Today closes out our five part series on “How to Open an Oregon Recreational Grow Operation” (see parts 1, 2, 3, and 4) with a discussion on canopy sizes and the medical bump-up canopy program. I also touch on Oregon’s marijuana worker permit program and discuss what you can expect after you submit your OLCC (Oregon Liquor Control Commission) license application. Remember that the law in this area has been changing rapidly, so much of what we have discussed so far is potentially subject to change.

Canopy Sizes. Your “canopy” is the part of your licensed premises that can be used to cultivate cannabis plants. In your cannabis license application you must tell the OLCC how much square footage you intend to use for cannabis cultivation, and you must clearly designate canopy areas on your site plan (see here for an example). The larger the total area, the greater your annual license fee:

  • Micro Tier I – $1,000
    • Indoor: Up to 625 sq. ft.
    • Outdoor: Up to 2,500 sq. ft.
  • Micro Tier II – $2,000
    • Indoor: 626 to 1,250 sq. ft.
    • Outdoor: 2,501 to 5,000 sq. ft.
  • Tier I – $3,759
    • Indoor: 1,251 to 5,000 sq. ft.
    • Outdoor: 5,001 to 10,000 sq. ft.
  • Tier II – $5,750
    • Indoor: 5,001 to 10,000 sq. ft.
    • Outdoor: 20,001 to 40,000 sq. ft.

It gets a bit more complicated if you have a mixed use site, but generally one foot of indoor area is equivalent to four feet of outdoor area. So, for example, a mixed-use Tier II producer could have all 10,000 indoor, a mix of 5,000 indoor/20,000 outdoor, or all 40,000 outdoor.

Oregon cannabis grow licenses
Your canopy areas do not have a height restriction, so feel free to expand vertically.

When you are deciding on your cannabis canopy limits, keep in mind that the limits apply only to mature plants, not to immature plants. You can grow as many mature plants as you can fit in your canopy areas. As there are no height restrictions, you should be thinking vertically.

Medical Bump-Up Canopy. Oregon’s legislature recently approved the “medical bump-up canopy” program, which allows recreational cannabis producers to set aside a small portion of their premises to cultivate medical cannabis. If you are interested in growing medical cannabis alongside your recreational cannabis, you can enter into a Producer-Patient Medical Canopy Agreement with up to 24 OMMP (Oregon Medical Marijuana Program) cardholding patients. These patients can reimburse you for your reasonable expenses, but you must give these patients their marijuana medicine free of charge.

Nevertheless, a medical canopy is still potentially profitable. Though you can grow up to six plants per patient, you can transfer no more than 3 pounds to a single patient in a year. This means you will likely have a surplus for each patient. The bump-up program allows you to generate some income from your medical marijuana crop by transferring up to 25% of that crop to registered producers and dispensaries.

Marijuana Worker Permit. Each of your employees must have a marijuana worker permit, including seasonal employees. Each permit costs $100 and each applicant must pass an online test and a background check. The OLCC has set up a simple website explaining the process, which includes a link to the study book.

What to Expect when the OLCC Follows Up. Once you submit your cannabis grow license application, the OLCC will conduct a preliminary review. You will likely receive a follow up letter from the OLCC identifying any deficiencies in your application you must resolve before you can obtain your grow license. To minimize delays, make sure your initial application is thorough and correct. The following are examples of issues that have come up:

  • Failing to properly identify the portion of a tax lot that will be leased to your company.
  • Including a residence within your licensed premises boundary.
  • Failing to properly label your site and floor plans, including the location of your cameras.
  • Failing to be consistent in your labels across site and floor plans.
  • Failing to provide dimensions for each structure on your property.
  • Failing to identify the materials that make up your fences/walls.
  • Failing to label each camera with a number on your security plan.

Once you are confident you have met all of your Oregon cannabis grow application requirements and you have the required documents in order, you will be ready to request an inspection. If all goes well, and you have complied with all local requirements, you will soon be a licensed recreational grow operation. Congratulations!

business-1320058_960_720Last week, I wrote on Oregon cannabis company acquisitions, and the types of deal structures these transactions tend to follow. I mentioned that before a transaction is consummated, but after discussions have commenced, the purchasing entity will typically discuss its plans with counsel. The lawyer will then draft a letter of intent or a term sheet to present to the target company. If the target company accepts outright, the transaction will proceed. If the target company does not accept outright (more common), it will submit proposed revisions.

Term sheets take many forms, but in a basic sense a term sheet describes the terms of the acquisition at hand. Because each transaction is a snowflake, each term sheet is also unique and must be carefully considered and prepared. Sometimes, the parties will skip the term sheet and simply proceed to the transaction in an attempt at “efficiency.” We strongly advise against this: it invites a substantial risk of misunderstanding as to which documents will follow, and when, and may even cause confusion as to deal points themselves.

Here is a basic list of items for inclusion in any term sheet for an Oregon cannabis company acquisition:

Binding vs. non-binding provisions. As a general concept, a well written term sheet will be organized by binding and non-binding provisions. The binding provisions will include items like non-disclosure, exclusivity, jurisdiction, and choice of law. The non-binding provisions will include the unique deal point items, such as purchase price, payment terms and collateral agreements (e.g. consulting agreement, non-compete, lease or land sale contract, etc.). When a non-binding provision is misplaced into the “binding” category, or vice versa, both buyer and seller can expose themselves to serious legal risk.

Nature of acquisition. The term sheet should clearly lay out whether the transaction is an asset sale, stock sale or merger, and whether the purchase price will be paid via cash, debt, equity swap, or other method. This portion of the document should also detail whether the buyer will proceed in its own name, or through a newly created entity.

Liabilities. In nearly all acquisitions, the purchaser will assume certain liabilities of the seller. These liabilities may include everything under the sun related to seller, or liabilities may be limited to select items, like assignable contracts. If specific liabilities are known at term sheet preparation, they should be listed, perhaps on a separate schedule.

Indemnification. Limitations on both seller and buyer liability can be a heavily negotiated portion of any term sheet. The term sheet should deal with any potential claim that may arise out of the parties’ pending agreements. It should also address claims existing prior to the transaction, the possibility of breaches of representations and warranties, issues of title to assets, tax obligations, employee benefits, claims arising out of marijuana’s status as a controlled substance, etc.

Employment agreements. Every term sheet should deal with the seller’s employees. Will they stay, or will the seller be required to fire them? What happens with regular employees versus executives? When can employees be apprised of the transaction? Failure to address employment can cause serious headaches for both parties.

Conditions to closing (contingencies). This list may be long and varied, and include items from the acquisition of third-party financing, to approvals by the shareholders and/or directors of the purchasing and selling entity. The satisfactory completion of due diligence by the parties is always a crucial item, and in the cannabis context, licensing (see below) is a critical issue.

Marijuana licensing. Like other adult use states, Oregon requires its cannabis companies to maintain state licensure. In certain areas, a local license may also be required. The administrative protocol for changes in license ownership can be complex and time-consuming, and may take on a unique character, depending on the type of acquisition. The licensing update or transfer protocol must be carefully thought through and delineated in the term sheet.

If you made it this far, congratulations; but please note that the above list is not at all exhaustive. There are many nuances to a letter of intent or term sheet beyond the deal points highlighted here. Once a term sheet is negotiated and signed, the parties can move into the formal due diligence phase mentioned above, and ultimately, to closing.

Oregon Cannabis Grow OperationsSo far in this series on how to open a recreational grow operation in Oregon we have discussed the importance of due diligence when locating your grow op, the process for informing the OLCC about your property and the people behind your company, and meeting your security, power, and water requirements. Now it is time to tell the OLCC how you plan to keep the public, and especially minors, away from your product. Then we will discuss the various site maps you will need to include in your application.

Preventing Public Access. You will need a plan to prevent public access to any indoor areas, all outdoor areas used for cultivation, and also any outdoor areas where cannabis may be stored, even on a temporary basis.

The application packet provides two favored options:

  • Enclose all outdoor areas (and exterior paths between indoor areas and greenhouses) in at least a six-foot tall fence or wall; or
  • Enclose all cultivation areas with at least a six-foot tall fence or wall, and ensure cannabis is only outside the enclosed areas while in the possession of one of your representatives for the limited purpose of transportation between enclosed areas.

In either case, any fences should be constructed of “rigid wooden or metal posts securely anchored to the ground and a woven or welded wire mesh such as ‘chain-link’ fencing or by a solid, rigid barrier, such as wooden fencing planks or similar material.”

You also have the option of creating your own plan, but you will need to specifically detail all the actions and methods you will use to prevent public access. This may subject you to delays as the OLCC can reject your plan or request additional information and clarification.

Minor Control Plan. In addition to your public access plan, you will also need to provide a detailed description of your proposed methods for preventing access to your cannabis by minors, such as identification, perimeter security (physical and personnel), employee screening, and what you will do if you find a minor on your premises. The OLCC conveniently provides an example plan in the application packet:

All doors and gates will be locked at all times. Prior to allowing any person access to the property, age will be verified by checking ID. Employee IDs will be checked prior to hiring and no person will be employed who does not have a valid marijuana worker permit. Signs will be clearly posted at all entry points indicating that minors are not permitted on any portion of the premises. If a minor attempts to gain access to the premises, they will be immediately told to leave and if they do not, law enforcement will be contacted.

Premises Map & Floor Plans. You will need to submit a few maps of your entire cannabis grow property and more detailed floor plans of all structures. The first is sometimes referred to as a Premises Map or Premises Sketch, and the second as the Premises Floor Plan(s).

Premises Map: This map (example here) must include your entire property and must show, at a minimum, the following:

  • The boundaries of your tax lot;
  • The perimeter of the licensed premises (labeled with “Limited Access Area” along the perimeter line);
  • The location of any residences on the property;
  • Dimensions of each structure on the property;
  • Labels showing other activities on the property, such as farming or livestock;
  • Fences and walls;;
  • Labeled compost/waste areas;
  • Labeled canopy areas (cultivation areas); and
  • All entry/exit points for the premises.

You must also include a tax lot map marked to show your premises (which can be obtained from the County Assessor), and an aerial map identifying the area to be licensed (from Google Maps, for example).

Premises Floor Plan(s): You must prepare a separate plan for each structure that includes, at a minimum, the following:

  • A label for the structure;
  • An indication of which floor of the building is shown in the plan (there should be a separate floor plan for each level of each structure);
  • The boundaries of the structure that will be licensed (if you aren’t using the entire structure);
  • All areas where cannabis may be located at any time;
  • All doors, windows, and permanent fixtures;
  • All walls, partitions, counters, and windows;
  • Clear labels for each room, such as “storage area”, “surveillance room”, “trimming”, etc; and
  • All ways in and out of the enclosure.

Make sure your labeling is consistent across your security plan, your premises map, and your floor plans.

At this point you should have everything you need to submit your OLCC application. In part five, we discuss canopy sizes, the new medical bump-up canopy program, and some typical requests for additional information you may receive from the OLCC after you submit your Oregon grow application.

 

Oregon cannabis In the past six months or so, we have begun to see an increase in consolidation throughout the Oregon marijuana industry. Large companies from other states are moving in, and Oregon companies are buying each other’s assets or stock and integrating to form verticals. In business parlance, we have entered the scaling portion of the inevitable consolidation curve. This development should make for a lively second half of 2017.

Generally speaking, there are three primary structures that acquisitions follow: (1) stock purchase; (2) asset purchase; and (3) merger. Each comes with a raft of legal and tax implications, and each is discussed very briefly below:

  1. Stock purchase. Stock purchases tend to be favored by sellers. In these transactions, the buyer purchases some or all of the seller’s shares (or, in the case of an LLC, its units or membership interests). Sometimes, a buyer will purchase only a majority of the shares, and later force a sale of the remaining shares by statutory short-form merger, or simply as permitted under internal company documents. Unlike a buyer in an asset sale, a buyer of stock is purchasing the target company’s assets and liabilities.
  1. Asset purchase. Asset purchase agreements tend to be favored by buyers. Under an asset purchase agreement, the buyer purchases the seller’s assets and assumes no liabilities, unless the parties agree otherwise. Assets can be both tangible (e.g., inventory and equipment) and intangible (e.g., intellectual property and goodwill), but generally do not include cash. Unlike with a stock purchase, an asset purchase allows the buyer to “step up” the company’s depreciable basis in its assets, within IRS guidelines. From a taxation perspective, that can be crucial.
  1. Merger. In a merger, two entities combine to form one upon the issuance of a “certificate of merger” by the State of Oregon. The surviving company (purchaser) assumes all liabilities and receives all assets of the disappearing company (seller). We have seen fewer mergers in the cannabis space than stock purchases or asset purchases; the exception would be “downstream” mergers where the holding company absorbs its wholly owned subsidiary.

Before a transaction can be consummated, but after discussions have commenced, the purchasing entity will typically discuss its plans with counsel. The attorney will then draft a term sheet or a letter of intent, to present to the target company. Once the parties have negotiated and executed that foundational document, the purchaser will be ready to undertake the time and expense of performing due diligence on the seller and any related parties.

If the due diligence checks out, the purchaser may form a wholly owned subsidiary to purchase the target business, and to further insulate itself from liabilities of the purchased entity. In Oregon cannabis, there are also critical state licensing strictures related to consolidation. Those conversations are important to facilitate early on: in this way, the purchaser will not find itself sitting on unproductive assets after putting a bow on the transaction.

Acquisitions can be an intense process, and the blizzard of documents and disclosures can feel dizzying at times. Ultimately, though, these transactions tend to be memorable experiences for clients and attorneys alike. And in certain instances, an acquisition is crucial for a company to achieve its ultimate goals.

Stay tuned for Part II of this series, where we will discuss the cannabis acquisition term sheet, a critical document in these transactions.

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

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

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

Oregon’s New Marijuana Laws

Senate Bill 1057

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

Senate Bill 302

This bill quietly became law back on April 21. It removes provisions related to marijuana offenses from the state Uniform Controlled Substances Act. It also removes and/or reduces various criminal penalties related to marijuana crimes by unlicensed operators. The thrust of this bill was to treat marijuana crimes more like alcohol crimes, and it achieves that purpose. Because penalties for marijuana offenses were scattered throughout the Oregon statutes, this one has an enormous amount of tedious, conforming amendments, to something like 125 statutes.

Senate Bill 303

This law is similar in nature to SB 302, albeit much shorter, and it also took effect back on April 21. The takeaway here is the amendment, clarification, and reconciliation of statues related to minors possessing and purchasing both marijuana and alcohol. Pretty basic stuff.

Senate Bill 863

This one concerns consumer privacy, and it serves as a further attempt by Oregon to shield its citizens’ information from the federal government. The new law prohibits marijuana retailers from recording, retaining and transferring “information that may be used to identify a consumer.” This bill was short, sweet and non-controversial: it was signed into law by Governor Brown on April 17.

Oregon’s Proposed Marijuana Laws

House Bill 2197

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

House Bill 2198

This bill would establish an Oregon Cannabis Commission, to report back to the legislature on the status and condition of the Oregon Medical Marijuana Program (which the legislature keeps curtailing). The idea here is to find a way to help medical marijuana patients who might otherwise be left behind. Among other things, this bill contains the controversial “20 pound amendment” which would allow designated medical growers to sell up to 20 pounds of excess flower annually into the OLCC market. Like HB 2198, this one also recently made it out of the Joint Committee, and was referred to Ways and Means.

Senate Bill 56

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

Oregon’s Proposed Industrial Hemp Laws

Senate Bill 1015

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

House Bill 2371

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

House Bill 2372

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

Security Requirements

In part 1 and part 2 of this series we discussed how to find the perfect location for your Oregon recreational grow op, and how to let the OLCC know that your property, your company, and your owners are up to par. You now have a perfect location and the local planning department is working towards approving your Land Use Compatibility Statement. Everyone involved with your company has filled out their Information History forms. Next you need to prove to the OLCC that you have adequate security to prevent your crop from joining the illegal market, rights to enough water to nourish your plants, and enough power to operate your lights and fans (you do have adequate around-the-clock ventilation to prevent mold, right?).

The OLCC wants to know some basic details about your business, such as when you will be open, your cultivation process, and your security setup. Fortunately, the OLCC has recently simplified the producer application, so these requirements are all clearly laid out.

Hours of Operation. As part of the producer application packet you will need to provide your hours of operation for each day of the week, as well as any anticipated variations for seasonal or other reasons. This requirement helps OLCC inspectors know whether they can enter your property on a whim (while you are open) or whether they must first have a reason to believe a violation has occurred (while you are closed).

Cultivation Plan. The application has a short essay question where you will need to describe your grow op in depth. The OLCC wants to know your growing medium, the specialized equipment you will be using, and whether your crop will be indoor or outdoor (or both for mixed producers). You will also need to explain whether you will be using seeds, clones, or a mix and detail how you will be handling your immature cannabis plants. Since you will ultimately need to submit a cultivation plan to the OLCC, you should create one as part of your initial business plan. Savvy investors will likely want to know this information anyway.

Electricity & Water Use. When you initially apply for an Oregon cannabis grow license you will need to provide month-by-month electricity and water usage estimates and you will need to prove you have a legal source of sufficient water. This proof can take the form of 1) a copy of a water use authorization, permit, or certificate from the Oregon Water Resources Department, 2) a statement with the name and contact information of a public or private water provider that will be providing water to your site, or 3) a Marijuana Producer Exempt Water Form from the Oregon Water Resources Department showing that your water does not require a water right. You should contact the Water Resources Department to determine which option will work for your site.

Security. The OLCC is understandably concerned about licensed cannabis flowing into the black market, so all growers must meet strict security requirements. Generally, you will need to do the following:

  • Keep all exterior access points locked with commercial grade locks outside of business hours;
  • Store all usable cannabis, harvested plants, and finished products within a secure, indoor steel-framed room (outside of business hours). This requirement should be on your mind as you search for a location;
  • Have an alarm system that covers all potential entry points, can detect movement within any area housing mature plants or usable product, and automatically notifies authorized personnel in the event of a breach (you can ignore this requirement if you will have at least one person in the premises at all times outside of business hours);
  • Have at least two operational “panic buttons” inside the premises that will immediately notify a security company and law enforcement, or have mobile “panic buttons” carried by all of your employees and representatives, or have a landline telephone present in all limited access areas.

One of your more significant up-front costs will be designing and installing a compliant video surveillance system. Your 24-hour a day system must satisfy the following:

  • Cover all areas where cannabis items or waste will be present or in transit;
  • Cover all areas within 15 feet of all entry points in all directions;
  • Record at a minimum resolution of 1280 x 720 pixels in all lighting conditions;
  • Record at a minimum of 10 frames per second (5 frames per second for exterior non-restricted areas);
  • Be contained in a dedicated room containing a list of all personnel authorized to access the surveillance system;
  • Have a backup battery that can independently power the system for at least an hour;
  • Provide automatic notification in the event of a failure of a security camera or other portion of the system;
  • Include a monitor for viewing video from any camera, a digital archiving system, and a printer; and
  • Maintain recordings for 90 days both on-site and continuously backed up to a secure off-site location.

You will also need to keep a log of all maintenance activity on the system.

Now you have your surveillance and alarm systems set up, you’ve let the OLCC know when and how you will be growing, and you have satisfied the OLCC that you have enough water and power. Check back next week for part 4 where we will discuss your requirements to keep the public, and particularly minors, out of your licensed area as well as the various site diagrams the OLCC will want to see.

 

The OLCC wants to know more about the people behind your company.
The OLCC wants to know about the people behind your company.

Last week I opened part 1 of this series, on finding the perfect location for your recreational grow op. Before moving into part 2, I wanted to take a moment to remind you of recent Oregon legislation that will cut into the profitability of medical grow operations. As we explained in BREAKING NEWS: Oregon Sticks It to the Medical Marijuana Program (Again), you should probably be focusing your efforts towards the recreational program.

By now you have found a perfect site in a cannabis friendly area. Your new location will comply with all state, county, and municipal requirements and regulations. You are certain you will have adequate power and water. You have your letter of intent to either lease or purchase the property. You are now ready to begin the OLCC licensing process. Remember that each local government has its own unique approval process. For example, some jurisdictions require you apply for a separate local business license alongside the Oregon Liquor Control Commission (OLCC) license. You should begin developing a relationship with your local planning department, and should move forward with both the state and local procedures at the same time.

Land Use Compatibility Statement. The OLCC won’t simply take you at your word that your property is compliant. The OLCC application process requires you submit a completed Land Use Compatibility Statement (LUCS) proving your property is eligible for cannabis cultivation. You will submit the LUCS form to your city planning department (or county planning department if your property is outside city boundaries), as well as an application fee. Assuming you have done your due diligence correctly, the planning department will return your LUCS with an all clear.

Ownership and Control Information. As part of the OLCC process, you will need to provide detailed information on your business entities, as well as key owners and officers. Depending on the type of entity, the following individuals must also submit Information History forms:

  • Sole Proprietorship
    • The sole proprietor
  • General Partnership
    • Each general partner
  • Limited Partnership
    • Each general partner and each limited partner owning 10% or more of the partnership
  • Corporation
    • Principal officers, directors owning or controlling at least 3% of stock, natural persons owning or controlling at least 10% of stock
  • Limited Liability Company
    • Members owning at least 10% of LLC and Members committing at least 10% of the total investment in the LLC

Generally, the spouse or domestic partner of anyone required to submit an Information History form must also submit an Information History form. The OLCC Investigator may also require additional forms from anyone with a financial interest in your grow operation, including landlords under profit sharing leases, silent majority investors, and anyone else with ownership or control who doesn’t fit into one of the above categories. The Investigator may also require some or all of these individuals provide fingerprints for background checks.

Now that you have started the LUCS process and have gathered your business entity and individual history information, you can move on to preparing your electricity and water estimates, as well as your operating and security plan. In part 3 of this series, we discuss your security requirements, your cultivation plan, and how to calculate your utility needs.

Bye Bye
     “GOODBYE TO ALL THAT”

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

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

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

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

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

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

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

Cannabis Production

So you’ve set your sights on joining the next generation of Oregon cannabis producers. Congratulations! You’ve identified talented growers, you’ve resolved the intractable indoor vs. outdoor cannabis growing dilemma, you’ve saved up some money, and now you are eager to get your cannabis operation up and running.

But what’s next? Your first question is a classic: Where will I grow?

When you apply for an Oregon Liquor Control Commission license, you will need to prove you have a deed or lease to an eligible property. A letter of intent to lease or to purchase will also suffice, but the OLCC will not actually issue the license until you close the lease or sale. You should work with a realtor with experience in the cannabis industry to identify a few possible locations. As you begin your search, remember the following:

Not all counties and cities are alikeOn the most basic level, you need to be aware of the various cities or counties that have banned recreational producers outright. The OLCC maintains a list of these hostile local governments and you may be sad to hear that Grass Valley, Oregon is still off-limits!

Even the cannabis friendly local governments vary significantly in their local requirements, with some counties going to great efforts to be cannabis friendly, and others putting up an unfortunate amount of red tape. An exhaustive county-by-county or city-by-city analysis is beyond the scope of this post and we recommend you speak with cannabis entrepreneurs and professionals who have worked with your top choices for county or city to get a sense of potential local government roadblocks.

Distribution Channels. Though rural land is likely cheaper, your best markets will likely be in the cities. It is never too early to begin cultivating relationships with wholesalers, processors and even retailers to help bridge this gap. Proximity to testing labs is also a plus.

Perform Your Due DiligenceOnce you find a location in a friendly area with room for your operation, you need to ensure that the property complies with all state, county, and municipal requirements and regulations. This can be done by thoroughly reviewing county codes, city comprehensive plans, land use regulations, relevant zoning ordinances, and CC&Rs and, in some cases, talking with the appropriate government officials. You also need to be sure your property has access to adequate water as you will be required to show proof of “water rights,” and adequate power.

Failing to do due diligence on a property can have disastrous consequences. We recently had a cannabis client come to my law firm ready to close on a perfect piece of real estate in a location with a cannabis-friendly local government. This company had even paid for certain improvements to the property, and it was just days away from closing on the property transaction. Fortunately, as soon as we were provided the counties’ records on the property, we noted a provision from the 1980s that prohibited their business. We identified this issue just in time to prevent the purchase and free up our client to move on to greener pastures.

Once you’ve acquired rights to your perfect cannabis property, you are ready to apply for a Land Use Compatibility Statement (LUCS) from the local jurisdiction and to begin preparing the property for the OLCC licensing/inspection process. Part 2 of this series can be found here.

I recently had the pleasure of attending the Cultivation Classic 2017, the “world’s only cannabis competition exclusively for ethically-grown product free of pesticides, defining craft and celebrating community.” Producers from around Oregon, including several of our clients, came together in a friendly competition to celebrate Oregon’s unique cannabis culture and ethos. Alongside the competition, the organizers put together a series of panels discussing a range of social, political, and legal issues facing the Oregon cannabis industry. The first panel featured the launch of a new industry group devoted to defining and supporting Oregon’s craft cannabis community.

This Craft Cannabis Alliance is an association of cannabis and cannabis-related businesses dedicated to creating an Oregon craft cannabis industry to rival Oregon’s renowned craft beer industry. Alliance Executive Director Adam Smith, a founder of Students for Sensible Drug Policy, took the stage to explain what “craft” means to these industry leaders:

Pictured left to right: Adam Smith, Cannabis Craft Alliance; Ashley Preece, Ethical Cannabis Alliance; Jodi Haines, Alter Farms
Pictured left to right: Adam Smith, Craft Cannabis Alliance; Ashley Preece, Ethical Cannabis Alliance; Jodi Haines, Alter Farms

These industry leaders are working to ensure that sustainable, ethical craft cannabis growers retain a seat at the table as Oregon’s cannabis industry matures. Gabriel Cross, CEO of Odyssey Distribution, LLC, expressed a sentiment shared by many of his fellow founding members.

“As a values-driven company, how we do things is as important to us as the bottom line. The CCA shares many of our values, and more importantly will bring together values-driven cannabis companies under one roof. We have a rare opportunity right now to define how an entire industry operates.”

One of the thorniest issues the CCA will face is the task of defining what “local control” means within the context of Oregon’s craft cannabis culture. Long-time readers of this blog will recall that Oregon originally implemented strict and confusing control and ownership residency requirements on recreational cannabis businesses. This created a host of problems, and the Oregon legislature responded by swinging the pendulum in the other direction, opening Oregon’s cannabis industry to unrestricted foreign investment and control. Over the coming months, the CCA will be working to find a balance its members believe will allow Oregonians to share in the profits of the state’s newest state-sanctioned “crop” without choking off the supply of vital capital that residents from other states can bring.