california cannabis marijuana
California and the Feds are an odd couple in canna law enforcement.

When the Cole Memo was rescinded in January, uncertainty was rife on all sides of the state-regulated cannabis industry. Neither the regulators, the regulated, nor the unregulated knew what to expect from the federal government. The U.S. Department of Justice told each of its 93 United States Attorneys to exercise his or her own discretion when it comes to enforcing the federal prohibition on cannabis. While some indicated that they would more or less continue to follow the Cole Memo, the nature and status of enforcement priorities suddenly became an open question. Through the recent budget bill, thankfully, we learned that Congress would continue to prohibit the DOJ from enforcing against state-legal medicinal cannabis operators, but case law interpreting that law is relatively undeveloped.

On the other side of the equation, California regulators continue to struggle with the still-unlicensed operators who have decided that it’s better to continue operating unregulated and unlicensed—and tolerate the ongoing risk of a crackdown—than it is to incur the costs of compliance. That calculus depends largely on the robustness of the state’s enforcement efforts, which, like the federal government’s priorities, has also been somewhat of an open question. Two recent developments in California suggest what direction the Department of Justice may be headed on the question of cannabis enforcement. Perhaps even more interesting, however, is how the interests of the federal government and the state of California have apparently converged—if only for a moment—on the issue of cannabis enforcement.

Recently, hundreds of federal agents and local law enforcement officers conducted raids at 74 houses in and around Sacramento, in the Eastern District of California, and filed more than 100 civil asset forfeiture actions against residential properties. The houses, many gutted to make room for indoor grow rooms, were reportedly part of a Chinese organized crime operation for the secret cultivation and export of cannabis, and may have been purchased with funds of dubious origin. But the U.S. Attorney in charge of the enforcement action made clear that it had nothing to do with California’s cannabis regulatory regime, as the authorities weren’t conducting actions interfering with state cannabis laws, and that the alleged actions would be “illegal under anybody’s law.” Needless to say, the suspects did not have state or local licenses to conduct any cannabis activity.

In United State v. Gilmore, a case on appeal from the Eastern District of California, the court held that the operators of an El Dorado County cannabis garden on federal land were not entitled to the protections of the Rohrabacher-Blumenauer amendment, which restricts DOJ funds from being used to prosecute medicinal cannabis in states where it is legal. The court reasoned that nothing in federal or California law purports to allow anyone to grow cannabis on federal lands: In other words, there is no set of circumstances under which this operation would be compliant with state law. (Of particular note was the court’s rejection of the appellants’ claim that they were unaware they were growing on federal land—a good plug for the value of due diligence in a real estate transaction).

In both the Sacramento and El Dorado County cases, the federal government carried out or continued enforcement actions against operators who were neither licensed nor in compliance with state law. Also in both cases, the exit of unlawful operators from the marketplace furthered the state of California’s regulatory priorities; local law enforcement even assisted with the Sacramento raids. It is not clear what DOJ’s cannabis enforcement priorities will be going forward, but it cannot be ignored that at least in these two cases, the interests of both governing bodies were served, and under circumstances consistent with Cole Memo priorities to boot. It begs the question of what might result from future alignments of priorities, but the reality is that California has an unregulated black market cannabis problem, and at least in these two cases, that problem was alleviated to some degree.

hemp federal law
Are the glory days of hemp returning?

Senator Mitch McConnel (R-KY) recently introduced S.2667, a bill which would allow states and tribes to regulate hemp production. The proposed law is appropriately titled the “Hemp Farming Act of 2018” (the “Act”). As the Senate Majority Leader, McConnell is one of the most powerful politicians in Washington, so it goes without saying that this is a big deal. In addition, the Act is being fast-tracked through the Senate, bypassing the standard committee review process.

The Act is currently in draft form and the details are subject to change. As written, “hemp” would be defined as:

“the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-0 [THC] concentration of not more than 0.3 percent on a dry weight basis.”

This proposed definition is significant, because it specifically includes the term “extracts”, thereby undermining the DEA’s much-maligned “marihuana extract” rule, which broadly defines any extract from the cannabis plant as “marijuana” and not hemp. The proposed “hemp” definition also includes “cannabinoids” contained in hemp which could add much needed legal certainty to the already booming CBD market. The Act would also explicitly remove hemp from the Controlled Substances Act’s definition of marijuana.

The authority to regulate legal hemp would be placed in the U.S. Department of Agriculture. One major issue with the current federal “Industrial Hemp” program is that the 2014 Farm Bill, which established the program, does not name a federal agency to oversee it. Feel free to debate whether government regulations help or hurt an industry, but at least this bill provides some guidance as to who is responsible for the program.

Speaking of the 2014 Farm Bill, the Act would repeal and replace the “Industrial Hemp” section of that the 2014 Farm Bill one year after Act is passed into law.  The 2014 Farm Bill allows states to enact pilot programs for hemp research making hemp legal within the state’s borders. Hemp cultivated in compliance with a State’s program is expressly legal under the Farm Bill. The Drug Enforcement Administration (DEA) and other federal agencies have issued a joint Statement of Principles claiming that the commercial sale and/or the interstate transfer of Industrial Hemp is outside the scope of the Farm Bill and therefore unlawful. However, Congress has limited the DEA’s ability to use federal funds “to prohibit the transportation, processing, sale, or use of industrial hemp” grown in accordance with the 2014 Farm Bill.

Ultimately, the Act would require that states and tribes submit a plan to the US Department of Agriculture in order to cultivate hemp. The plan must include details on how to track the land where hemp is produced, a procedure for testing the THC concentration in hemp, a procedure for disposing of products that are not in compliance, and procedures for enforcing the Act. The Act would also allow hemp researchers to apply for grants from the and make hemp farmers eligible for crop insurance.

McConnell introduced the Act in the Senate on April 12, 2018, and it was co-sponsored by Oregon senators Ron Wyden and Jeff Merkley. That same day saw Representatives James Comer of Kentucky introduce companion bill H.R. 5485 in the House of Representatives with and Rep. Jared Polis of Colorado co-sponsoring.

McConnell hails from Kentucky and it’s no surprise that lawmakers from Kentucky, Oregon, and Colorado would support hemp legalization. In 2014,  we predicted Kentucky would lead the nation in industrial hemp as it was one of the first states to implement a hemp cultivation program under the 2014 Farm Bill. Kentucky was also one of the first states to legally obtain hemp seeds after it stepped up to fight the DEA in federal court in order to obtain those seeds. Since then, farmers in Kentucky have been happily producing hemp as a replacement for tobacco crops. McConnell and Kentucky Agriculture Commissioner Ryan Quarles highlighted Kentucky’s hemp program in announcing the Act:

McConnell: Hemp has played a foundational role in Kentucky’s agricultural heritage, and I believe that it can be an important part of our future. I am grateful to join our Agriculture Commissioner Ryan Quarles in this effort. He and his predecessor, Jamie Comer, have been real champions for the research and development of industrial hemp in the Commonwealth. The work of Commissioner Quarles here in Kentucky has become a nationwide example for the right way to cultivate hemp. I am proud to stand here with him today, because I believe that we are ready to take the next step and build upon the successes we’ve seen with Kentucky’s hemp pilot program.

Quarles: Here in Kentucky, we have built the best Industrial Hemp Research Pilot Program in the country and have established a model for how other states can do the same with buy-in from growers, processors, and law enforcement. I want to thank Leader McConnell for introducing this legislation which allows us to harness the economic viability of this crop and presents the best opportunity to put hemp on a path to commercialization.

In addition to Kentucky’s leadership on hemp, Oregon has reconfigured its hemp program and is a national bellwether in this space. Oregon hemp growers and handlers are able to sell their products to state-licensed marijuana businesses (as well as anyone else in the country). The merger of Oregon’s hemp and marijuana markets is unique and other states will likely follow suit, especially if the Act becomes law. Finally, Colorado has more acreage dedicated to hemp cultivation than any other state at present.

As mentioned above, it appears that McConnell is flexing his considerable political muscle to get this bill fast-tracked through Senate. McConnell is using procedural Rule 14 which allows a bill to skip over the committee process so that legislation may be brought up on the Senate floor. This doesn’t guarantee that the Hemp Farming Act will get a vote, but it does indicate that McConnell means business.

California has 58 counties and 482 incorporated cities across the state, each with the option to create its own rules or ban marijuana altogether. In this California Cannabis Countdown series, we cover who is banning cannabis, who is embracing cannabis (and how), and everyone in between.  For each city and county, we’ll discuss its location, history with cannabis, current law, and proposed law to give you a clearer picture of where to locate your California cannabis business, how to keep it legal, and what you will and won’t be allowed to do.

Our last California Cannabis Countdown post was on the City of Cotati, an before that, the City of San Luis Obispo, the City of Redding, the City of San Rafael, the City of Hayward, Alameda County, OaklandSan FranciscoSonoma County, the City of Davis, the City of Santa RosaCounty and City of San BernardinoMarin CountyNevada County, the City of Lynwood, the City of CoachellaLos Angeles County, the City of Los Angeles, the City of Desert Hot SpringsSonoma County, the City of Sacramento, the City of BerkeleyCalaveras CountyMonterey County and the City of Emeryville.

Today’s post is on the town of Truckee.

Welcome to the California Cannabis Countdown.

LocationTruckee is an incorporated town in Nevada County. Truckee is about 200 miles northeast of San Francisco and is just a short drive to Lake Tahoe. With its historic (and often bustling) downtown, background views of the Sierra Nevada mountains and proximity to world class ski resorts in the Lake Tahoe area, Truckee has become an attractive tourist destination. If you’re driving during the winter make sure to bring snow chains as you don’t want to veer off the road, get lost, and meat (pun intended) the fate of the Donner Party.

california cannabis marijuana Truckee
Is delivery coming to Truckee?

History with Cannabis: Truckee is known for its open beautiful landscape but no one would ever say it’s a jurisdiction that’s been open to cannabis. Dating back to 2005 the city adopted an interim ordinance prohibiting dispensaries. In 2008 the Community Development Director released a statement that dispensaries were not allowed under Truckee’s Development Code. It was only in 2015, when the California state legislature passed the Medical Cannabis Regulation and Safety Act and the Adult Use of Marijuana Act was going to be placed on the 2016 statewide ballot, that Truckee decided to revisit its prohibitionist stance towards cannabis. At this point the Town Council began to earnestly look into the feasibility of regulating cannabis businesses in jurisdiction. To gauge community feedback the Town Council held public workshops in February, March, April, and May of 2017. After those workshops the Council held three public meetings that focused on the following options: 1) continued prohibition; 2) allowing only commercial medicinal access; or 3) allowing medicinal and adult-use access. In the end the Truckee Planning Commission developed Resolution 2018-04 (“Resolution”) that would authorize delivery services.

Proposed Cannabis Laws: The proposed Resolution is by no means a gigantic step for Truckee cannabis businesses, but it’s still a step in the right direction. And a step forward is still better than the status quo of outright prohibition. Here are some of the Resolution’s highlights:

  • Allows for both medical and adult-use delivery services;
  • All other cannabis activities are prohibited (unfortunately);
  • The buffer from schools, day care centers, and youth centers would be 1,000 feet as opposed to the state’s 600 foot requirement;
  • The delivery service shall be in a fixed structure and not open to the public;
  • There are no caps on the number of licenses;
  • A license is only transferable with the approval of the Community Development Director; and
  • The term of license is for perpetuity so long as the licensee is operating in compliance with local and state law.

If you’ve been following the slow rollout of cannabis licenses from California’s state agencies, you know that the biggest impediment to securing a cannabis permit has been local regulations. Would we like to see local jurisdictions reasonably regulate all seed to sale license types? Of course we would, but that doesn’t mean that we won’t encourage smaller locales that decide to take their first step into regulating cannabis. This is especially true when a local jurisdiction is putting in place regulations to provide patients and consumers with access to tested cannabis as opposed to forcing residents to buy from the black market.

Making sure Californians have access to cannabis through delivery services has also faced initial hurdles in 2018, so having smaller locales, like Truckee, authorize cannabis delivery will benefit all legal cannabis operators along the supply chain. A hearing on the Resolution was held two weeks ago, but the Planning Commission continued the matter to the next Commission meeting, which will be held on April 26 at 6pm. We’ve seen how public support (and opposition) can sway undecided local legislators so if you want safe access to cannabis in Truckee, it’s paramount that you show up at the Planning Commission meeting!

oregon hemp cbd
So it goes with Oregon hemp.

In the past six to twelve months, we have seen an extraordinary increase in businesses and individuals interested in growing and processing industrial hemp. This is especially true in Oregon, where Department of Agriculture (ODA) grower and handler registrations are fast, cheap and easy to acquire. In many cases, these registrants are cultivating and processing hemp in order to create cannabidiol (CBD) based products. The products can be sold state-wide without limitation, including into the Oregon Liquor Control Commission (OLCC) adult use marijuana market via hemp-endorsed OLCC processors.

Other entrepreneurs, in Oregon and elsewhere, are extracting CBD for sale interstate. This is a legally nebulous area at the federal level, although interstate sales are not prohibited under Oregon law. With CBD isolate changing hands at upwards of $4,500 per kilo, however, and given the proliferation of CBD products making their way into big box retail, many businesses and individuals feel the risk is worth taking. Perhaps for this reason, we have been getting numerous weekly inquiries as to the viability of CBD sales interstate, especially as of late.

From a state rules perspective, Oregon has taken significant steps in the past several months in building out its industrial hemp regime. We wrote about the recent OLCC rules promulgated in December, which allowed for ODA hemp registrants to sell into the OLCC market; and more recently we wrote about House Bill 4089, which tied up a number of loose ends related to the tracking of those sales. The upshot of all of this is that we now have unprecedented interplay between the OLCC and ODA markets. And as the OLCC hustles to write rules implementing HB 4089, there is a fair bit of confusion about what is actually allowed.

One question that keeps coming up is whether an OLCC processor applicant may process ODA hemp (under both ODA and OLCC rules) while waiting to receive its license from OLCC. According to our reading of the rules, recently confirmed to us by OLCC, the answer is “yes.” Much in the way that marijuana growers used to attempt to “squeeze in” a medical marijuana crop pending their OLCC inspection and licensure, ODA hemp processors can float their operations by processing industrial hemp while in line with OLCC. Note that this is allowed even for ODA processors that are not seeking a hemp endorsement in their OLCC processor applications.

Of course, ODA, local fire marshals and other state or local actors may place limitations on hemp processing operations, or may require certain approvals. And just like with medical marijuana growers converting to OLCC production, OLCC may require that all hemp and hemp-derived items be removed from the processor’s premises as a condition of passing the necessary site inspection. If you think about it, this makes sense: Under OLCC rules, a licensed marijuana processor may not have hemp on its premises except if endorsed to receive that hemp via the OLCC Cannabis Tracking System (CTS) from an ODA grower or handler. Thus, pre-existing hemp items must be removed from the OLCC applicant’s premises prior to receiving the OLCC license.

Once licensed by OLCC with a hemp endorsement, the OLCC processor may receive hemp concentrates and extracts from ODA handlers, and the OLCC processor may receive raw hemp, hemp commodities and hemp products from ODA growers. Note that any form of hemp the OLCC processor receives from an ODA registrant must 1) come with clean ODA test results; and 2) be logged in CTS. Regarding the latter requirement, this means that no sale or transfer is allowed outside of OLCC channels, or to anyone other than OLCC wholesalers and retailers.

Finally, regarding ODA hemp processors–including those businesses waiting in the OLCC application queue–that’s another story. In keeping with the analysis above, those processors can sell their hemp products to anyone under Oregon law. When it comes to interstate sales and federal law, though, that’s a whole ‘nother question.

Happy 4/20.

marijuana cannabis federal policy
Let’s hope so, when it comes to prohibition.

The election of Donald Trump as president of the United States caught many pundits and prognosticators off guard. President Trump’s victory also instilled a level of uncertainty in America’s burgeoning state-legal cannabis industry. During the presidential campaign, Trump routinely professed his adherence to states’ rights when it comes to cannabis legalization (at least for medical cannabis activities). Once elected, however, President Trump appointed known cannabis prohibitionist Jeff Sessions to be his choice as U.S. Attorney General for the Department of Justice (DOJ) and cannabis operators went from feeling uncertain to outright fear.

It now appears that those fears may have been unfounded. After his confirmation, Sessions didn’t immediately seek to enforce federal laws against marijuana operators (to the pleasant surprise of many in the cannabis industry). The honeymoon lasted until January 4, 2018. Just four days into adult-use cannabis sales being legal in the state of California, Sessions formally rescinded the Cole Memo and the cannabis industry was once again thrown into turmoil. The rescission of the Cole Memo, when added with the Environmental Protection Agency’s refusal to register pesticides on cannabis crops and the Federal Drug Administration’s (FDA) threatened crackdown on medical cannabis claims, painted an ominous picture for the cannabis industry throughout the United States (although some of us were more optimistic).

It’s been over four months since Sessions rescinded the Cole Memo and although he’s rattled his saber on some occasions, the dreaded crackdown has not occurred. For that we may have Russia to thank. Sessions’ self-recusal from the DOJ’s investigation into Russian government meddling in the presidential election has made him persona non grata in the Trump administration — thereby placing his priorities at the very bottom of President’s Trump list.

Rather than a return to federal enforcement actions, we’ve begun to see quite a few positive developments as of late. Last week, President Trump told U.S. Senator Cory Gardner (R-CO) that he was committed to supporting a legislative solution to the tension between state’s that regulate cannabis activities and federal law (which we covered here). This could be a very important development, and let’s hope that this is one issue in which the President doesn’t change his mind.

Besides the commitment that the President made to Senator Gardner, there have been a number of other developments that have given cannabis businesses a reason to be optimistic:

  • The FDA just released a report that a CBD based drug has shown to have positive effect on those that suffer from seizures and epilepsy. This is a big blow to the federal government’s position that the cannabis plant has no medical value.
  • U.S. Senator Mitch McConnell (R-KY) recently introduced a bill in the Senate that would authorize hemp as an agricultural product. Any progress in the federal legalization of hemp will eventually also benefit marijuana legalization.
  • Senators Orrin Hatch (R-UT) and Kamala Harris (D-CA) sent a letter to the DOJ and the Drug Enforcement Agency, calling on them to increase the pace of medical research in cannabis. There have been approximately twenty-five applications submitted to the DEA to produce federally approved research-grade marijuana but none of them have been approved.
  • U.S. Representative  Dana Rohrabacher (R-CA) recently issued a statement that he plans on introducing a stand-alone bill that will respect a state’s right to regulate cannabis and would make the Rohrabacher-Bluemenaur Amendment permanent.

Taken as a whole, these are all encouraging developments– especially considering their bipartisan support. However, this is not the time to rest on our precarious laurels. The November mid-term elections will be on us before we know it and it will be up to all of us to elect officials that are against the government’s draconian war on cannabis. We can’t leave this up to Russia to decide for us, after all.

marijuana intellectual property licensing
Licensing agreements can get complicated. Start with who owns what.

We’ve written extensively about the potential pitfalls of intellectual property (“IP”) licensing deals, which are prolific within the cannabis industry. (For a few select articles, try here, here and here). Recently, news broke of another licensing-related lawsuit, this time involving Tommy Chong. According to the lawsuit, Chong and his son allegedly conspired to steal profits from Evergreen Licensing LLC. The complaint seeks damages for breach of contract, fraud and unjust enrichment.

The complaint alleges that after three years and $1 million spent on the project, Chong and his son conspired to “take it all away, even hacking into Evergreen’s Gmail account in order to misappropriate social media sites that plaintiffs created for the project.” The plaintiffs further allege that they were cut “entirely out of the picture, the project and the revenue and profits the project was going to generate and is generating.” It all sounds pretty unfair.

Unfortunately, these types of allegations come as no surprise given some of the proposed deals that have come across our desks. IP licensing is often seen as a quick and easy way to enter the marijuana industry, without having to clear the hurdles of state and local licensing and regulatory compliance. But unfortunately, this simply is not the case. These deals are complicated and fraught with unique cannabis-related issues beyond those posed by state and local regulations.

In addition to regulatory compliance, those contemplating a cannabis-related IP licensing deal need to understand the fundamentals of intellectual property, and this often begins with determining who actually owns what. In the cannabis industry in particular, information, strain names, and industry terminology have been shared freely since long before state-level legalization, and this compounds the difficulty faced by cannabis business owners in protecting their IP.

Ownership of IP in the cannabis industry is fraught with issues, as we’ve discussed before, in large part because the USPTO will not issue federal trademark registrations for cannabis-related marks. Far too often, cannabis companies come to us with proposed licensing deals where basic due diligence quickly reveals the licensor simply does not own what it claims to own.

If you’re looking to license IP from another company, here are the most basic questions you should be able to answer about that company and its IP:

  • Does the licensor own any federal trademark registrations?
  • If so, what goods and/or services do those trademark registrations cover?
  • Was the description of goods and/or services filed with the USPTO accurate and true? Were there possible misrepresentations?
  • Are the trademark registrations based on actual use, or upon an “intent-to-use?”
  • What representations and warranties is the licensor making (or, often more importantly, not making) regarding the marks?
  • If the licensor doesn’t own any federal trademark registrations, is it licensing someone else’s trademarks?
  • Does the licensor have a master licensing agreement? Do the terms of any proposed sub-licensing agreement mirror that master licensing agreement?
  • What quality control standards will you be held to by the trademark owner?
  • Has the trademark owner warranted to keep all USPTO filings up-to-date?
  • Does the licensor own any state trademark registrations?
  • If so, has the licensor made lawful use of its mark in commerce in the state of registration?
  • Does the licensor have any common law trademark rights? Can the licensor even legally acquire common law trademark rights in your jurisdiction?

This list is only the beginning of the questions that will need to be asked and answered, but failing to address these issues at the outset of a deal is a recipe for litigation, as we see in the case of Tommy Chong. As a business owner considering entering one of these deals, don’t be distracted by big names or big promises: If the IP doesn’t exist and if ownership cannot be demonstrated, there is no real value to be had. Although IP licensing in the cannabis industry is complex, there are creative and valuable solutions to be had, but those require a solid understanding of both IP law and state and local cannabis laws to execute.

There are no shortage of employment laws related to cannabis businesses.

Cannabis businesses, as part of a highly regulated industry, have a lot of rules to follow. In addition to state regulatory rules, cannabis businesses have to follow a multitude of other state and federal laws specific to employment. Among these, the subset of wage and hour laws are particular, fact-specific, and can be some of the most difficult to comply with. Unsurprisingly, even the most sophisticated of cannabis business owners may be unaware of some of the more obscure wage and hour laws.

When it comes to cannabis employment matters, one of the questions I see most frequently relates to final paychecks. Like many states, Oregon has complicated laws surrounding final paychecks. Knowing the requirements and complying with them to a T can save money and expensive litigation. And we have definitely seen a recent uptick in cannabis litigation related to employment (see our posts on recent filings here and here).

To begin, timely payment of final paychecks in Oregon depends on how the employment relationship was separated. If an employer terminates an employee, or the employment relationship is terminated by mutual agreement, the final paycheck is owed at the end of the first business day after the termination. This means that if you plan on terminating someone, have payroll prepared to issue a check immediately.

If, on the other hand, an employee quits with at least 48 hours notice, the final paycheck is owed on the employee’s last day of employment. This may seem harsh, and it can definitely create some logistical headaches, but there is little wiggle room on this statutory requirement.

If an employee quits without 48 hours notice, things are a bit easier on the employer’s side. The final paycheck is due within five business days, or at the next regularly scheduled payday, whichever is sooner. If the employee’s time records are required to calculate the amount owed, and they are unavailable, the employer must pay the employee what it reasonably believes is owed. If the employee later provides the time records, the employer must issue payment for any remaining amount owed within five days of receipt of the time records.

Failure to timely pay a final paycheck comes with strict and hefty penalties. Penalty wages begin from the due date of the final paycheck. Penalty wages are calculated as the employee’s regular hourly rate for eight hours per day until paid or until legal action is commenced.  Penalty wages are tricky and continue even if you have paid the employee their regular wages.  For example, let’s say an employee quits with at least 48 hours notice. She is given her final paycheck three business days after she quits. Penalty wages began to accrue on her final day, but the final paycheck did not include penalty wages. Despite the fact that she was paid her final wages, penalty wages continue to accrue until the penalty wages are paid. Penalty wages continue for 30 days or until legal action is commenced.

Penalty wages only kick in if an employer willfully fails to timely provide a final paycheck. “Willfully” sounds like it requires intent by the employer to avoid paying the wages, but court cases make it clear that much less is required. In fact, Oregon courts only require that some sort of effort by the employer be shown to make the final wage payment. Without this showing, a court will find that the employer has “willfully” fail to pay final wages.

There is only one real way to avoid wage and hour lawsuits for your marijuana business: Ensure that your practices comply with the law. The ending of employment relationship can come with a lot of stress and potential litigation. Learn and comply with wage and hour laws to reduce exposure. If you are unsure if your practices comply, it’s best to have an outside expert like an employment attorney review your practices.

california alameda marin marijuana
Alameda and Marin Counties are moving ahead, slowly.

Our offices in San Francisco and Los Angeles constantly get calls from entrepreneurs looking to launch or expand their cannabis businesses. By far, one of the most challenging aspects for any attorney advising clients in the cannabis industry is staying up to date on all the developments in the Golden State’s 58 counties and 482 cities. And although it’s a daunting task, we work hard to stay on top o things.

Avid readers of our California Cannabis Countdown series are well aware of the ever-changing cannabis regulatory landscape at the local level. Every week there are a number of Board of Supervisors or City Council hearings throughout the state where cannabis-related rules and ordinances are enacted and amended. We are constantly advising our clients about any changes in the cannabis ordinances of the local jurisdictions of interest.

It’s this constant flux of change at the local legislative level that brings me to today’s topic: an update on the counties of Alameda and Marin. We last covered Alameda here and Marin here.

Let’s start with Alameda County. The County passed its most recent cannabis ordinance last September (with some minor amendments since then). That ordinance created a medical cannabis pilot program that authorized up to three dispensaries, and up to four mixed-light and two indoor cultivation permits. The County’s Cannabis Interdepartmental Work Group (“Work Group”) has taken direction from the Planning Department and has proposed to amend their cannabis ordinance to include the following:

  • Authorize adult-use cannabis activities;
  • Allow for up to five dispensaries;
  • Allow for up to ten cultivation permits (only in the East County);
  • Remove cultivation from a pilot program to a permanent use; and
  • Establish a permit fee structure (the fees are quite significant so if the County is serious about bringing operators into the legal market they will hopefully lower the proposed fees).

The Board of Supervisors will meet this Wednesday to discuss these amendments as well as determine whether the County should allow for manufacturing, distribution, and testing. The County has also expressed an interest in the recently released emergency regulations by the Department of Public Health in regard to Type S manufacturing licenses, which we covered here. If you’d like to see Alameda expand the types of cannabis activities it is willing to authorize, showing up is paramount.

As for Marin County, it is still moving at a deliberate pace– some might call it too deliberate. After the County rejected all applications for medical dispensaries, its cannabis ordinance was amended to only authorize medical delivery-only services: Adult-use cannabis activities are still some ways away in Marin County. The County hopes to begin accepting applications this month but that might be overly ambitious. Marin’s delivery-only ordinance only authorizes up to four delivery licenses and applications will be graded on a 100 point scale: Business plan (20 points), operating plan (50 points), and public benefits plan (30 points). Today at 2 p.m., the Board of Supervisors will hold a briefing to discuss the following items:

  • The medicinal cannabis license application;
  • The license application submittal guide (which provides guidance on what to include in your business, operating, and public benefits plan);
  • The owner submittal form;
  • The owner submittal form guide; and
  • The financial information form.

Although these are steps in the right direction, both Marin and Alameda can still make more progress. At the very least both counties should be open to testing laboratories and non-volatile manufacturing. Marin, with nearly 70% of its residents voting in favor of the Adult-Use of Marijuana Act (Prop 64), needs to stop dragging its feet when it comes to allowing adult-use. The slow and restrictive pace of cannabis legislation at the local level is one of the biggest impediments to cannabis operators entering the regulated market. Let’s applaud Marin and Alameda for making progress, but let’s also reach out to our local officials to let them know they can also do better. There are two great opportunities to let them know in person this week.

california cannabis marijuana

Welcome back to “California Cannabis: Scams and Schemes of the Week.” We are publishing this series to shed light on the unscrupulousness of certain attorneys, consultants, and operators in the California cannabis industry, with the goal of establishing a more ethical and regulated industry in the state. You can find last week’s post here.

Scam #1: Attorneys Representing Buyer and Seller and Taking Commission

We continue to see attorneys representing cannabis entities on both sides of mergers and acquisitions, and in addition to taking an hourly rate, they’re taking a commission on the deal (from both parties)! We are seeing the same attorneys appoint themselves as counsel for the purchased corporation. We’ve seen some shocking deals that harm both parties and benefit only the attorney. Most often, troubling information about a business or property is concealed for the benefit of the seller and the attorney, to the detriment of the buyer. We often see good, trusting people get taken for a ride by attorneys with unethical motivations. The incentive to close a deal as quickly as possible to get a commission is at odds with the incentive to conduct careful due diligence. Make sure your agents and attorneys have your best interests at heart, and if a lawyer tells you he or she can represent “both sides” in a transaction, run!

Scam # 2: The $10 Million Plot of Empty Desert Land

We’ve seen some outrageous land deals in California. There are a number desert parcels without any improvements or utilities, in the middle of nowhere, being offered for millions of dollars. Due diligence is key in real estate transactions, especially in the speculative cannabis market. Just because cannabis activity is possible in a certain jurisdiction does not mean an empty plot of desert land there is worth $10 million. Supplying that land with water, electricity, and building out the structure is no small feat. Many remote desert areas lack the infrastructure to supply these parcels with necessary utilities, and the installation of such infrastructure takes many years and substantial cost. Beware.

Scam #3: Work for Equity in My Nonprofit! 

In California, no one “owns” a nonprofit. One cannot buy or sell a nonprofit corporation, and no stock can be issued or authorized by a nonprofit. We’ve discussed this before on the blog.

Still, we have people asking us to review equity agreements where their nonprofit employer is offering stock instead of salary. In some cases, the company offering these fake stock deals may not know any better because they’re being advised by incompetent attorneys. In other cases, however, these companies are knowingly taking advantage of employees who are blinded by the excitement of being part of a bourgeoning industry. Walk away.

Scam #4: Buy My License!

Under MAUCRSA, state licenses are non-transferable. According to 16 CCR 5023(c), if one or more of the owners of a state license change, a new license application and fee must be submitted to the BCC within 10 business days of the ownership change.

Most local cannabis permits are similarly non-transferable. And if they are transferable, most jurisdictions require you to obtain written approval from the local government prior to transfer. Keep this in mind if you’re looking to buy or lease a “cannabis approved” property, There is simply no guarantee you will be able to get a license to operate there.

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If you’ve come across a California cannabis industry scam, we would like to hear from you! Leave a comment below, or email us at firm@harrisbricken.com.

cannabis cryptocurrency bitcoin
Not just yet.

Two of the biggest buzzwords of 2018 have been cyrptocurrency and cannabis. Both industries have seen an tremendous influx of investment from people trying to capitalize on these new business ideas. Almost every week, I see a new event pop up for people who are interested in finding the synergies between these different industries. Everyone knows that banking is a huge problem for the cannabis industry (as we’ve discussed here, here, and here), and many see the obvious connection for how cryptocurrency could help resolve that. However, that connection will not likely occur anytime soon (at least not before the cannabis banking issue is resolved).

The cannabis industry is a highly-regulated industry at the state level, and marijuana remains a strictly controlled substance under federal law. In order to prevent theft, product diversion, and other criminal activity, states have required businesses to use state-run track-and-trace systems. This system also tracks the amount of money businesses are making and where that money is coming from.

Cryptocurrencies are peer-to-peer networks of decentralized currencies that are traded on a public ledger by using blockchain technology. A cryptocurrency platform could allow cannabis businesses to transact with digital currency instead of cash, making the business safer for all players, and bypassing the need for banks in many cases. It sounds like a natural fit. So, why won’t it work for now?

Combining cryptocurrency and the cannabis industry would join two extraordinary and rapidly changing industries. Although the federal government decided it would proscribe marijuana long ago, it has not decided how to manage cryptocurrencies. The underlying blockchain technology is also largely unregulated, and is overseen only by other users on the blockchain (see our articles on blockchain and cannabis here, here, and here). Both cryptocurrency and blockchain have been used by people for money laundering and evading taxes.

A growing number of recreational marijuana states have implemented stringent licensing and control programs to demonstrate the legitimacy of their respective industries to federal government. Bringing in a technology and a payment protocol that has been used for money laundering and tax evasion could delegitimize the progress that the cannabis industry has made. At the very least, if cannabis businesses start running transactions on cryptocurrency platforms, their businesses will see more government oversight from other federal bodies, like the SEC and IRS.

It will be interesting to see if a real crypto/cannabis relationship can emerge to help resolve the banking issue, but for now we have more faith in the underlying technology, blockchain. We will continue to monitor the possible synergies between cryptocurrency and cannabis and update on any developments.