Today let’s talk about Matthew Price, the Oregon marijuana businessman headed to jail for tax crimes. This story got a lot of coverage when it broke last month, partly because it was the first known tax-related prosecution for a licensed pot business owner, and partly because Price was fairly well known in Oregon. He once sat on an Oregon Liquor Control Commission (OLCC) rules advisory committee for cannabis retail, and he owned three dispensaries. Seems like he was off to a pretty good start.

Well, not any longer. In addition to the seven-month lockup, Price was ordered to pay the I.R.S. $262,776 in restitution on the nearly $1 million in taxable income he raked in from 2011 to 2014. He will probably never be allowed to participate in the OLCC program again, given the agency’s recent tightening of the screws, and its authority to bar anyone with a federal conviction “substantially related to the fitness and ability of the applicant” to obtain a license.

cannabis marijuana tax IRS

Generally speaking, marijuana businesses are liable for lots of tax under IRC 280E. As cannabis business lawyers, we work with CPAs and others to attempt to mitigate our clients’ tax liability, but at the end of the day, that liability is always there. Tax obligations do not end at the federal level, of course: Most states have income tax programs, and all states with legal cannabis programs seem to collect additional taxes on the sale of marijuana. In Oregon, for example, that sales tax must be escrowed by OLCC retailers and paid to the state Department of Revenue. As to Matthew Price, the news reporting was silent on whether he was also shirking those payments.

Having advised state-legal cannabis businesses since 2010, we have seen a lot of monkey business when it comes to tax. We have seen bad lawyers advise clients not to pay taxes, on the theory that tax programs violate business owners’ rights against self-incrimination. We have seen businesses attempt to claim “non-profit” status and avoid taxes in that manner, despite the impossibility of receiving an I.R.S. exemption. And we’ve seen lots of “management company” schemes, most of which are nonsense. At the end of the day, a baseline level of tax is unavoidable.

Interestingly and appropriately, the judge in this case didn’t seem to treat Price differently because his income derived from cannabis sales. It was reported that federal prosecutors petitioned the judge to go hard on Price, in order to send a message to the marijuana industry. The judge wasn’t having that:

The fact that the product involved here is marijuana is utterly meaningless to me in passing a sentence,” the judge said. “It’s a tax case to me.”

That didn’t stop the Justice Department from bragging a bit, but it’s encouraging to see cannabis entrepreneurs being treated like everyone else — in theory, anyway — and for better or worse. On that point, we have often said on this blog that just because someone is violating one federal law by trading in cannabis, that doesn’t make it a good idea to violate all the others. And we always advise entrepreneurs to run their cannabis business like real businesses. That includes paying taxes.

oregon marijuana equal pay

Back in 2017, the Oregon legislature passed equal pay legislation prohibiting employers from asking applicants about compensation history. The law is known as the Equal Pay Act. This law, like other employment laws, applies to cannabis businesses. The equal pay provision of the law goes into effect on January 1, 2019. Oregon Bureau of Labor and Industries (BOLI) was tasked with drafting rules implementing the Equal Pay Act and recently released draft rules. This series of posts will unpack the new rules and explain the impacts on your cannabis business.

The Equal Pay Act prohibits employers from paying disparate compensation for work of a comparable character. The Equal Pay Act defines compensation as “wages, salary, bonuses, benefits, fringe benefits and equity-based compensation.” What this means is each of these taken in total is an employee’s compensation. The proposed BOLI rules provide clarification to each of the words that make up “compensation.”

BOLI defines benefits as:

“the rate of contribution that an employee makes irrevocably to a trustee or to a third person under a plan, fund or program; or the rate of costs to the employer in providing benefits to an employee beyond what is required by federal, state or local law pursuant to an enforceable commitment to carry out a financially responsible plan or program which is committed to the employee affected including but not limited to the following: medical or hospital care; pensions on retirement or death; compensation for injuries or illness resulting from occupational activity; insurance to provide any of [the above]; unemployment benefits; life insurance; disability insurance; sick leave pay; accident insurance; vacation or holiday pay; or defraying costs of other bona fide fringe benefits.”

But what does this long-winded definition actually mean? As an example, if you have two extraction technicians that perform substantially the same work, you need to provide them the same benefits, otherwise you will be in violation of the equal pay laws. If you provide one health insurance, you need to provide the other the same level of health insurance. Etc.

Bonus, similarly has been given a long definition. Bonus is defined as:

“an amount that is paid or something of monetary or quantifiable value that is given to an employee by an employer in addition to the employee’s regular rate of pay, typically as a means of encouragement or in recognition of superior performance. Bonuses include but are not limited to the following: signing or job acceptance bonuses; attendance bonuses; loyalty bonuses; performance bonuses; and productivity bonuses.”

Again, if you provide a performance bonus to one extraction technician, you must provide a bonus on the same terms to any other extraction technician. A future post will discuss in detail exactly what the “same terms” means.

Finally, “salary” is defined as a predetermined amount constituting all or part of the employee’s compensation paid for each pay period of one week or longer. And “wages” means all compensation for performance of service by an employee for an employer. Your extraction technicians need to be receiving the same salary or wages otherwise, you’ll be in violation of the rules.

All of the above definitions need to be considered in total when setting compensation for your employees. Remember–work of a comparable character must be paid the same. And yes, a future post will explore what “comparable character” means.

The Equal Pay portion of the Equal Pay Act officially goes into effect on January 1, 2019. Now is the time to get familiar with the law and its implementing rules, and to ensure you are paying your cannabis employees in accordance with the requirements. If you are unsure, consult an attorney to review your pay practices. Non-compliance will come with hefty fines.

california cannabis marijuana privacy policy
No longer optional for your canna business website.

Unless you’ve been living under a rock for the past few months, you’ve probably read about the host of sweeping new laws in California, like its new Internet of Things law, cannabis privacy law, or net neutrality law, to name just a few. California has long been regarded a trailblazer when it comes to making people who are outside of California do things to comply with California law. So it probably comes as no surprise that website operators outside of California may need to comply with a privacy policy law in California: the California Online Privacy Protection Act.

Pursuant to this law, any business that owns or operates a website that advertises to, services, or in many cases is simply accessible by California residents will almost certainly need to conspicuously post (and—importantly—actually follow) a privacy policy containing statutorily defined disclosures. This requirement applies when a website collects “personally identifiable information” about California consumers, including first and last name, home or other address, email address, telephone number, Social Security number, or any other information that would permit a person to contact a website user (either physically or online). Moreover, a policy may be required even for businesses located in distant areas of the United States just by virtue of the fact that its website can collect this information.

If a company fails to create or adhere to a privacy policy and does so either intentionally or in a material and negligent way, that company may be in violation of the law. The law does state that website operators will not be in violation until 30 days after being notified that their website does not contain a privacy policy, but it does not specify where notification can come from (i.e., the state or any source), which means that reliance on this window may be risky. The law is enforced by the California Attorney General, with penalties of up $2,500 per violation. These penalties could be a severe for businesses that offer mobile apps, as the California Attorney General has taken the position that a new (potentially $2,500) violation occurs each time a non-compliant app is downloaded.

You may be wondering how this applies to your cannabis business. The fact is that there are numerous ways in which even seemingly passive websites collect protected information from and about users. Even if your website does not sell any products, it may include “Contact Us” or mailing list subscription portals which collect protected information. If your website sells or ships any sort of product, it may collect at least some protected information. Even if your business has not collected information about any California residents in the past but simply could do so, the mere possibility may mean it needs to comply.

Furthermore, there are other good business and legal reasons to post and adhere to a privacy policy. Customers appreciate when businesses are transparent about their privacy practices. For obvious reasons, ensuring that cannabis customers’ privacy is maintained is important. Additionally, in the event of a data breach which requires notification to state or federal authorities, the fact that a company took steps to maintain customer privacy may be important considerations in determining if any enforcement actions should be taken.

The good news is that, unlike some laws or regulations that cannabis companies face, California’s privacy policy law is relatively straightforward in that it specifies what a company needs to disclose in a privacy policy and how that policy needs to be displayed on a website. That said, ensuring that a privacy policy accurately describes a company’s current and future privacy practices can be a challenge, and inaccurate or gratuitous statements in a privacy policy could expose a company to additional liability. In other words, a policy needs to be tailored to a company’s specific practices, and so copying language from other privacy policies could cause even more trouble for a company.

Cannabis companies have enough to worry about. They shouldn’t add to the problem by failing to address privacy or data security laws. A good place to start is engaging counsel to draft a comprehensive privacy policy. After all, at least according to California, one is required.

lcb washington cannabis marijuana
Unfortunately, a lot of this stuff is not written anywhere.

To successfully work in Washington’s regulatory cannabis industry, you need to understand the overlapping levels of laws and rules that are in the state’s regulatory arsenal. State statutes in RCW 69.50 set forth the boundaries of the regulatory system. State regulations in WAC 314-55 fill in the details of that regulatory system. Then there are official Liquor and Cannabis Board guidance documents, administrative cases, and court cases that formally interpret those statutes and rules. But there is yet another tier of rulemaking that is harder to see. This tier houses all the unwritten, often changing policies and interpretations of the LCB. If you aren’t aware of these unwritten rules, you can get yourself into a lot of trouble, including potentially losing your license — even if you think you’ve done everything by the book.

For example, did you know that the LCB has two different enforcement policies with regard to its “minor frequenting” violation? If a marijuana retailer does not check ID at its door, here’s the order of events. The minor enters the retail store and attempts to make a purchase. The store employee checks ID and sees that the minor is underage and asks the minor to leave without completing a sale. There is no violation. However, take this same set of circumstances and add an additional security ID check at the front door, in addition to the ID check at point of sale. In that circumstance, if the ID check at the front door misses spotting the date on the ID card but the minor is still turned away at the secondary ID check at point of sale, the retailer has committed a violation. If a retail business is going to have an outside security check, it has a different, stricter standard for what constitutes a rules violation than if it doesn’t have that security check. Regardless of whether that policy is bad (it is), you can’t find it anywhere in the LCB’s rules or in case law interpreting those rules.

In another example, the LCB has generally held that a financial contribution to a licensed business creates a financier relationship the entails a full criminal background check on the financier and a disclosure by the financier to the LCB of all that financier’s assets, debts, etc., all under penalty of perjury. On the other hand, if that same financier wanted instead to invest just in real estate and equipment and lease that equipment to a licensed marijuana business, no LCB disclosure or background check is required. All of that is reasonably reflected in the rules as written. However, the LCB also has a twist on that policy. If a marijuana business owner also wants to co-own the real property that is leased to the marijuana business, any other financiers or owners of that real property are considered as financiers or owners of the underlying marijuana business. Even if a property were purchased a year before the marijuana license was issued, a lender that holds a deed of trust on property that is owned by an individual that leases it to that individual’s marijuana business is considered a financier. Again, this policy is not reflected at all in any statute or regulation.

We deal all the time with people who are unwittingly violating written regulations. As a layperson in a regulated industry, it is your responsibility to know those rules, but that doesn’t mean it’s easy. When companies get into trouble because of violations of the unwritten rules, however, they don’t have real notice that what they are doing is contrary to LCB policy. And it allows the LCB to implement policies without being subject to the state’s mandatory notice and comment period for new rules. I don’t think that the LCB does this on purpose — the notice and comment period creates delays and can be taxing to work through. But there are enough tools in the LCB’s belt (emergency rules, interim policies, formal guidance documents, etc.), that any time we see the unwritten rules in practice, we need to push back. Lately, we’ve been doing that a lot around here.

DEA and FDA are in a bit of a tiff over CBD.

Last week, following the highly-anticipated U.S. Food and Drug Administration (“FDA”) approval of Epidiolex, G.W. Pharma’s oral cannabidiol (“CBD”) solution for the treatment of seizure associated with Lennox-Gastraut and Dravet syndrome, the Drug Enforcement Administration (“DEA”) issued a Final Order rescheduling FDA-approved drugs containing cannabis-derived CBD with no more than 0.1 percent THC under Schedule V of the Controlled Substances Act (“CSA”).

The DEA’s decision to reschedule this very specific formulation of FDA-approved CBD was largely influenced by a joint recommendation made by the U.S. Department of Health and Human Services (“HHS”) and the FDA earlier this year (“Memo”). However, according to a letter released last week by HHS Assistant Secretary Brett Giroir (“Letter”), the FDA concluded that CBD and its salts “could be removed from control” because:

  • “There is little indication that CBD has abuse potential or presents a significant risk to the public health”;
  • “No evidence for a classic drug withdrawal syndrome for CBD, and no evidence that CBD causes physical or psychic dependence”;
  • “CBD does not appear to have abuse potential under the CSA”;
  • “There is no signal for the development of substance use disorder in individuals consuming CBD-containing products”; and
  • “It is unlikely that CBD would act as an immediate precursor to THC for abuse purposes.”

Upon sharing its conclusion with the DEA, the FDA was advised that removing CBD from the CSA would violate international drug treaties to which the United States is a signatory. Specifically, the DEA explained that the United States would “not be able to keep obligations under the 1961 Single Convention on Narcotic Drugs if CBD were decontrolled under the CSA”. Consequently, the FDA revised its recommendation and advised the DEA to place CBD in Schedule V—which applies to drugs with demonstrated medical value and deemed unlikely to cause harm, abuse, or addiction—instead. Nonetheless, the FDA declared that “[i]f treaty obligations do not require control of CBD, or the international controls on CBD…are removed at some future time, the above recommendation for Schedule V under the CSA would need to be revisited promptly.”

As we previously discussed, the World Health Organization (“WHO”) Expert Committee on Drug Dependence submitted a recommendation in July to the United Nations Commission on Narcotic Drugs (“CND”) that “preparations considered to be pure CBD” should not be scheduled under any international drug treaty. The CND is scheduled to consider this recommendation at its annual meeting in March 2019. Yet, even if the CND were to deschedule CBD, the DEA would be free to ignore the FDA’s recommendation (i.e., scientific advice) and continue resisting a broader rescheduling of CBD. After all, the United States is currently disregarding the scientific data supporting the therapeutic value of CBD and refusing to join the global medical community, which favors its use and descheduling. That being said, if CBD were to be descheduled at the global level, the United States, specifically the DEA (i.e., Jeff Session’s Department of Justice), would no longer be able to hide its personal biases behind international treaties.

We will continue to monitor these actions and provide any domestic or international updates. In the mean time, feel free to contact us with any questions you might have on CBD-related issues.

california cannabis marijuanaIt’s not a normal day in California if there aren’t around 50 cannabis bills floating around Assembly halls. And this legislative session did not disappoint in getting certain much-needed cannabis legislation passed (though some important legislation also bit the dust). All in all, there is a lot of legislation and it can be difficult to keep track of. It can also be difficult to identify what’s going to have the greatest impact on California’s cannabis industry. We are still in an emergency rule period under MAUCRSA (with permanent regulations probably taking full shape and adoption in early 2019), so it’s comforting to see the legislature fill some of the gaps left over from the emergency rules.

Here’s my list of the most important/recent cannabis bills of 2018 for California:

Provisional licenses. Without a doubt, the industry would have gone into a tailspin and then come to a screeching halt after December 31 of this year without the advent of provisional licenses. We wrote about the provisional license bill, SB 1459, before its passage, and the bill is now law. The basic gist is that if your business holds or has held a temporary license and you’ve file for your annual license, you’re going to get a provisional license (which is good for only one year) in order to keep operating while you pursue your annual license. Temporary licenses will not be issued after December 31 of this year, so this is the new vehicle for continued operation in California while you wait on your annal license. Here’s a fact sheet from CDFA that details what you need exactly for a provisional cultivation license (the other agencies haven’t released anything yet as of the writing of this post).

Events. Finally, the legislature got on board with expanding the venues at which cannabis events can be held. AB 2020 now allows cannabis events to take place at “a county fair event, district agricultural association event, or at another venue expressly approved by a local jurisdiction for the purpose of holding temporary events of this nature. . .” Of course, local jurisdictions still have to approve of these events and only licensees can throw them, but this is a big move for the increased normalization of cannabis in California where we’re now beyond allowing licensees to have temporary events at only county fairs and district agricultural association events as was previously the case.

Cannabis convictions. AB 1793 represents the continued implementation of Prop 64. Namely, when it comes to cannabis-related convictions, Prop. 64 “authorizes a person to petition for the recall or dismissal of a sentence, dismissal and sealing of a conviction, or redesignation of a conviction of an offense for which a lesser offense or no offense would be imposed under [Prop. 64].” In turn, AB 1793 mandates that the State Department of Justice/Office of the Attorney General, before July 1, 2019, review all existing criminal records in the state’s database to identify past convictions that are eligible for recall, dismissal and sealing, resentencing and/or redesignation. The State DOJ then must notify all local prosecutors about the foregoing eligibility. The prosecutors must then, on or before July 1, 2020, review all of their eligible criminal cases to decide whether to challenge the recall, resentencing, dismissal and sealing, or redesignation. If no such challenge is made by that date, the subject court must automatically reduce or dismiss the conviction. Without a doubt, many people in California will have their lives and futures changed for the better due to the passage of this bill.

Social equity. I have long maintained that any meaningful social equity programs on the local level (like those in Los Angeles, San Francisco, and Oakland) likely wouldn’t survive unless supported by the state. Thankfully, California is on board with the success of local social equity regimes via SB 1294, also now known as the California Cannabis Equity Act of 2018 (the “CCEA“). The CCEA basically sets up the state to provide “technical assistance” not to social equity applicants directly, but to the local programs that govern them. The Bureau of Cannabis Control (“BCC”) “may, upon request by a local jurisdiction, provide technical assistance to a local equity program that helps local equity applicants or local equity licensees.” “Technical assistance” includes “providing training and educational sessions regarding state cannabis licensing processes and requirements to equity applicants or equity licensees that are coordinated with the local equity program.” Cities and counties will have to petition the BCC for a grant of assistance to get things going under the CCEA, and whether the BCC assists or not depends on various merit-based criteria set forth in the CCEA regarding the nature of the local social equity program.

Pets and pot. AB 2215 addresses veterinarians and their relationship to licensees under MAUCRSA. Under this new law, the Veterinary Medical Board can revoke or suspend a veterinarian license, or can assess a fine, for “accepting, soliciting, or offering any form of remuneration from or to a [MAUCRSA] licensee if the veterinarian or his or her immediate family has a financial interest [in the licensee].” Further, if a vet physician even discusses cannabis with a client (i.e., the pet’s owner) while the vet physician has any kind of an agreement with or is employed by a MAUCRSA licensee, or if the vet physician makes any kind of advertisement for cannabis, the Veterinary Medical Board can revoke or suspend a veterinarian license, or can assess a fine against the vet physician. This is the biggest kicker of all though–AB 2215 “prohibits a licensed veterinarian from dispensing or administering cannabis or cannabis products to an animal patient.” Still, the vet will not get into trouble for just discussing, on their own with the pet owner, the benefits or effects of cannabis on the pet.

Privacy. What companies can and cannot share about their customers seems to be ever changing and certainly constitutes an emerging area of law. And cannabis companies are no exception, and definitely not now in California. As we wrote in a previous post, “AB 2402 is significant in that it prevents licensed cannabis businesses from sharing expansive categories of customers’ personal information with third parties—except in limited circumstances in connection with payments, or where a customer has consented to sharing his or her data with a third party. Notably, AB-2402 prohibits licensed cannabis businesses from discriminating against or refusing service to consumers who do not consent to disclosure of their personal information to third parties.”

No CBD in your booze. For anyone who had dreams of making a cannabis-infused wine, cocktail, or beer, AB 2914. “prohibit[s] a licensee from selling, offering, or providing a cannabis product that is an alcoholic beverage, including, but not limited to, an infusion of cannabis or cannabinoids derived from industrial hemp into an alcoholic beverage.”  Yes, the nail is now officially in the coffin for hemp-derived CBD alcoholic beverages. And this doesn’t just apply to cannabis licensees–it also now applies to alcoholic beverage licensees licensed under the Alcoholic Beverage Control Act. Given that CDPH-FDB recently prohibited hemp-derived CBD in all food and regular drinks (via an FAQ), it was really only a matter of time until state government extended that prohibition to alcohol, too.

OSHA. AB 2799 is going to force licensees to get serious about employment laws in California; specifically, it will make cannabis businesses become Cal-OSHA compliant, which really isn’t a bad thing where it’s good public policy to promote and implement safe workplaces for employees. Now, when you apply for your annual license or you to go to renew that annual license, you’ll have to “[p]rovide a statement . . . that [you] will employ within one year of receiving or renewing a license, one supervisor and one employee who have successfully completed a Cal-OSHA 30-hour general industry outreach course offered by a training provider that is authorized by an OSHA Training Institute Education Center to provide the course.”

City cannabis licensing in action.

Recently, the City of Portland announced that it would lower cannabis business licensing fees. Most notably, retail license fees have been reduced from $4,975 to $3,500, in line with other license types. That is still too steep (especially considering the state licensing fees), and although the City has cleaned up its process over the past few years, it’s still redundant, unnecessary and something of a cluster. Like all cities, Portland should stop licensing cannabis businesses.

It’s been over three years since Portland adopted its poorly written Code Chapter 14B.130, which sets forth license procedures and requirements for marijuana businesses. The oppressive fee schedule adopted at that time placed an outsized burden on retailers to cover the cost of administering the Portland Marijuana Policy Program. In the early days, the program was staffed by functionaries at the Office of Neighborhood Involvement (ONI) who shall go unnamed and mostly seemed to follow each other in circles, sometimes passing applicants back and forth with the Bureau of Development Services (BDS). Most of those folks have moved on.

ONI has since been rebranded as the Office of Community & Civic Life (people still call it ONI) and slotted under a different Commissioner. All of this followed from campaign promises made by Portland’s new mayor, who acknowledged that the City’s relationship with marijuana was a mess. For further reading on how bad it got — from credible estimates that local red tape was costing the industry $22 million per month, to disapproving letters penned by Congressional reps — go here, here, here, here, here, here and here. The City’s actions also caused one of my all-time favorite Oregon cannabis rumors: A class action suit would be filed “any day now” by private industry against the City. It’s been a trip.

Three years later, the Marijuana Policy Program is better run, and the lawyers and paralegals in my office get along with everyone there and push licenses through on the regular. But the question remains: What exactly is the point of having a local regulatory program for cannabis businesses? Everything is redundant to what the state is doing, and when it’s not, it’s usually worse. So why do cities think this is a good idea?

Those are complex and provocative discussions, but the motivation by cities may be some combination of the following: 1) licensing cannabis generates revenues; 2) licensing cannabis generates jobs; 3) licensing cannabis is novel; 4) licensing cannabis may appease people who dislike pot businesses; 5) cities may already be licensing alcohol (although to a lesser extent, invariably); 6) other cities are licensing cannabis; and 7) it’s hard for regulators not to regulate things. All in all, it’s a dismal mix.

Unfortunately, there is not much that industry can do when a city decides it wants to license cannabis. In states where legal marijuana markets exist, cities (and counties) have significant leeway in dealing with cannabis businesses. Some cities opt out entirely; others choose to license. Still others take a middle path, charging a variety of fees and taxes to hapless pot businesses but stopping short of licensure. Although fees and taxes are burdensome, those cities tend to avoid the logjams that prevent many businesses from even getting off the ground.

In all, the Portland experience is not unique. Hilary Bricken has been writing on this blog for some time about City of Los Angeles’ convoluted three-phase licensing protocol, for example, and the unintended consequences that come with it. Others have taken a broader survey, chronicling “extortionate” application, permit and license fees from municipalities nationwide. In comparison to some locales, cities like Portland and Los Angeles don’t seem so bad.

It’s also important to remember that cities can do a lot of good for cannabis, if they skip the licensing step and focus on other things. In August, Portland directed $350,000 in funds toward record-clearing and workforce efforts for communities that prohibition has impacted disproportionately. It also dropped another $150,000 to support equitable cannabis initiatives. Both announcements were met with general approval.

Most recently, Portland rolled out a “Social Equity Program”, which modestly reduces licensing fees to qualifying businesses. Before you get too impressed, though, consider: The better move would be dropping the licensing structure altogether.

california industrial hemp
For the most part, anyway.

We’ve been closely following the trajectory of SB 1409 and on September 30, 2018, Governor Brown signed the bill which will go into effect on January 1, 2019. This legislation is a huge step for California cannabis, in that it will add an industrial hemp pilot program to the California Department of Food and Agriculture’s registration system.

Currently, California law regulates the cultivation of industrial hemp, and specifies certain procedures and requirements on cultivators, not including an established agricultural research institution. Existing law defines “industrial hemp,” via the California Uniform Controlled Substances Act, as a fiber or oilseed crop, or both, that is limited to the non-psychoactive types of the plant Cannabis sativa L. and the seed produced from that plant.

Existing California law also requires that industrial hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee.

SB 1409 deletes the exclusionary requirement that industrial hemp seed cultivars be certified on or before January 1, 2013. Additionally, “industrial hemp” will no longer be defined restrictively in the California Uniform Controlled Substances Act as a fiber or oilseed crop, and the bill deletes the requirement that industrial hemp be grown as a fiber or oilseed crop, or both. We initially presumed this would allow cultivators to harvest hemp for CBD derivation, and related use, but given the recent FAQ issued by the California Department of Public Health effectively banning the sale of CBD food products, how hemp-derived CBD in California will be regulated in the future remains to be seen. We are certain this is an issue that will be taken up by the state during the rule-making process.

SB 1409 also authorizes the state Department of Food and Agriculture to carry out, pursuant to the federal Agricultural Act of 2014, an agricultural pilot program for industrial hemp. Twinning a state-sanctioned pilot program with licensed, private cultivation is a model that has worked well in other states, like Colorado and Oregon. Given the recent expiration of the 2014 Farm Bill prior to passage of the Hemp Farming Act of 2018, however, it remains to be seen how new hemp pilot programs will be viewed and treated by the federal government. Our hope is that Congress will resolve its differences and enact the Hemp Farming Act of 2018 before the end of the year, or at least before California is able to build out and implement its own regulatory system.

Some other provisions included in SB 1409 include detailed requirements for sampling and laboratory testing of industrial hemp. The bill provides new time frames for sampling of industrial hemp and destruction of hemp that exceeds the 0.3% THC limit. Also of note, and perhaps unfortunately, the bill adds a provision to the Food and Agricultural Code giving local jurisdictions the ability to ban industrial hemp cultivation in limited circumstances:

A city of county may, upon a finding that pollen adrift from industrial hemp crops may pose a threat to licensed cannabis cultivators permitted by the city or county, prohibit growers from conducting, or otherwise limit growers’ conduct of, industrial hemp cultivation in the city or county by local ordinance, regardless of whether growers meet, or are exempt from, requirements for registration pursuant to this division or any other law.”

We’ve seen recent litigation on this issue in Oregon, so perhaps the state is trying to insulate its licensees from similar outcomes.

As stated above, we’ll be very interested to see how (and if) regulators tackle the issue of industrial hemp-derived CBD in California as they develop the new regulatory framework for hemp. In the meantime, if you are unfamiliar with the current legal status of hemp-derived CBD food products in California, we recommend reading the CDPH’s FAQ and checking out our post on the topic here. We’ll continue to monitor rule development now that the bill has passed and all hemp-related developments in California closely.

For more on industrial hemp generally (including CBD), check out our wealth of archived posts here.

marijuana canada vancouver police
New rules at the Vancouver P.D.

Despite a few employee victories across the country, states continue to allow employers to punish employees for off-work use of marijuana—even if they are medical marijuana users. Oregon and California tried and failed to pass legislation to protect off-work use of marijuana. The federal government even tried to protect off-work use for medical marijuana. Despite the efforts, a majority of states with legal marijuana allow employers to terminate employee for off-work marijuana use. Our neighbors to the north, however, seem to be moving in the opposite direction.

Canada legalized the sale and use of marijuana earlier this year and is set to begin legal sales on October 17. It’s only the second country to fully legalize at the national level. Along with Canada’s progressive views on marijuana, comes progressive views on public employees’ use of marijuana. To wit, the Vancouver Police Department (“VPD”) has officially approved off-work marijuana use.

Initially, back in early August, the VPD proposed a 24-hour pre-shift period of abstinence. Instead of immediately accepting or rejecting the proposal, the VPD did its research. The VPD issued a report noting that cannabis can affect individuals to different degrees and THC remains in an individuals system despite the individual no longer feeling the effects. Specifically the VPD rejected any pre-shift abstinence period, finding that:

specifying a time frame can create an implicit approval that that this period of abstinence is all that’s required to ensure fitness for duty…This can lead to unnecessary labour conflicts where employees are fit for duty but have consumed cannabis within this time frame, or where employees are not fit for duty but mistakenly believe they are as they consumed outside this time frame.”

The VPD, much like it does with alcohol, will require officers to refrain from partaking prior to the start of their shift and present “fit-for-duty.” The VPD will also allow officers to possess cannabis during working hours so long as the substance is stored in its original, sealed, and unopened package.

What does this mean for the rest of North America? Not a lot exactly. Canada’s laws, rules, and policies have zero effect in the U.S. or elsewhere. But perhaps Canada’s policies will trickle down. U.S. lawmakers seem to be unable to draft a bill that garners enough support to protect employees’ off-work use of marijuana. Many states, like Oregon, fail because the marijuana remains a controlled substance federally. Unless marijuana is de- or rescheduled, states will continue to struggle to protect employees off work use.

At most, Canada’s legalization may show the United States a way forward. If Canada’s legalization goes smoothly, perhaps federal U.S. lawmakers will realize it can be done and will not continue to cleave to the failed policies of prohibition. At the state level, maybe jurisdictions like Oregon and California can look to Vancouver for guidance on protecting employees’ rights to use marijuana off-work.

VPD has taken a reasonable approach to off-work marijuana use: don’t show up to work impaired. This is the same standard we use with other substances, so why not marijuana? As Canada moves forward with its legalization, let’s hope the U.S. and its states look north for guidance in areas such as employee rights.

jamaica canada international marijuanaI recently traveled to Montego Bay for the annual CanEx Jamaica conference. I spoke on a panel with attorneys from Jamaica and Canada about the legal challenges across international cannabis markets. Grace Lindo of Jamaican firm Nunes, Scholefield, DeLeon & Co. and Sandra Gogal of Canadian firm Miller Thomson LLP, each spoke about the markets in their respective countries while I cover legal challenges in the US. The panel was moderated by Imani Duncan-Price, Chief of Staff for the Office of the Leader of the Opposition.

Jamaica breaks commercial cannabis licenses into six categories: cultivator, processor, transporter, retailer and a research and development license. A licensed business must be “substantially owned” (at least 51%) by Jamaican residents.

Because Jamaica has decriminalized cannabis under its licensing regime, intellectual property protection is available for trademarks. According to Lindo, Jamaica’s Patent Act is somewhat outdated, meaning that it is not possible, per se, to get protection for plant varieties. Trade secrets and know-how are not statutorily protected, so in Jamaica, confidentiality agreements are key.

Canada’s legal cannabis market is poised to take off this month, so it was very interesting to hear about the legal framework for our northern neighbors. This is when Canada’s “Cannabis Act” goes into effect, legalizing cannabis at the federal level. Like the US, Canada has a federal system of government. When it comes to cannabis, the federal government has jurisdiction over cultivation, quality control, and taxation. Provinces and territories, in turn, have jurisdiction over distribution and retail. There will be six license types: cultivation, processing, analytical testing, sale, research, and a cannabis drug license.

The Canadian market will arrive in a somewhat subdued form. Edible products, other than oils, will not be available initially. Also, the Canadian government is imposing strict limitations on the advertising and marketing. There is a general prohibition on promoting cannabis other than exceptions for “informational” and “brand-preference” promotion. That promotion will only be permitted for adults.

Because cannabis is going to be legal at the federal level in both Jamaica and Canada, my fellow panelists agreed that the international cannabis trade is going to be picking up in the near term. I discussed why America won’t be participating in this market until our federal laws change. As I recently wrote, the Controlled Substance Act makes it nearly impossible to import or export cannabis. I also spoke about the difference between marijuana and industrial hemp, and how the states have taken different approaches to regulating both hemp and marijuana.

It appears to me that both Jamaica’s and Canada’s laws have been influenced by various U.S. state markets. For example, like Jamaica, several states impose residency requirements. Canada has followed states like Washington in creating restrictive marketing rules designed to prevent promoting cannabis to children. On a larger scale, both Jamaica and Canada have also been influenced by the type of licenses issued. The model of issuing cultivation, processing, retail, and research licenses is certainly influenced by states like Washington, Oregon, and California.

When it comes to cannabis, American states have been pioneers and are now influencing regulatory regimes across the globe. However, America as a nation continues to fall behind due to the inability to participate in the international markets. There are signs that this could change, as the Associated Press recently reported that the University of California San Diego’s Center for Medical Cannabis Research obtained a permit from the Drug Enforcement Agency to import capsules from Tilray Inc., a Canadian cannabis company, that contain CBD and THC derived from marijuana. UCSD researchers will look into the cannabinoids effectiveness in treating tremors.  Though this is limited, it is a step in the right direction to keep the US involved in the growing international market.