Producer_of_marihuanaIndividuals and companies looking to join the Oregon cannabis market often ask us lawyers whether we know of any licenses for sale. Some of these requests come from states like Washington, where licenses are no longer being issued and are frequently bought and sold. Others come from outside the regulated marijuana space altogether, from people who believe it advantageous to “purchase” a license, rather than start from scratch. Typically, however, Oregon licenses are not bought and sold.

As a preliminary matter, it is important to note that Oregon is a wide-open recreational cannabis market. State licensing fees are relatively cheap, and neither residency requirements nor other challenging barriers to entry exist. Most importantly, there is no cap on the number of licenses issued by the Oregon Liquor Control Commission (OLCC) — a fact that should drive the resale value of licenses down to zero as a basic economic proposition. So, Oregon is an open market where everyone is allowed to compete, and where entrepreneurs, not the state, will determine who succeeds.

During the Oregon cannabis license application process, everyone with a “financial interest” in a cannabis enterprise must be disclosed to OLCC. Having pushed through licenses for a while now, and lots of them, it is our experience that OLCC is flexible with ownership changes mid-stream (before a license is actually issued). After a license is out there in the world, however, the analysis is different: for a proposed change in ownership or business structure, OLCC requires submission of a form for its review, and payment of up to $1,000. If the proposed change of ownership is 51% or greater, a new application must be filed. OAR 845-025-1160(4)(d).

Because of the “new application” rule, licenses are never truly sold in Oregon. Instead, when Party A purchases the going concern of Party B, OLCC attempts to coordinate with both buyer and seller so that the old license is surrendered on the day the new license is issued. Note that Party A cannot take its license to a new locale; licenses are fixed to locations. The surrender/issue protocol is a theoretically simple process, although review is never expedited per se. This is because OLCC will want to vet Party B to ensure that nothing has changed regarding the physical space before it issues a new cannabis business license.

Often, it is attractive for new players to enter the Oregon market via acquisition, and our Portland office has vetted and handled pot business sales on behalf of everyone from publicly traded companies to single-member LLCs. The reason for the acquisition approach is because for certain lines of business, namely retail, locations that work with OLCC distance requirements and local zoning rules are scarcer than before. Thus, anyone interested in entering the Oregon pot market as a retailer may be better served to buy an existing operation, than to try to find an unclaimed space.

Altogether, the Oregon pot licensing system means that what is bought and sold in the state is almost always the cannabis business itself (whether that’s an asset sale or a stock sale) and never the license. Sometimes a premium is paid for a desirable location or other intangible item, but not for OLCC paper. So, if you are vetting a pot deal in Oregon and thinking of paying for the license, think again. Licenses are different here.

Help WantedTwo weeks ago, we wrote that the Oregon legislative session would begin this Wednesday, and that 28 proposed cannabis bills graced the legislature’s website. Since that time, we caught wind of SB 301, a tidy little bill that would abolish the right of Oregon employers to fire their “at will” employees for off-duty cannabis use. To our knowledge, Oregon would be the first such state to take this step.

SB 301 is short, sweet and even subtle, as it refrains from mentioning the words “cannabis” or “marijuana” altogether. Instead, it amends an existing statute that prohibits an employer from mandating “that any employee or prospective employee refrain from using lawful tobacco products during non-working hours.” (Our emphasis.) Proposed SB 301 removes the “lawful tobacco products” language, and replaces it with language covering any “substance that is lawful to use under the laws of this state.” Of course, that includes pot.

Like most laws, proposed SB 301 does contain a couple of exceptions. In the first, an employer could require an employee to abstain off-hours when the restriction relates to “a bona fide occupational qualification” (think: safety). In the second exception, employers would still be free to can their employees for “the performance of work while impaired.” Obviously, this could apply to someone who dabs and then walks into work; but it could apply equally to someone who shows up high on prescription drugs, or drunk, or even hung over.

In the case of cannabis, we have written many times—here and elsewhere—about the court-tested right of employers to fire their hapless employees for off-duty use. We have also wondered aloud: why do employers even care? As it stands, Oregon is one of many states that has grappled with these issues: in a well known 2010 case, Emerald Steel v. BOLI, the Oregon State Supreme Court held that even disabled, medical marijuana card holders are not protected from the cudgel of an employer’s zero-tolerance drug policy. Other state courts have ruled similarly.

With SB 301, the Oregon legislature is doing what its citizens should expect: it is considering the effects of state-legal cannabis on peripheral laws, while looking after the civil rights of its citizens. We hope SB 301 passes in something like its present form, and we expect similar changes in other jurisdictions in the coming months and years. If an employee performs her job safely and well, off-duty cannabis use is irrelevant.

 

 

 

 

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.

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.

oregon

2016 was a huge year for cannabis. So we decided we would rank the fifty states from worst to best on how they treat cannabis and those who consume it. Each of our State of Cannabis posts analyzed one state. We started this series on January 10, 2016, and now, over a year later, we are ready to crown the top state for cannabis law: Oregon.

Our previous rankings are as follows: 2. Colorado; 3. Washington; 4. California;  5. Alaska; 6. Massachusetts;  7. Maine; 8. New Mexico; 9. Nevada; 10. Hawaii; 11. Maryland; 12. Connecticut; 13. Vermont; 14. Rhode Island; 15. Kentucky; 16.Pennsylvania; 17.Delaware; 18. Michigan; 19. New Hampshire; 20. Ohio; 21. New Jersey; 22. Illinois; 23. Minnesota; 24. New York; 25. Wisconsin; 26. Arizona; 27. West Virginia; 28. Indiana; 29. North Carolina; 30. Utah;  31. South Carolina; 32. Tennessee; 33. North Dakota; 34.Georgia; 35. Louisiana; 36. Mississippi; 37. Nebraska; 38. Missouri; 39. Florida; 40. Arkansas; 41. Montana; 42. Iowa; 43. Virginia; 44. Wyoming; 45. Texas;  46. Kansas;  47. Alabama;  48. Idaho; 49. Oklahoma;  50. South Dakota.

Oregon

Recreational Marijuana. Oregon voters approved Measure 91 to legalize recreational cannabis in 2014. This was two years after the failure of the Oregon Cannabis Tax Act, which appeared on the 2012 ballot and would have legalized recreational marijuana.  Measure 91 allows adults, 21 and over, to grow up to 4 plants on their property, possess up to 8 ounces of usable marijuana (dried marijuana flowers or leaves that are ready to smoke) in their home, and carry up to 1 ounce in public. Like other legal states,  marijuana cannot be consumed in public.

The Oregon Liquor Control Commission has the authority to tax, license and regulate recreational marijuana grown, sold, or processed for commercial purposes but does not regulate the home grow/personal possession provisions of Oregon law. The OLCC oversees multiple license types including producer, processor, wholesale, retail, and researcher licenses. Oregon has not limited the number of licenses it will grant, meaning that OLCC is continuously accepting applications. It also allows a single licensee to own multiple licenses (e.g., an entity can hold a producer, processor, and retail license). This differs from the approach taken by Washington, which limits the number of licenses granted and is currently not accepting new marijuana applications. Oregon’s marijuana market is open to out of state actors as the state does not impose a residency requirement. This also differs from Washington and from Colorado which require licensees to be state residents. Oregon imposes a relatively low 17% tax on recreational marijuana sales. Finally, Oregon is one of the few states to allow for cannabis delivery, although Portland, the state’s largest city, does not (yet) allow for marijuana delivery.

Medical marijuana. Oregon first legalized medical marijuana in 1998 by passing Ballot Measure 67. Oregon’s medical market is distinct from the recreational market although there is some regulatory overlap between the two. For example, Oregon medical dispensaries were authorized to sell recreational marijuana from October 1, 2016-January 1, 2017 while the recreational market took shape.

Oregon medical marijuana is regulated by the Oregon Health Authority. Individuals with a qualifying medical condition and a recommendation for medical marijuana from an attending physician can apply for a medical marijuana card. Qualifying conditions include the following:

  • Cancer
  • Glaucoma
  • Alzheimer’s
  • HIV/AIDS
  • Cachexia (wasting syndrome)
  • Severe pain
  • Severe nausea
  • Seizures, including but not limited to seizures caused by epilepsy
  • Persistent muscle spasms
  • Multiple sclerosis

Medical patients may possess up to 6 plants, which may only be grown at a registered grow site address, and up to 24 ounces of marijuana. This means patients are legally allowed to possess more cannabis than recreational users. Medical users may purchase from licensed medical marijuana dispensaries, but are limited to purchasing the following amounts in a single day

  • 24 ounces of usable marijuana;
  • 16 ounces of a medical cannabinoid product in solid form;
  • 72 ounces of a medical cannabinoid product in liquid form;
  • 16 ounces of a cannabinoid concentrate whether sold alone or contained in an inhalant delivery system;
  • Five grams of a cannabinoid extract whether sold alone or contained in an inhalant delivery system;
  • Four immature marijuana plants; and
  • 50 seeds.

Many expect Oregon’s medical and recreational cannabis regimes will eventually merge, and proposed legislation could accomplish just that.

Bottomline. Determining the top state in this series was not easy. There was significant debate among our cannabis lawyers as to whether California, Colorado, Oregon, or Washington should take top honors. Seeing as how we have offices and lawyers in California, Washington and Oregon, we must concede just a bit of bias here. Ultimately, we determined that Oregon has the best marijuana program.

One of the prime determinants for us was Oregon not having a residency requirement, as we see this as very business friendly and making it much easier for cannabis businesses to secure funding. Oregon also has shockingly low licensing fees and it does not cap the number of licenses it will grant. This means one need not be a millionaire to get into the industry and this also means there will be (and there is) substantial competition to keep cannabis prices down. Oregon also allows its cannabis licensees to vertically integrate by owning multiple license types. The state is also consumer friendly, with relatively low taxes and with laws that allow for home growing your own cannabis. Oregon has had legal medical marijuana for nearly twenty years and it used this medical market to permit early sales of recreational marijuana, evidencing the state’s willingness to take a pragmatic approach to marijuana legalization.

Oregon’s cannabis laws are not perfect, but they are the best in the nation.

Do you agree?

Cannabis mortgages and bank loansMy law firm represents a large number of cannabis operators in Oregon, Washington and California. Some of these operators own the land they trade on; others simply lease. Whenever we are lucky enough to meet the client before the onset of cannabis activity, our first question is often whether the target property is mortgaged, or if it is owned free and clear. If the property is mortgaged, we ask “by whom?” If the answer is “a bank,” we tend to say, “let’s talk about that for a minute.”

Your standard institutional mortgage contains language allowing the mortgagee/lender to call the loan if the property is being used to conduct “illegal activity.” Lenders won’t budge on that provision: it relates back to federal lending guidelines, and attempting to pare back that language is impossible. If a borrower acquires a bank loan with the secret intention of operating or leasing to a cannabis business, that borrower is running a risk of foreclosure, to say nothing of allegations of fraud.

When a bank discovers that cannabis is being grown, processed, held or sold on its mortgaged property, it has the option, under contract, to call the loan. This means the bank can declare the entire mortgage balance due and owing on the spot. In practice, if a loan is in good standing it won’t always get called; but if a bank learns that cannabis is being traded on the property, a real possibility exists that the mortgage will get called. And refinancing with the lender will be all but impossible.

Although banks typically do not troll their commercial loans looking for pot merchants, many loans require borrowers to inform lenders about tenants and new leases on the property. When a bank decides to call a loan due to cannabis activity, the bank may give the mortgagor a limited window of time to cure the defect (stop the cannabis activities), or to find alternative lending. Given the realities of business investment and operations, the strictures of leases and the high cost of private lending, this can cause tremendous headaches.

There is no work-around for the “illegal activities” issue in institutional lending, but that hasn’t stopped some folks from trying. Among other creative ideas, we recently saw one owner give a second, unrecorded mortgage to a cannabis operator as “insurance” against the first loan getting called. Not only would this approach fail to prevent the first mortgage from getting called, it would typically allow the first mortgagee to declare the balance of its loan payable immediately, as “due on sale.” Such an action could wipe out the junior, unrecorded mortgage interest in any subsequent foreclosure.

Finding a cannabis property is not always easy, but it’s important to understand how the property is financed (or otherwise encumbered) before you sign a lease or begin operations. If you intend to purchase a cannabis property and cannot pay cash, seller financing is a popular option we have written about elsewhere. Otherwise, it’s hard money or trying to fool the bank. Neither of those is a good business plan.

Oregon Cannabis lawsThis week marks the end of the early start program for medical marijuana dispensaries licensed by the Oregon Health Authority (OHA). As of Sunday, January 1, OHA licensed dispensaries will only be allowed to sell marijuana to adults who hold a valid medical marijuana card. These dispensaries will no longer be allowed to sell marijuana at retail to non-medical cardholders, as most had been doing since October 1, 2015. Going forward, only Oregon Liquor Control Commission (OLCC) licensed dispensaries can sell pot at retail to non-medical cardholders. And that is where the money is.

For the past few months, our Oregon cannabis lawyers have prodded, poked and cajoled many of our clients to submit their OLCC paperwork to ensure a timely and successful transition into the adult use market. In our experience, OLCC has prioritized retail applicants, and for anyone without local hang-ups the transition has been fairly smooth. Still, the OLCC reports that just 104 of 494 retail applicants have been licensed to date. (The numbers for processors are even worse, with just 23 of 208 applicants approved.)

If you are an OLCC licensed retailer, you will be sitting pretty on January 1, assuming you can find product to sell while everyone else scrambles toward licensure. The situation is less than ideal for consumers, who will no longer have access to many outlets, and also less than ideal for the State of Oregon, which could see a hiccup in sales tax revenues. We have written that the rollout of state level cannabis programs is an uneven course, and hard deadlines tend to showcase that observation.

Note that although the January 1 deadline may seem to decouple Oregon’s medical and adult use marijuana programs, the reality is more nuanced. OLCC licensed entities are allowed to opt in to medical marijuana activity, and almost all of them do – whether through production, processing or retailing. In the retail context, this means that OLCC licensees will be allowed to sell marijuana to medical marijuana cardholders along with anyone else (but tax-free), subject to tracking and reporting requirements. A year from now, we expect very few OHA dispensaries will be standing.

The Oregon early sales program was a good idea, and we believe it achieved its goal of diminishing black market sales. It is our hope that the testing bottleneck and a lack of licensed OLCC operators will not reverse that trend. In any case, starting January 1, Oregon dispensaries without an OLCC license will face a $500 fine, per violation, for selling to retail customers. All of this should make for an interesting start to 2017.

 

Oregon CannabisLast week saw a triad of notable marijuana law and policy developments in Oregon, and our Portland office has been busy fielding questions from clients on a few of these changes. Rather than devote a full blog post to any one item, we have decided to present a round-up of last week’s key developments around the state. Enjoy.

New Pot Testing Rules

On Wednesday, December 14, the Oregon Health Authority released yet another set of temporary testing rules with the intention of “relieving some of the testing burden on producers and processors.” These rules improve on the temporary rules issued on December 2, which were designed to do the very same thing. We wrote that the December 2 rules were still pretty tough, so we were glad to see some progress.

The new rules took effect on Thursday, December 15, and still apply to both medical and retail marijuana items. Batch and sample size requirements are now friendlier to licensees, and the reporting deadlines for labs have been kicked out to January 31, 2017. For an overview of these developments and more, the OHA published a summary bulletin here. If you are an Oregon cannabis producer, processor or lab, we recommend you acquaint yourself yet again with the revised testing regime.

Portland Pot Delivery?

We have never had nice things to say about the City of Portland’s marijuana regulatory program, and our clients’ experiences with its Office of Neighborhood Involvement have been uniformly dismal. When a detailed report surfaced last week indicating that the program is driving people out of business, we were not surprised. That said, if you want to run a delivery service in Portland next year, you probably can!

Marijuana delivery is allowed under state rules with a retail license, although Portland had forbidden it. Last week, the City unanimously approved amendments to its existing regulations to allow for delivery under a “marijuana retail courier” license. Portland has also extended the hours of permissible operation for marijuana business, and now seeks to license microbusiness entrepreneurs (unfortunately). We expect these amendments to be formally adopted by the City Council this week, and hope the City shows some much needed improvement.

Banks Get a Boost

Given the state of federal law, banking is a seemingly intractable issue in the cannabis industry. The Oregon legislature, however, has done everything it can to encourage local banks and credit unions to service cannabis merchants. Last week, a new public poll showed 87% of Oregonians would approve of their bank working in cannabis, a significantly higher approval number than for big box stores (75%), oil (59%) or tobacco companies (52%). This poll should alleviate any remaining “optics” worries Oregon banks might have about working with local cannabis operators. And with Oregon sales tax receipts well ahead of projections as of November 30, we can only hope that Washington D.C. will begin to yield to public opinion on this crucial issue as well.

Cannabis lawyerWe have run quite a few real estate deals in Oregon, Washington and California cannabis. No two deals are the same, and as we previously have written, buying and selling land for pot ventures is a trip. An obvious reason for this is the lack of banking services, but another big reason is lack of certain title company services, like escrow. If you are hoping to enlist a title company as escrow in your cannabis property sale, we say to you, “good luck.”

Typically, title companies handle all of the paperwork to close a standard real estate transaction. It is probably easiest to think of these services in three distinct parts: (1) receiving, holding and sending money and key documents (escrow); (2) providing a spot for the parties to iron out details toward the end of a deal (including deeds and other formal documents (closing)); and (3) issuing title insurance. By providing this suite of services, a title company can serve as a “one stop shop” for closing most real estate deals.

Pot deals, of course, are different.

In our experience, title companies generally will close a cannabis deal, and they will even provide title insurance in most cases. However, they generally will not facilitate the exchange of funds. This seems strange initially, but it relates back to banks, and the fact that many banks refuse to service businesses even indirectly involved with cannabis. That includes title companies. Thus, title companies often have formal policies against serving as escrow in cannabis deals, especially where the land already is being used for a pot-related purpose.

Fortunately, it is possible to close a real estate sale without a title company performing escrow services. In those transactions, the buyer and seller will usually engage an attorney to serve as escrow, and the attorney will take instructions on how and when to distribute funds. Though attorneys tend to be more expensive than title companies for this purpose, they are safer than fringe operators offering escrow services, and an attorney worth her salt should be able to run the exchange efficiently.

With respect to title insurance, title companies generally will issue these policies on the rationale that the insurance product relates to land ownership, rather than to the activities taking place thereon. Of course, most title insurance policies in marijuana-related transactions will expressly exclude coverage for governmental actions, including civil and criminal forfeiture under the federal Controlled Substance Act. Before purchasing title insurance, we strongly recommend that the buyer disclose their intended use of the land. Otherwise, the title company has an argument not to pay on claims.

In the coming months, we expect to handle more and more real estate deals for pot businesses and also sellers. The California land grab will heat up in that state’s pot friendly counties, and our Oregon office has seen another spike in land deals from November’s local election results. Our Washington cannabis lawyers are also seeing an increase in land sales, mostly attributable to growers who got in early, but now wish to sell.

Ultimately, the laws around the purchase and sale of commercial real estate tied to cannabis are complicated, and vary state by state. An experienced cannabis attorney with commercial real estate chops will be able to facilitate the purchase or sale of real estate for pot commerce, from title examination through recording the deeds. The attorney will know how to work with the parties’ chosen title company to push the deal through, and how to navigate the unusual aspects of these transactions, like escrow.

 

Oregon cannabis testing lawsLast week, at the request of Governor Kate Brown and in collaboration with the Oregon Liquor Control Commission (OLCC), the Oregon Health Authority (OHA) issued yet another set of temporary rules for Oregon marijuana. The rules, which apply to both the medical and recreational programs, do three notable things:

  • relax certain potency testing requirements for processors;
  • remove the prohibition on certain solvents (butanol, propanol and ethanol); and
  • allow producers (growers) to test multiple strains of flower in a single batch.

The rules took effect immediately, and remain valid through May 30, 2017. For a comprehensive summary, go here.

Oregon has the toughest pot testing requirements in the country, and that hasn’t changed. By way of comparison, a recent study found that most California weed would fail under Oregon’s rigorous testing standards. These new, temporary rules still contain robust concentration limits and a sweeping ban on pesticides. Although many pot merchants were hoping for more, they will have to adapt; the state has held the line.

We recently touched on the perfect storm created by the tough testing rules and laboratory bottleneck, and we wrote that the rollout of a state cannabis program is an uneven course. We have also commended the state at various points for collaborating with industry stakeholders and making adjustments on the fly. We admire the commitment to public health in Oregon, but only time will tell if these rules have given pot businesses room enough to breathe.

Going forward, we predict strong revenue opportunities for processors who can get their product through, particularly after January 1, when only OLCC licensees will be able to sell into the recreational market. Today, the testing strictures and a shortage of licensed processors in general have caused shelves to thin out in certain dispensaries around the state. Some retailers stockpiled processed products prior to the October 1 testing deadline, but that inventory is fleeting.

We expect the legislature to take a close look at the testing rules when it meets again in February, especially if these administrative tweaks do not fully right the ship. By February, a greater number of OLCC licensees will have entered the system, which in turn will give a fuller picture as to how these rules are working. For now, if you ingest any state-sanctioned cannabis in Oregon, it is going to be clean.