibly supports limited government and states’ rights.

Fortunately, there is a bipartisan majority in each chamber of Congress that appears interested in seeing states, and not federal law enforcement, lead on the issue of cannabis legalization. If Congress continues to prohibit the DOJ from chasing state medical marijuana actors, it may be hard for Sessions to keep the jails as full as he would like. There is also a possibility that as much as Sessions dislikes pot, he may have other priorities, at least to start.

As of today, there is probably more uncertainty than at any point in the past few years with respect to enforcement of federal prohibition. Anyone interested in federal marijuana policy would be well served to tune into today’s hearings, and to closely monitor the hearings of other Trump nominees like Georgia Rep. Tom Price, who has been nominated to serve as Secretary for Health and Human Services (and also has a very poor record on pot). Mr. Price is set for hearing next week.

Stay tuned.

Cannabis bankingThere has been a ton of speculation about what President-elect Donald Trump and his nominee for U.S. Attorney General, Jeff Sessions, will do about state-legal marijuana in the next four years. Some industry and political experts think a renewed War on Drugs is coming, while others believe neither Trump nor Sessions will undertake the politically unpopular task of undoing state-by-state cannabis legalization and some version of the status quo under the Cole Memo will prevail. What is likely to happen with access to banking for cannabis businesses under this new administration?  Next to 280e, the inability to secure and maintain a bank account is probably the biggest business problem for marijuana entrepreneurs.

Marijuana businesses and ancillary service providers (those businesses that provide services to the industry but that are not cultivating, manufacturing, or distributing marijuana) often cannot get bank accounts or bank financing because marijuana is federally illegal. Regulations issued by the Financial Crimes Enforcement Network (FinCEN) dealing with money laundering are what make it so tough for cannabis businesses to secure banking. The Bank Secrecy Act FinCEN enforces requires banks investigate their customers and neither negligently or knowingly do business with bad actors. State-legal marijuana businesses and even many ancillary businesses are viewed as bad actors for banks and so they generally avoid those businesses and the potential fines that can come with them.

Nonetheless, in 2014, FinCEN finally issued some guidance that allows financial institutions to at least provide bank accounts to marijuana businesses — no mention was made in this guidance about access to banking for ancillary service providers. Under these FinCEN marijuana guidelines, banks are expected to:

  • Verify with state authorities that a marijuana business is duly licensed and registered.
  • Review state license applications and related documentation the marijuana business used to obtain its state license to operate its marijuana-related business.
  • Request from the state licensing and enforcement authorities available information about the business and related parties.
  • Develop an understanding of the normal and expected activity for the business, including the types of products to be sold and the types of customers to be served.
  • Monitor publicly available sources for adverse information about the cannabis business and related parties.
  • Periodically refresh information obtained as part of customer due diligence using methods and timetables commensurate with the risk.
  • File Suspicious Activity Reports (SARs) with FinCEN for all of their marijuana business customers. Banks use SARs to notify regulators that someone may be using their services for an illegal purpose. There will be no direct consequences arising from these SAR filings, but this means the federal government knows exactly who you are as a marijuana business, and with whom you are banking.
  • File SARs if they believe one of their cannabis business customers has violated a state law or has failed to act in accordance with the Cole Memo.

With these guidelines FinCEN essentially dragooned banks into acting as on-the-ground investigators to snitch on marijuana businesses that are not being as compliant or careful as the federal government believes they should be. These guidelines do not change federal banking laws and they are pretty onerous, but they were a positive step towards alleviating the marijuana banking epidemic.

With eight states, including California, electing to legalize/”medicalize” marijuana this past November, I questioned in a recent blog post what FinCEN/the Department of Treasury will do with the 2014 FinCEN guidelines, especially with Trump soon to be our President. In December, Senator Elizabeth Warren (and several other senators) sent a letter to FinCEN requesting it issue increased guidance to banks, given we now have 29 states with some form of legal marijuana and no federal resolution of the banking issue. Specifically, Senator Warren and the other senators wrote that more guidance is necessary to address how ancillary services providers can secure financial services as the 2014 FinCEN guidelines are silent on this issue. The senators’ letter specifically stated that:

The 2014 FinCEN guidance did not distinguish between state-sanctioned marijuana businesses and the [ancillary] businesses that service the marijuana industry, leaving it up to individual financial institutions to determine how to classify and treat [ancillary] businesses. Limitations on access to financial services have become increasingly problematic for legal businesses and will only present a larger problem as more states legalize marijuana . . . since FinCEN’s 2014 guidance was released, less than 3% of the nation’s 11,954 federally regulated banks and credit unions have chosen to serve the cannabis industry.

The senators’ letter also accurately noted that an inability of cannabis businesses to bank promotes tax fraud and creates a public safety issue due to the large amounts of cash marijuana businesses must handle.

If Congress will not adjust the banking laws to accommodate state-legal marijuana businesses, pressuring banking regulators to change their enforcement policies is the logical next step and we need to see more congressional representatives and senators from marijuana-friendly states standing up for marijuana banking. If we expect the state-by-state democratic experiments with cannabis to succeed, we need to equip marijuana and ancillary businesses with the tools for success, including access to banking.

Cannabis litigation lawyerThough we are hoping 2017 will bring you nothing but prosperity when it comes to your cannabis business. But if you are headed to court in 2017 or even if you are just just sensing a company dispute stirring, the following five tips will help you avoid or mitigate the negative impact of a business dispute.

  1. Make your business relationships crystal clear from the start. The days of handshake deals regarding ownership in a cannabis business are over. You should do no deals of any real size without first getting everything in writing. Operating agreements, bylaws, and shareholder agreements exist to ensure that your company structure and the relationship between its owners is abundantly clear. When starting a company together, you and your fellow owners should have at least some understanding on how your company will be operated and on how such things like equity versus debt, voting rights, sweat equity, preferred returns, owner employment will be navigated. Most of the ownership disputes our cannabis litigation lawyers have handled have been because of badly done initial company contracts and filings.
  2. Perform due diligence on your partners. If you want to increase your odds of avoiding a dispute with your cannabis business partners, the most important thing you can do is to choose your partners wisely. What never ceases to surprise us is how often we are told by a party locked in a life or death ownership dispute regarding a cannabis business is that they barely knew their business partner before they started the business with them. If you are going to start a cannabis business (or any business for that matter), the first thing you should do is find out as much as you can about your putative partner’s financial and business history. You should do this before you sign away your soul and money to joining with this person on a business project. It’s neither rude nor unexpected to ask your potential partners for documentation showing their financial and criminal history–the state licensing regulators will ask for this information anyway. It is even more important to conduct thorough due diligence if you are buying into an existing cannabis business. At minimum, this due diligence should include investigating and analyzing the assets and liabilities of the company and its current owners. Your due diligence should also include confirming the appropriate standing of the company with state and local government regulators, and determining that the company and its principals understand how to comply with state and local laws as well as the Cole Memo. This is routine in every other industry and it must become routine in the cannabis industry as well.
  3. Get your own attorney from the start to protect yourself. More often than not, the company has an attorney looking out for the company’s interests. But it is important to realize that the company attorney is not your personal lawyer and that lawyer will almost certainly be conflicted out of any dispute between you and your business partners and/or investors. For this reason (and many others) you need your own lawyer providing you with your own counsel and protection regarding your role in the company and your ownership rights. This lawyer should also make sure that the written agreements work for you and not against you. This lawyer will also be an asset for you personally if any dispute arises. For more on how to avoid a dispute relating to your cannabis business, check out Five Tips on How to Avoid Cannabis Litigation and How to Avoid Costly Marijuana Business Disputes. For more on how to choose the right lawyer for your cannabis business check out How To Choose Your Cannabis Business Lawyer.
  4. Know your dispute resolution options. Well drafted corporate documents and contracts should cover most possible breakdowns in the business or the relationship and set out the options for handling internal strife. If there is a fight or a tie on a vote, what happens? How are problems resolved and when? Who makes what decisions and how? What about liquidating the business? What about selling an ownership interest and for how much? Can you sell just your membership interest or shares without going through a vote of the members? Can you keep running the business free of your partners if there’s a fight? What about dissolving the company and winding down? What happens if there is a contract breach? All of these things can and usually should be covered in your corporate governing documents or in any other contract you sign, and by doing so, you greatly minimize your likelihood of destructive problems down the road. Your company documents and contracts should also make clear exactly how disputes are going to be handled. Are you going to want your dispute made public in a court, or kept quiet in an arbitration or mediation? It is a lot easier to reach agreement on such things when you are starting your business or your relationship than when you are already in the midst of a hard fought dispute with costly lawyers.
  5. Make sure your lawyer knows what he or she is doing. When hiring a lawyer to help protect you when getting into a cannabis business, you should be sure to hire a law firm with lawyers who know both business law and cannabis law. And when confronted with a dispute involving your cannabis business, you need to be sure to hire a law firm with lawyers experienced in civil litigation (criminal litigation experience does not count here) and cannabis law, if possible. For more on choosing your cannabis lawyer, check out How To Choose Your Cannabis Business Lawyer.

Be careful out there, and have a happy 2017.

home grown cannabisAs cannabis reform continues to spread across the United States, we are seeing a marketplace increasingly driven by business interests. This is the eighth installment in our series looking at how the changing landscape of cannabis policy affects a key group of often-overlooked stakeholders: medical marijuana patients who choose to cultivate their own supply of cannabis. Go here for the home grown laws in Washington and Oregon, here for the laws in California and Alaska, here for the home grown laws in Michigan and Illinois, and here for the laws in New York, Rhode Island, and Vermont, here for the laws in Hawaii, New Mexico and Nevada, here for Colorado and Montana, and here for the laws in Arizona, DC, and Massachusetts. Though there are undeniably many benefits to the expansion and professionalization of the commercial cannabis industry, it is also important to account for these small-scale medical marijuana producers that started it all.

2016 saw many states approve recreational or medical cannabis reforms. Though progress has been limited at the federal level, the tide of public opinion and state policy is increasingly clear. As part of our series on home cultivation of marijuana, what follows is a round-up of November changes to home cannabis cultivation in multiple states.

The new recreational marijuana states:

California. The first state to legalize medical marijuana has now embraced recreational cannabis with the passage of Proposition 64 in November 2016. The old law exempted qualified patients from prosecution if they cultivated no more than 100 square feet of marijuana for their own personal, medical use. Primary caregivers were permitted to grow up to 500 square feet.

The new law requires that amounts of marijuana possessed by people 21 years or older in excess of 28.5 grams be kept within or on the grounds of a private residence. The law allows no more than six living marijuana plants to be “planted, cultivated, harvested, dried or processed” within a single residence at one time. The state law also protects localities’ ability to pass laws regulating home cultivation within their jurisdictions.

Nevada. Nevada also voted to legalize recreational cannabis this November by passing its Question 2, though it had previously permitted medical marijuana. Nevada’s new law permits possession of up to one ounce of marijuana. It also allows home cultivation for individuals who live more than 25 miles from a registered marijuana dispensary. These individuals may grow up to six mature cannabis plants at a time.

Massachusetts. Massachusetts voted to approve legal recreational marijuana by passing Question 4 this year. The state allows persons 21 years of age and older to possess up to 10 ounces of marijuana at their home and grow up to 6 marijuana plants, up to 12 per household.

Maine. Like most of the other states to legalize recreational marijuana in 2016, Maine’s new law, Question 1, allows adults over 21 to cultivate up to 6 mature cannabis plants and possess as many as 12 immature plants. Outdoor grows are more heavily regulated.

 

The new medical marijuana states:

Florida. Unfortunately for green thumb patients and master growers alike, Florida’s Amendment 2 does not currently permit home cultivation of marijuana as part of its new medical marijuana program.

Arkansas. Arkansas’ Issue 6 also does not permit home cultivation of medical marijuana. Look here for more of our thoughts on Arkansas medical marijuana.

North Dakota. North Dakota’s Measure 5 allows qualified patients who live at least 40 miles from the nearest registered dispensary to grow their own.

Montana. Voters in Montana approved I-182 in November to permit medical marijuana in the state. Qualified patient home growers are allowed a total of 4 mature plants and as many as 12 seedlings. Patients are allowed to possess one ounce of usable marijuana.

Even as the tides of federal cannabis policy become increasingly uncertain, these states evidence that the times are indeed changing, and this holds true for growing your own as well.