cannabis marijuana events

Thanks to Marijuana Business Daily for hosting MJBizCon 2018 in Las Vegas earlier this month! MJBizCon has separated itself from other cannabis conferences in both quality of content presented and sheer number of attendees. According to the Las Vegas Review-Journal, the conference was projected to draw 25,000 attendees, a 50% jump in attendance from last year. When the dust settled, the event actually surpassed that projection, with Marijuana Business Daily reporting that nearly 28,000 people attended the conference.

Contributing to those solid attendance numbers were several folks from Harris Bricken including attorneys Hilary Bricken, Robert McVay, Alison Malsbury, Megan Vaniman, Tatiana Logan, and Julie Hamill, and paralegals Meghan Saunders, Desiree Andersen, Kait LaPorte and Madeline Williams.

To celebrate the occasion, Harris Bricken hosted a pre-conference cocktail party, “Vegas Magic: A Cannabis Industry Soiree.” The sold-out event allowed our team to meet and mingle with cannabis entrepreneurs attending the conference. There was also a magician to keep the crowd entertained. Thanks to the following businesses for providing SWAG (i.e. “Stuff We All Get”) for the Soiree:

If you missed MJBizCon, or if you attended but still have an appetite for more cannabis analysis, we have good news! Our attorneys are speaking at a number of events before the year’s end, including a handful this week and next:

The Seminar Group presents: The Business of Marijuana in Washington State | November 29, 8:30 AM-5:00 PM PST & November 30, 9:00 AM-12:45 PM PST | This two-day CLE will take place at the Crowne Plaza in Seattle. It will cover a wide range of topics relating to Washington cannabis law, with several Harris Bricken attorneys presenting. Robert McVay will chair the event and present on investing in Washington’s marijuana industry. Megan Vaniman will discuss employment law considerations for Washington cannabis businesses. Daniel Shortt will give a presentation on the complex legal considerations for industrial hemp and CBD derived from industrial hemp.

NJCPA presents Cannabis: How it is Working in Other States – CA, CO, WA | November 30, 12:00 PM – 1:00 PM PST | Hilary Bricken will host a webinar discussing which states have taken a smart approach to legalization and which ones are in need of improvement and how New Jersey should address legalization.

NIA West Fall Conference 2019 | December 4, 9:00 AM – 7:00 PM PST | Alison Malsbury will offer guidance on all things cannabis and CBD.

New York University School of Law presents Cannabis: The Path to Regulation and Representation | December 5, 4:30 PM – 7:00 PM EST |  Hilary Bricken will present on ethical and practical issues lawyers face while representing the cannabis industry.

The Seminar Group presents: CLE Bootcamp – Hot Topics in the Law | December 7,  9:00 AM PST | Daniel Shortt will present on the second day of the 17th annual CLE Boot Camp, taking place at the Washington State Convention.  He’ll provide an update on the state of cannabis in Washington and at the federal level, including a summary of recent changes to Washington’s market, an overview of federal law and policy on marijuana and hemp and, a summary of common issues cannabis businesses face.

Ethically Navigating Local and State Licensing for Cannabis Businesses | December 7,  12:00 PM – 1:00 PST | Julie Hamill will provide tips on how to navigate the ever-changing landscape of local and state licensing without getting your clients or yourself in trouble. Topics will include changes to the California Rules of Professional Conduct, and update on federal policies and state regulations, and cautionary tales of cannabis attorneys who have found their ethics called into question.

Free Webinar: Employment Law for Oregon Cannabis Businesses | December 12, 12:00 PM PST | Megan Vaniman will host a webinar focused on how to navigate employment law for cannabis businesses and the employment laws that most affect cannabis businesses in Oregon.

We hope you can join us for these upcoming events!

oregon hemp nuisance litigation
Nuisance pollination can cause a row.

In recent posts, we’ve discussed cases where a neighbor to a cannabis grow sued the grower for nuisance, claiming that growing cannabis interfered with the neighbor’s use of their land. See here, here, here, here, here, and here. These lawsuits relied on the non-cannabis landowner’s claims that the federally illegal cannabis business caused harm because of odor, disruptive activity, and diminution of property values.

As of last week, we have another variation on the nuisance theme. On August 31, 2018, Jack Hempicine LLC (“Hempicine”), a Polk County hemp grower, sued fellow hemp farmers for nuisance and other torts. Unlike the previous cases, this case claims that the harm to the property was caused when the other farms cross-pollinated the Hempicine farms and ruined its crops. Jack Hempicine LLC v. Leo Mulkey Inc., Case No. 18CV38712, Polk Cty. Sup. Ct.

In this case, Hempicine alleges:

Cross-pollination is a significant risk in the hemp growing industry. There are two specific risks. First, male plants that contain higher THC levels can pollinate female hemp plants that originally contain low THC levels. The resulting seeds produce plants with highest levels than the original female plant, which means the resulting plants also have lower amounts of CBD and CBG. Second, pollinated female plants may produce both male and female seeds. Female seeds are more desirable because female plants are grown to full maturity and harvested at the end of the season, whereas male plants die off shortly after pollination… The risk associated with cross-pollination is well known in the hemp and cannabis growing industries.”

According to the complaint, Hempicine began producing hemp and hemp seed in Polk County in 2015 and 2016. In 2016, Hempicine allegedly told defendants that Hempicine only produced feminized seed, warning the defendants of the risks from cross-pollination from male plants. Hempicine says that after this meeting, the defendants grew male hemp plants that cross-pollinated Hempicine’s female plants, giving them high levels of THC and making them unmarketable. The Hempicine complaint calculates its damages for loss to the 2016 and 2017 crops to exceed $8 million, and says that it will amend its complaint to include damages from the lost 2018 crop later.

Hempicine’s complaint seeks recovery under four separate legal theories. First, it alleges that the defendants breached a duty of care to Hempicine and was thus negligent. Second and third, it alleges that the defendants acted negligently or recklessly in growing male hemp plants on their property, and thus are liable for trespass or nuisance. Fourth, the complaint alleges that defendants grew male plants in the vicinity of the Hempicine farms that they knew would likely result in cross-pollination, and thus have intentionally interfered with Hempicine’s economic relations.

This is not the first time this issue has arisen. During the Oregon Legislature’s efforts to pass hemp legislation, cannabis producers noted the risk of cross pollination between cannabis and hemp, which of course are just two varietals of the cannabis sativa plant. Among other things, some cannabis producers urged the legislature to create separate agricultural zones for hemp and cannabis (which didn’t happen). There are also a number of lawsuits involving similar claims of cross-pollination by GMO crops. Hopefully this industry can find a way for hemp and marijuana farms alike to be neighbors.

cannabis marijuana term sheet

When I receive a summary of a cannabis business deal–the first emails, calls, LOIs, and term sheet in any form–with 90% accuracy I can say whether the transaction will be a difficult one or not. Note that “difficult” does not correlate with complex: Often the more complex deals, with multiple entities and asset transfers, end up being much easier, whereas a simple secured loan can be more difficult. And in the context of a transaction, “difficult” = “time consuming” = unnecessary expense. Everyone would like to avoid that.

The number one differentiating and determinative factor in assessing the difficulty of a marijuana business deal is the term sheet. If a deal is a building, think of the term sheet as both the architect’s blueprint and the physical foundation on which the deal is built. Deals that are smooth are built with a clear plan and on a solid base; these come in on time and under budget. Deals that are built based on a vague understanding of the final goal but with no firm, documented plan, will be typified by stops and starts, walls built, torn down and rebuilt, and a final product that stands but doesn’t resemble what either parties had in mind (“in mind” being a key phrase here, as often what was in the parties’ mind was never exchanged in an agreement). Oh, and the dreaded cost overruns.

Engage your attorney before you sign a term sheet. 

Having a final term sheet is necessary for a smooth transaction, but agreeing that a half-baked term sheet is “final” may prove worse than having no term sheet at all. Do not make the mistake of thinking you cannot engage your attorney until you have a term sheet signed: In fact, an hour with your attorney before you finalize the terms, could save you many hours down the line. Your experienced business attorney will know how the terms will fit in the documents, and in turn what terms you may not have addressed fully, or at all.

Do not have your attorney draft the transaction documents until after you sign a comprehensive and binding term sheet. 

Speed in transactions is defined by certainty. Term sheets that say “market standard” terms for X is likely a proxy for “we didn’t take the time to discuss X.” This can work if the parties have a common reference point or an external reference. For example, in the context of an equity financing, “standard NVCA language on Registration Rights” is OK. “Standard anti-dilution” is not OK: There are at least three flavors and they are wildly different, so the drafting attorney with that term sheet is guessing–or likely talking only to his side–on the issue. The stops, starts, and re-drafts is what eats up time.

Continuing with the building analogy: Every couple building their dream home wants the house built quickly and correctly, and on budget. But they had better get all the critical details decided and in the plans before the first brick is laid. In other words, if you don’t agree on the location and number of bathrooms, you wouldn’t tell a contractor to “start building now and we’ll decide on the bathrooms later.” The decisions won’t get easier if you put them off, and having a full plan in place from the beginning will make the process more enjoyable for all.

cannabis marijuana patent litigation

In previous posts, we’ve puzzled about why no one has filed a cannabis patent infringement case, despite the large number of patents granted for cannabis plants and compounds. See here, here, here, and here.

That all changed last week. United Cannabis Corporation (“UCANN”) has now filed what is believed to be the first cannabis patent infringement complaint. The case is United Cannabis Corporation v. Pure Hemp Collective, Inc., case no. 1:18-cv-01922-NYW, in the United States District Court for the District of Colorado.

The patent asserted is U.S.P. 9,730,911, “cannabis extracts and methods of preparing and using same.” The claims in the patent generally cover liquid cannabinol formulations using tetrahydrocannabinol (THC), cannabidiol (CBD), and various terpenes. See, for example, claim 10: “A liquid cannabinoid formulation, wherein at least 95% of the total cannabinoids is cannabidiol (CBD).”

Although the UCANN complaint does not specify which claims are being asserted, it appears that the plaintiff may focus on CBD-related claims, e.g., claims 10-15, rather than claims for THC. The complaint devotes several paragraphs to discussing FDA’s recent approval of Epidiolex, a CBD-based drug, as we discuss here and here. The complaint suggests that FDA will reclassify CBDs generally as Schedule II or Schedule III drugs. While it is clear that FDA will do a reclassification, it is not clear that it will reclassify all CBDs, rather than just the Epidiolex compound.

In any event, we expect to see more cannabis patent litigation soon, perhaps in Colorado, California, Oregon or elsewhere. Whether it will be a trickle or a flood remains to be seen, but we will be following the UCANN case closely and providing regular updates.

For more on cannabis patents, see our series here:

california cbd epidiolex

At the end of June, we wrote about the FDA’s approval of GW Pharmaceutical’s drug Epidiolex (containing cannabidiol), an oral solution for treatment of seizures. On July 9, 2018, California Jerry Brown signed legislation approving Epidiolex for use under California law.

California, like many states, has its own version of the Controlled Substances Act. Similar to federal law, the California CSA classifies controlled substances into five schedules, the most restrictive being Schedule I and the least restrictive being Schedule V. Under existing California law, cannabidiol (CBD) is Schedule I because it is a compound contained in cannabis, also a Schedule I drug.

Under Assembly Bill 710, the California Legislature made the following findings:

The Legislature finds and declares that both children and adults with epilepsy are in desperate need of new treatment options and that cannabidiol has shown potential as an effective treatment option. If federal laws prohibiting the prescription of medications composed of cannabidiol are repealed or if an exception from the general prohibition is enacted permitting the prescription of drugs composed of cannabidiol, patients should have rapid access to this treatment option. The availability of this new prescription medication is intended to augment, not to restrict or otherwise amend, other cannabinoid treatment modalities including, but not limited to, industrial hemp products and derivatives containing cannabidiol, currently available under state law.

Section 3 of A.B. 710 then adds statutory language that harmonizes federal and California state law on cannabidiol:

if cannabidiol is excluded from Schedule I of the federal Controlled Substances Act and placed on a schedule of the act other than Schedule I, or if a product composed of cannabidiol is approved by the federal Food and Drug Administration and either placed on a schedule of the act other than Schedule I, or exempted from one or more provisions of the act, so as to permit a physician, pharmacist, or other authorized healing arts licensee acting within his or her scope of practice, to prescribe, furnish, or dispense that product, the physician, pharmacist, or other authorized healing arts licensee who prescribes, furnishes, or dispenses that product in accordance with federal law shall be deemed to be in compliance with state law governing those acts.

Essentially, this language provides that once CBD can legally be prescribed under federal law, any authorized health care professional who complies with federal law will be deemed to comply with California state law. A.B. 710 goes on to provide that this harmonization does not apply to a CBD-containing product that is made or derived from industrial hemp, as regulated by existing California law.

Finally, the Legislature provides that “in order to ensure that patients are able to obtain access to a new treatment modality as soon as federal law makes it available,” A.B. 710 is an “urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect.”

The story of A.B. 710 shows that federalism concerns will continue to arise even once cannabis is federally legal. Because the states are permitted to pass their own controlled substances acts and food and drug statutes, it is possible that federal legalization will not lead to universal availability, just as the repeal of prohibition did not prevent localities from opting out. But we expect that similar laws harmonizing state and federal policy on CBD will be forthcoming, at least in states where cannabis is legal for medical use.

novato california marijuana cannabis
Local policy may be influenced by nearby metropolitan choices.

Do you live in a jurisdiction where commercial cannabis activities are prohibited? Under the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), local jurisdictions in California are free to decide whether they will regulate or prohibit commercial cannabis activities. As we have covered before, the City of Novato, located in the northern part of Marin County, currently falls in the prohibition camp.

Novato passed a moratorium banning all commercial cannabis activities except for two pre-existing laboratories. There is also a carve-out in the moratorium for medical cannabis deliveries from operators licensed outside of Novato. The City’s moratorium is scheduled to expire in November, leaving the City with two options: Either continue the prohibition, or decide to regulate and license the industry.

Last week I attended two meetings sponsored by the City and HdL Companies (a company that partners with local agencies to develop cannabis policies) that discussed the future of cannabis licensing in Novato. With reports that only one in three California cities authorize any type of cannabis businesses, it’s important for cannabis supporters to actively engage with local regulators when cannabis policies are on the legislative agenda. The cannabis meetings in Novato presented an inside look in how a small a city, in close proximity to metropolises with cannabis friendly policies (Novato is less than thirty minutes from San Francisco and Oakland if the traffic Gods are shining upon you), approaches the future of cannabis activities in their town. Here is some insight from the meetings:

  • There were a number of dispensary operators from nearby jurisdictions, all with different viewpoints on what Novato’s cannabis ordinance should look like, but there was unanimous consent on one particular point: A medical-only storefront retailer will not thrive with adult-use jurisdictions nearby (San Francisco, Oakland, Santa Rosa, Sebastopol, and Vallejo just to name a few). Medical-only dispensaries will lose tourists and curious customers willing to try cannabis for the first time to their adult-use competitors.
  • The double-edged sword of commercial property values. If your town has a large number of decrepit and vacant buildings, then commercial cannabis businesses can be instrumental in revitalizing those neighborhoods. On the other hand, since landlords can extract a significant amount more in rent from cannabis businesses, long-time local businesses may see their rents increase or their leases not renewed. This problem is exacerbated if a city enacts restrictive zoning regulations, thereby further limiting where a cannabis business can operate.
  • There was a lot of support for an ordinance that includes a social equity component. Should a cannabis ordinance give priority to owners from disadvantaged groups? Should there be a requirement that a certain percentage of employees be local residents? For further context on social equity programs, we covered what Los Angeles is doing here, and what San Francisco and Oakland are doing, here.
  • Educating and informing the public is paramount to turning a prohibitionist jurisdiction green. Misinformation and scare tactics run rampant at many public hearings (see our coverage on Sonoma County, here), so cannabis supporters must be prepared to correct the record.

Right now, it’s too early in the process to tell which way Novato will go with its cannabis policy. The City is holding two more public meetings in August: One on August 8th and the other on August 16th (both will be from 6pm-8pm at City Hall). If Novato residents want to see the City lift its cannabis prohibition, they will need to study up and prepare their talking points: The first two meetings were cannabis friendly but trust me, there will be opposition. But most importantly, cannabis supporters must continue to show up and vocalize their support! Mark your August calendar, Novato.

California cannabis lawyersWe’re a couple of weeks into summer and in California that means county fair time! In populous counties, county fairs can include extravagant firework shows and platinum selling musicians coming into town. In smaller counties, a tractor-trailer show may be the biggest event. Regardless of their size, all county fairs have at least two things in common: 1) They are open to the public (entry fees do vary); and 2) Vendors sell their products to, and connect with, the consumer. In California, cannabis events are hoping to tap into the Golden State’s love of county fairs and our California cannabis attorneys are seeing an increase in the number of businesses looking to expand their reach into cannabis events.

California’s Bureau of Cannabis Control (“BCC”) regulates and licenses temporary cannabis events. Under the BCC’s readopted emergency regulations (permanent regulations were recently proposed, which we covered here), obtaining a cannabis event is a two-part process in California. Before you can host a cannabis event, you first have to secure a cannabis event organizer license. Obtaining an organizer’s license is no easy feat, as applicants face the same daunting application requirements that cannabis retailers, delivery-only retailers, distributors, and testing laboratories face. These requirements require they provide the following:

  • A list of funds belonging to the applicant’s cannabis event organizing business held in savings, checking, or other accounts maintained by a financial institution;
  • A list of loans made to the applicant for its use in cannabis event organizing activities;
  • A list of investments made into the applicant’s cannabis event organizing activities;
  • A list of all gifts of any kind given to the applicant for its use in cannabis event organizing activities;
  • A complete list of every individual with a financial interest in the cannabis event organizing business; and
  • A complete list of every owner.

Once you’ve submitted all of the required BCC’s cannabis organizer application information you cannot pass go, nor do you get to collect two hundred dollars. Au contraire, you must submit a non-refundable annual license fee. This fee is five thousand dollars ($5,000) for an organizer planning one to ten events and fifteen thousand dollars ($15,000) for organizing more than ten events in a year.

Assuming you’ve cleared the BCC’s regulatory hurdles and secured your organizer’s license, you can now move forward with your application for a temporary cannabis event. We previously covered the regulations for temporary cannabis events here, but they are worth revisiting since the BCC released their new proposed regulations.

  • A temporary cannabis event license shall only be issued for a single day or up to 4 consecutive days.
  • Onsite consumption is allowed if authorized by the local jurisdiction.
  • Any compensation paid from a retailer to a cannabis event organizer for participation in a temporary cannabis event shall not be determined, based on, or be contingent on, the sale of cannabis goods.
  • Cannabis goods being stored by a licensee at a temporary cannabis event shall not be accessible to the public and shall not be left unattended. Licensees may share the secure, locked container; however, each licensee using the container shall be held responsible for any violations of this section and subject to disciplinary action.
  • A temporary cannabis event may only be held on the grounds of a county fair or district agricultural association. This is holdover from the previous regulations but we are seeing progress at the state level with Assembly Bill 2020 (which we covered here) to amend the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) so that all local jurisdictions can host temporary events in authorized locations.
  • Each sale at a temporary cannabis event shall be performed only by a retailer or microbusiness authorized to sell cannabis to retail customers. This is another holdover from the previous set of regulations, but just like with AB 2020, we are seeing state legislators push for change. Assembly Bill 2641 (covered here) would authorize licensed cultivators and manufacturers to sell their cannabis and cannabis products directly to the public at temporary cannabis events.

As of this writing, the BCC has issued approximately forty-three (43) cannabis event organizer licenses so we can expect to see new and exciting cannabis events this summer and throughout the year. Assembly Bills 2020 and 2641 are next up for hearings in front of the Senate Appropriations Committee on August 6th and we expect the Committee will vote to expand the number of cannabis businesses and locations that can participate in cannabis events. Until then, enjoy your summer and your county fair!

Cannabis finance lawyers

Has Investing in Cannabis gone mainstream? In “As Marijuana Goes Mainstream, Investors Rush In,” The New York Times answered this question affirmatively, but that article focused primarily on publicly traded companies. What about industry-wide?

As our attorneys regularly put together investment rounds for cannabis companies we see these macro trends at the deal level. And in recent months we are increasingly seeing a wider variety in types of investors — often private investors more familiar with commercial real estate, tech investing, or other private company financing — crossing over into cannabis. These investors bring a wealth of knowledge on terms, structures, and business strategy. For many tech-focused startup companies providing services to the cannabis industry, the deals may look nearly identical to those in other industries; in fact, we’ve done equity financings where the documents are identical to a typical tech startup.

However, particularly for investors working with “direct operator” cannabis companies for the first time, there will be certain aspects of the cannabis industry that do not translate and other aspects that are shocking or incomprehensible to investors coming over from other industries. Now that cannabis has gone “mainstream,” investors may believe all the kinks have been worked out, but as those in the cannabis industry know, that’s not true. Not by a long shot.

  • Banking remains imperfect, and there still are gaps by geography or company size and type. Many cannabis companies still operate on an all-cash basis.
  • Company Execs (and others involved in “direct operators”) can still go to jail for this. That’s what federal illegality means. This comes as a shock to many.
  • Many investors and funds are still going to be unable to invest, depending on their source of funds. For example, state or public pension funds are a non-starter.
  • Many cannabis businesses are limited by state borders.
  • Regulators are still catching up at the state level and their timing may not meet with your spreadsheet projections.
  • Regulators at the local level are highly unpredictable. On cannabis financing, our corporate finance lawyers often must contend with municipalities that had permit processes up and running and then completely changed their minds.

The above contribute to the “green tax” in the cannabis industry — factors that complicate and add expense to doing business in the industry — and these often surprise investors coming from other industries. Investors that are open-minded and have a “growth mindset” can make the shift pretty quickly. But other investors may grow frustrated and impatient with having to face the hurdles faced by all cannabis companies. Companies are wise to evaluate potential investors and test their mettle, as the industry will soon enough.

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 Antioch, and before that the City of San Jose, the City of Cotati, 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 County of Contra Costa. Welcome to the California Cannabis Countdown.

contra costa cannabis california

LocationHome to Mt. Diablo, Contra Costa County occupies the northern portion of the East Bay with its county seat in Martinez. The County has two cannabis friendly cities within its border: Richmond and El Cerrito. During the hot days of summer, you can make your way to Six Flags Hurricane Harbor in Concord.

History with Cannabis: Contra Costa County did not embrace cannabis businesses like many of its other Bay Area neighbors (San Francisco, Oakland, Berkeley, and Santa Rosa to name just a few). In 2008, the Board of Supervisors adopted an ordinance prohibiting the establishment of medical marijuana dispensaries. On October 24, 2017, the County passed an ordinance prohibiting commercial cannabis activities and regulating personal cultivation. However, because nearly sixty-one percent (61%) of the County’s residents voted in favor of the Adult-Use of Marijuana Act (a /k/a Prop 64), an outright prohibition was not feasible in the long-term. Regular readers of this series can guess what happened next: The County held a number of hearings, with input from a number of local departments, to study the issue. It’s been a slow haul but the County’s been moving in the right direction – incremental progress is better than no progress.

Recent Cannabis Laws: On June 26, 2018, the Board of Supervisors held a public hearing on a cannabis ordinance regulating commercial cannabis activities in the County. The ordinance passed and Contra Costa County joined the enlightenment era — Welcome! The ordinance will not take effect for thirty (30) days. It will take some time before the County is issuing cannabis licenses to businesses but it is always good news when a new jurisdiction revokes its prohibition. The new ordinance does the following:

  • Authorizes up to four (4) storefront retailer permits. Storefront retailers are authorized to make deliveries;
  • Authorizes up to ten (10) cultivation permits (outdoor, mixed-light, and indoor are allowed). However, if a licensee holds both a retailer and cultivation permit, that cultivation permit will not count against the cap;
  • Authorizes up to two (2) manufacturing permits (non-volatile only) in an agricultural zoning district. However, manufacturing permits in non-agricultural districts and those integrated with a cultivation permit in an agricultural district will not count against the cap;
  • Authorizes distribution. The ordinance does not address whether there will be a cap on distribution permits;
  • Authorizes testing facilities. The ordinance is also silent on a cap for testing facilities;
  • Delivery retailers licensed outside the County are permitted to make deliveries within it so long as they obtain a County business license;
  • The County will develop procedures and scoring criteria for prospective cannabis businesses;
  • Requires a cannabis business to obtain a health permit from the County; and
  • Cannabis permits will have an initial term of five years;

Proposed Cannabis Laws: The Board of Supervisors will hold a hearing today on a proposed tax schedule for cannabis businesses (Come on, you knew taxes were on the way). If the Board approves the tax measure it will be placed on this November’s ball and require the approval of a majority of voters in the County to take effect. The proposed taxation schedule is as follows:

  • Indoor cultivation: $7 a square foot up to $10 a square foot;
  • Greenhouse cultivation: $4 a square foot up to $7 a square foot;
  • Outdoor cultivation: $2 a square foot up to $4 a square foot;
  • Nurseries: $1 a square foot up to $2 a square foot;
  • Manufacturing: 2.5% of gross receipts up to 4% of gross receipts;
  • Distribution: 2% of gross receipts up to 3% of gross receipts; and
  • Retailer: 4% of gross receipts up to 6% of gross receipts.

For its foray into regulating cannabis activities, this is a big step for the County and we applaud the fact that it will authorize seed-to-sale license types. Would we like to see the removal of permit caps? Sure, but with local jurisdiction prohibitions still being one of biggest impediments to the cannabis industry in California, we will gladly welcome Contra County into the fold.

Definitely say “NO” to unregistered broker dealers.

Startups in the cannabis space have few options when looking to raise funds– almost all banks, venture capital (VC) firms, and other institutional funds are off limits. Suitable private investors are few and far between. This situation is unfortunately leading to a proliferation of unscrupulous individuals that offer their “services” or “connections” to help companies meet investors and bring in dollars, for a fee. We’ve referenced on a few occasions (see here and here) that these investment “finders”, as well as any type of commission on dollars raised or other transaction-based fee, is 100% illegal (unless they hold a FINRA license to serve as a securities broker, and as I’m seeing, nearly all do not). Engaging an “unlicensed broker-dealer” can have serious consequences for the company. Even a dollar raised in this way puts all other company funds and assets at risk.

The frequency with which these issues are raised by clients and others makes me believe that 1) some companies are engaging unlicensed brokers without thinking to run this by their attorney, and 2) some of these unlicensed brokers are aware they are breaking securities laws, while others are simply ignorant and trying to capitalize on their “connections”, not knowing their business model is illegal.

So clearly this topic deserves its own post and its own bolded and underlined warning: Don’t sign any engagement with an advisor / consultant / snake oil salesperson that offers to raise funds for your company, in exchange for a fee. If anyone approaches you, run it by your business attorney right away, and keep them involved throughout the process.

The Law:

Section 3(a)(4)(A) of the Securities Exchange Act of 1934 generally defines a “broker” as “any person engaged in the business of effecting transactions in securities for the account of others.” Pursuant to that law the SEC has laid put extensive regulations and guidance to further define “broker activities” and prohibited fee structures.

Assuming the individual is not a registered broker-dealer (which you can confirm on the FINRA site here) then here’s what you certainly cannot do:

  • Engage an advisor, agent, or anyone describe their role or duties in terms that touch broker activities. At the most basic level, you should avoid any engagement that calls out “introducing” or “finding” or “bringing in” investors. If an engagement calls out “fundraising advice” or “investor relations” as a euphemism for broker activities, you’re walking a fine line. Best to reword your engagement and make no references to broker activities.
  • Tie any compensation to funds raised. This includes the obvious “transaction-based” fee of a percentage of funds raised, or fees scaled to milestones. This includes “fees” paid as equity grants. It also includes any fee contingent on a fundraising round – such as a retainer charged when funds arrive.

As a startup you often feel stretched thin, and in need of any help you can get. But in this case, this is not the help you want. Accepting any funds raised through an unregistered broker-dealer, or another performing broker activities for a fee, is worse than not having funds at all. The risk is then to the entire company, and in turn all the investors and employees current and future. Don’t do it!