Photo of Vince Sliwoski

A well-rounded attorney with experience in areas such as music and trademark law, Vince heads up Harris Bricken's Portland office and is a leading practitioner in Oregon's ever-evolving cannabis industry.

oregon marijuana hempThe Oregon legislature concluded its 2018 session last weekend. As we wrote last month, because 2018 is an even-numbered year, this was a short session lasting just 35 days. We predicted that not all four proposed cannabis bills would pass and that is exactly what happened: the proposed legislation on “special events” for marijuana licensees quickly fell by the wayside. You can be sure someone will push that one again in 2019.

Still, three bills made it through, two of which will impact the Oregon marijuana and hemp industries considerably. These “enrolled” bills have been approved by both legislative houses, and will become law as soon as Governor Brown signs– or within 30 days of passage if she does not. Because these bills passed through two Democrat-controlled chambers, and because Governor Brown is also a Democrat who has never vetoed a cannabis bill, you can be 99.99% sure these bills will soon become law.

Each bill is linked to and summarized below. If you click through to view the bills themselves, remember that text in bold typeface is proposed new language, and text in [italicized and bracketed] typeface is language that will be removed from existing statutes.

Senate Bill 1544  (Marijuana)

This was the gut-and-stuff bill we discussed last month, which ended up covering a range of issues related to medical and non-medical marijuana, and industrial hemp. Below are the highlights. Note that references to the Oregon Liquor Control Commission (OLCC) concern the adult use program, which allows recreational operators to serve the medical market nowadays. The Oregon Health Authority (OHA) references relate strictly to the medical marijuana program.

Unlike most cannabis legislation passed in Oregon over the past few years, SB 1544 does not carry an “emergency” designation. This means that its provisions are not effective on passage. Instead, the effective date of this bill is June 1, 2018, with some of its provisions operative at designated intervals thereafter.

Below, we have emphasized the big moves in bold and added brief commentary to those items.

  • Allows OLCC producer licensees who are registered to grow medical canopies to provide immature plants to OHA program participants.
  • Exempts OLCC processors from labeling and packaging requirements and standard when those processors are dealing direct with medical marijuana patients and their caregivers.
  • Requires OHA grow sites to include a U.S. Postal Service address in their application, if they have one. If not, the grow site has to cough up an assessor’s map showing the exact location of the grow site, or a tax lot number.
  • Caps the amount of immature plants that a person responsible for an OHA grow site (PRMG) can grow, at 12 immature plants that are 24 or more inches high. Requires also that OHA cap the number of immature plants that are less than 24 inches high. This is an effort to curb black market activity.
  • Reduces the amount of both mature and immature plants that can exist at an OHA site if a PMRG’s authority is revoked or suspended by OHA.
  • Exempts small OHA grow sites with two or fewer cardholders, from tracking and reporting requirements. This is to give the little guy a break.
  • Re-jiggers the Department of Revenue distribution protocol for taxes collected from marijuana.
  • Clarifies that although OHA grow sites may be subject to certain tracking requirements, they are not “commercial operations” for the purposes of state law.
  • Pushes out dates for Oregon Cannabis Commission reporting obligations.
  • Grandfathers OLCC and OHA retailers from the school proximity standard, if they were established prior to August 1, 2017 under a city or county ordinance.
  • Establishes a tough-sounding “Illegal Marijuana Market Enforcement Grant Program” administered by the Oregon Criminal Justice Commission, and earmarks about $1.25 million in grants to “address and prosecute unlawful marijuana cultivation or distribution operations.” This may be more symbolic than anything: $1.25 million is not a lot of money as far as the state budget goes.
  • Requires industrial hemp products sold by OLCC retailers to contain labels that clearly identify whether the products are derived from hemp or marijuana. Think, hemp-derived CBD products.

Senate Bill 1555  (Marijuana)

This simple bill temporarily enables the Oregon Department of Revenue to distribute a portion of marijuana tax revenues to community mental health. This is an emergency bill, effective on passage. It also sunsets on July 1, 2019, at which point things revert to the current scheme.

House Bill 4089  (Industrial Hemp)

House Bill 4089 is a multifaceted law brought by the Oregon Hemp Farmers Association. When we first saw this bill last month, we observed that although it was comprehensive in scope, it did not include a provision limiting the ability of hemp growers to sell high THC products, and it did not contain tracking provisions related to the movement of hemp into OLCC channels. Maybe Salem was listening, because the legislature fixed both issues.

Below is everything of note in HB 4089, with comments on the big moves in bold.

  • Names the hemp research program operated by the Oregon Department of Agriculture (ODA) the Oregon Industrial Hemp Agricultural Pilot Program.
  • Clarifies ODA’s authority to administer the program. Specifies that agricultural hemp seed is agricultural or flower seed for the purposes of statutes regulating labeling, testing, or certifying seeds.
  • Directs the Director of Agriculture and Dean of College of Agricultural Sciences of Oregon State University to establish a program for labeling and certifying agricultural hemp seed.
  • Provides that an accredited independent testing laboratory that has been approved by OHA or ODA may test industrial hemp and industrial hemp commodities and products produced or processed by a grower, handler, or agricultural hemp seed producer.
  • Transfers responsibility from the testing laboratory to the registered grower, handler, or processor, for entering hemp, commodity, or product into the tracking system before the hemp, commodity, or product is transferred to a laboratory for testing.
  • Requires the OLCC to track the hemp, commodity, or product when it is transferred, sold, or transported to a licensed premises, or area under the control of the premises licensee. This is an expansion of OLCC’s current obligation to track all cannabis in the state, with the exception of home grow and limited medical grow.
  • Specifies that industrial hemp products that contain more than 0.3 percent tetrahydrocannabinol may not be sold to a consumer by a person other than a retailer, and requires that the OLCC adopt rules to ensure compliance. This shores up a huge gap: until now, ODA growers could theoretically sell these products without oversight.
  • Authorizes OLCC actions regarding industrial hemp to enforce and ensure compliance with marijuana laws and provisions of industrial hemp laws that incorporate requirements, restrictions, or other provisions of marijuana laws. More oversight for OLCC.
  • Specifies that a person may not produce, process, or store homemade industrial hemp extracts. This further curtails ODA growers’ options, which were nearly limitless under existing state law.
  • Changes the description of the limit on production and storage of homegrown cannabis plants.
  • Allows ODA to adopt rules establishing a higher average tetrahydrocannabinol concentration limit for industrial hemp if a higher average concentration limit is established by federal law.
  • Revises language regarding grower retention of agricultural hemp seed for producing industrial hemp.
  • Establishes the Industrial Hemp Fund and appropriates moneys to ODA to implement, administer, and enforce industrial hemp statutes.

Like SB 1555, the hemp bill is “emergency” legislation that is effective on passage. When coupled with the new OLCC rules around industrial hemp passed a few months back, it’s safe to say that the Oregon hemp program is fully formed at last. Like the marijuana programs, Oregon hemp has come a long way.

When you look at a map of states that have legalized cannabis use and sale, it is hard to believe that “marijuana” remains classified as a Schedule I drug under the federal Controlled Substances Act (CSA). A decisive majority of states and voters, across the political spectrum, believe the marijuana prohibition should end. The war on drugs has failed abjectly. And yet, here we are.

Over the years, many different parties have undertaken efforts to end prohibition. A dozen times or so, private parties have filed petitions with the Drug Enforcement Administration (DEA), per CSA protocol on rescheduling. The DEA has routinely denied each petition, or declined to accept it outright. The lone exception was a petition filed by the pharmaceutical manufacturer of Marinol, to move the synthetic cannabis drug from Schedule II to Schedule III. That one was granted.

Other efforts have been made in the court system. These efforts are too numerous to detail at present, but they too have failed. Even a ruling by DEA’s own administrative law judge that cannabis should be reclassified was swatted away by the agency—and that was nearly 30 years ago. Nevertheless, a group of plaintiffs is at it again. It seems that today, almost fifty years after marijuana was placed on Schedule I of the CSA, people are less tolerant of prohibition than ever before.

The lawsuit at issue was filed by a group of five plaintiffs. The first is 12-year-old Alexis Bortell, who uses cannabis oil successfully to treat life-threatening seizures. Her family had to relocate to Colorado from Texas, because she could not acquire oil under Texas law. The second is 6-year-old Jagger Cotte, who treats with cannabis for Leigh Syndrome, a horrible, terminal neurological disorder. Third is former NFL linebacker Marvin Washington, who makes cannabis-based products for head trauma. Fourth is Iraq War veteran Jose Belen, who suffers from post-traumatic stress disorder and was given the option of “opioids or nothing” from the Veteran’s Administration. The final plaintiff is the Cannabis Cultural Association, a nonprofit seeking to reverse the racially disparate impact of cannabis prohibition. In lawyer terms, these are “sympathetic plaintiffs” all the way through.

The lawsuit targets marijuana’s status as a Schedule I drug under the CSA, and it asks the court to declare this status unconstitutional under the Due Process Clause of the Fifth Amendment, the Right to Travel, and the Commerce Clause. It also seeks a permanent injunction restraining the federal government from enforcing the CSA as relates to marijuana, and other relief. The named defendants here include none other than Attorney General Jeff Sessions, the Department of Justice, DEA, and the United States itself. Earlier in the litigation, plaintiffs sought a temporary restraining order against the feds with respect to enforcement of the CSA as to cannabis, but that motion was denied.

Notwithstanding that early setback, the lawsuit itself is well conceived and expertly written. It was filed in District Court, which is an unusual venue and interesting gambit by the plaintiffs. Typically, challenges to marijuana’s status under the CSA have been brought in administrative fora, where venue is not in dispute. Here, however, plaintiffs argue that the administrative process has proven to be so dysfunctional—and plaintiffs’ requests so urgent—that district court is a viable alternative. Thus, much of the oral arguments presented recently by both sides centered around whether the plaintiffs’ case could continue. If the judge can find a creative justification for that to occur, he seems to be leaning strongly toward plaintiffs on the merits.

If the plaintiffs somehow prevail, Sessions et al. would likely appeal the ruling to the U.S. Court of Appeals for the Second Circuit. Unfortunately, that court has previously held that marijuana’s Schedule I status is constitutional. In addition, another U.S. District Court judge in New York recently rejected a constitutional challenge to the Schedule I status of marijuana, albeit in a criminal matter. In the big picture, the odds are somewhat long for this particular case.

Even if plaintiffs do not prevail, their efforts have received a ton of valuable press from the outset. The fact that taxpayer dollars are being spent to battle a 12-year-old epileptic girl, a dying child, a traumatized veteran, and others, is a terrible look for the feds. Our strong hope is that this lawsuit and the relentlessly rising tide of public opinion will force Congress to finally act. Voters are no longer interested in prohibition, which is morally and legally indefensible. It’s time for a change.

cannabis subordination loan
Best if landlord, tenant and lender talk out that cannabis loan ahead of time.

Commercial cannabis leases are different than other commercial leases in many important ways. In other respects, however, they can be quite similar. One item that tends to fall into the latter category is the creation of a landlord’s lien on the tenant’s personal property in the event of an uncured tenant default. For example, if a marijuana producer fails to pay rent, the landlord acquires an ownership interest in that producer’s lights, fans, security equipment, and even the cannabis itself. If the lease is drawn up correctly, the landlord would then be able to seize these assets and liquidate them, in accordance with state law.

When representing landlords, this type of provision makes it into every type of cannabis lease we draft. When representing tenants, we often try to narrow this right, especially in situations where the tenant may be taking on debt. Why? Because lenders often insist on priority rights in the event that a pot business cannot repay a loan. In many cases, the lender will come prepared with a “Waiver and Consent Agreement” or a “Subordination and Consent Agreement.” The tenant is tasked with acquiring its landlord’s signature on this contract, so that if there is a default under the lease, the landlord does not preempt the lender’s rights in the tenant’s property (which serves as collateral for the loan).

From the landlord’s perspective, subordinating its lien on the tenant’s personal property is preferred to a total waiver of the lien. The lender won’t care either way, so long as it receives a primary security interest in the cannabis and everything else. For that reason, most of the time the parties will end up with the landlord agreeing that its lien is subordinate to the lender’s right, but not totally extinguished (“waived”). That way, the landlord is assured that its tenant will receive the cash needed to operate, and will retain the right to hop in line behind the lender and lien on any assets, as needed.

Landlords should be aware that the waiver or subordination agreement will typically allow the lender to enter the leased premises and remove the trade fixtures and even the marijuana itself, subject to state rules. On this point, the landlord will want to require that the lender minimize disturbance with respect to any other tenants on site, and require that removal occur prior to the end of the lease term. Once the lender is in the space, the landlord will want to ensure that the lender is required to comply with state marijuana rules, provide evidence of insurance, and keep the premises open for inspection, among other items.

There are a host of other concerns that a boilerplate consent or subordination document will create in the context of a cannabis loan to a tenant operator. These range from specific items, like the landlord’s obligation to notify the lender of a tenant’s default, to general items, like restrictions on the ability of a landlord and tenant to amend the lease agreement. Depending on which chair you are in—landlord, tenant or lender—these items will have different repercussions and should be negotiated with that in mind.

Each party’s goal, as always, will be to minimize risk and to maximize the ability to make and receive payments, in accordance with state and local rules. If you understand the basics of cannabis leases, lender subordination agreements, and your state’s disclosure requirements for cannabis lenders, you should be able to propose a contract solution that works for everyone. That way, in the event of a default under a loan or lease, the parties won’t have to fight over what happens next.

oregon marijuana cannabis
Just the facts on pending Oregon cannabis laws.

The Oregon legislative session began on Monday. Because 2018 is an even-numbered calendar year, this session is a short session, lasting just 35 days. That fact hasn’t stopped Oregon democrats from targeting ambitious policy objectives like cap-and-trade, along with a host of other items that will likely not get done. As to cannabis, there won’t be much movement, despite persistent rumors and calls for a limitation on license issuances, and the calls for an uptick in enforcement dollars.

Last year, Oregon kicked off the legislative session with 30 or so draft cannabis bills. This year, we have four. Two of them are likely to go nowhere and two may pass if things go well, but with significant modifications. The aptly named Joint Committee on Marijuana Regulation dissolved last session, which means that cannabis will get even less attention than before. Still, its former co-chair and Senate Majority Leader Ginny Burdick presides over the rules committee, and for that reason alone, we expect these bills get some play.

Below is the 2018 list, including links to each bill. As a reminder, text in bold typeface is proposed new language, and text in [italicized and bracketed] typeface is language that would be removed from existing statutes.

Senate Bill 1544

This bill would remove the 24-inch height limitation on immature plants produced for medical purposes. (Today, medical growers can theoretically have infinite starts.) It would also change the possession limit on immature marijuana plants for registered medical growers and for those responsible for medical grow sites. Finally, the bill proposes to exempt processors from testing requirements in the limited context of processing for a medical marijuana cardholder or that cardholder’s caregiver.

Will this bill pass? It’s possible, but if it does, it will probably look a lot different than it does today. SB 1544 is the “gut and stuff bill” we previously anticipated: it is rife for amending and may look different a few weeks from today. The changes related to medical starts are likely to stay, because this is something the feds are said to have noted as missing from the medical program. We may also see clean-up of language clarifying whether a person can be a designated grower for his or her own home grow under Oregon Health Authority (OHA) rules, and other minor issues. But the chance of consensus on multiple, high-impact issues is small.

Senate Bill 1555

This one has been moving along, with a few amendments already made. It will not impact Oregon cannabis industry players much, however, as it merely modifies the percentage allocation of marijuana tax revenues among various state beneficiaries. This one is an “emergency” bill, for what it’s worth, which means it would take effect immediately on passage.

House Bill 4110

This bill would allow the Oregon Liquor Control Commission (OLCC) to issue temporary “special events” licenses to qualified marijuana processors, producers, retailers and wholesalers. People have advocated for event licensing seemingly forever, but this is not an issue where consensus is easily gathered. For that reason, and because the session is so short, we give this bill a very low chance of going anywhere. If it surprises us, though, this one is also an emergency bill and would take effect immediately.

HB 4089

This is another emergency bill, but it relates to industrial hemp and not marijuana. It’s a big, multifaceted bill that was brought by the Oregon Industrial Hemp Farmers Association, and, like the recent OLCC rule amendments, it does a lot to shore up the state’s hemp program. As with SB 1544, we anticipated this bill a few weeks back. Here are the highlights:

  • Provides for OHA labs to test industrial hemp and related commodities;
  • Authorizes OLCC to enforce provisions of hemp laws that incorporate provisions of marijuana laws;
  • Changes the description of the limit on production and storage of homegrown cannabis plants;
  • Allows the Oregon Department of Agriculture (ODA) to adopt rules establishing higher average THC limits for industrial hemp if a higher average concentration limit is established by federal law;
  • Establishes a university pilot program to label and certify hemp seed; and
  • Establishes an Industrial Hemp Fund and appropriates money for administering hemp statutes.

For all it does, however, HB 4089 may be more notable for what it does not cover. Those items include:

  • A provision limiting the ability of hemp growers to sell high THC products;
  • A bill-of-lading, transport, or manifest requirement for ODA permittees similar to that for OLCC licensees; and
  • Tracking provisions related to the movement of hemp into OLCC channels.

We expect the legislature to look at these possible additions to HB 4089 and more, and we expect this bill to pass in some form. For now, though, it’s time to kick back and watch. We will report with a summary next month, at the end of the session.

virginia, new jersey, oklahoma, michigan marijuana

Last week, we were pleased to cover Vermont’s big move to legalize cannabis state-wide, effective July 1. The Vermont effort was impressive for a couple of reasons: 1) it became the first state to legalize adult-use (recreational) cannabis through the legislature; 2) its cannabis bill passed just days after Jeff Sessions announced Department of Justice rescission of the Cole Memorandum; and 3) Vermont is an east coast state, contiguous to populous New York and freewheeling New Hampshire. (The latter state also has been looking hard at adult use cannabis.)

With 2018 not long underway, it is likely that we will see at least a few other states break away from prohibition and adopt some form of cannabis legalization this year. Today, we identify four states with the best opportunities to make some noise, notwithstanding Attorney General Jeff Sessions’s feckless attempts to formally resuscitate the failing war on drugs. These four states would add to the nine with approved recreational use programs, and the 28 with medical cannabis programs.

Before we dive in, it is important to note that 26 states offer initiative and/or veto referendum rights to their citizens. If a state is not on this list, the odds of cannabis legalization are probably longer in that jurisdiction. This is because state legislators outside of Vermont have typically been non-forward-thinking when it comes to cannabis. A recent example would be California, where it was long apparent that adult use cannabis would become a reality, but the state legislature could not or would not summon the courage take up the issue, leaving it to the initiative process.

Without further ado, here are the four states most likely to make a run at ending prohibition this year.

New Jersey

New Jersey would be a great state to roll, if only because it was Chris Christie territory until recently, and Christie may be the one public official more ridiculous about cannabis than Jeff Sessions. With Christie now gone, though, Governor Phil Murphy has promised to sign any reasonable legalization bill that makes it to his desk, including for recreational weed. New Jersey does not allow its citizens to bring direct initiatives, so legalization will have to come through the legislature, as with Vermont. Currently, a couple of bills are in the works and optimism is high that full access adult-use legalization will pass this year.


Oklahoma and cannabis is an interesting story. Not long ago, Oklahoma teamed up with Nebraska to sue Colorado in an effort to shut down its neighbor state’s adult use program. That effort fizzled, and now Oklahomans are set to vote June 26 on a qualified referendum to legalize medical cannabis use. In a fun twist, the date was fixed just hours after Sessions announced the change in Department of Justice policy as to cannabis.

Oklahoma’s ballot initiative is known as State Question 788, and it would allow the use, cultivation and distribution of medical cannabis to qualified patients. The initiative’s writers are off to a good start: they already defeated an effort by the state attorney general to re-word the ballot title in an allegedly misleading manner. For a fuller explanation of that episode, and of how this particular initiative will work, go here.


Michigan is another initiative state, and it appears to have enough signatures for adult-use program inclusion on the 2018 ballot. Michigan has had a medical use program in place for a decade, and appears to be the first Midwestern state ready to go all in on 21+. As of January 25, the initiative’s main committee had raised nearly $1.3 million from a variety of donors, and it appears likely to have obtained sufficient signatures to make it to ballot on November 6, 2018.

As to the details of the proposal, the Initiative seems modeled off of working programs in a few of the western states. Per Ballotpedia:

Individuals would be permitted to grow up to 12 marijuana plants in their residences. The measure would create an excise sales tax of 10 percent, which would be levied on marijuana sales at retailers and microbusinesses. The initiative would allocate revenue from the taxes to local governments, K-12 education, and the repair and maintenance of roads and bridges. The measure would also legalize the cultivation, processing, distribution, and sale of industrial hemp. Municipalities would be allowed to ban or limit marijuana establishments within their boundaries.


Virginia is bringing up the rear on this list, as its efforts are focused on decriminalization and nothing more. Two proposed Senate bills contained fines for simple possession, but those were shot down yesterday by Senate Republicans. In their place, the same panel approved a cautious bill that lets first-time offenders for simple marijuana possession get their charges dismissed. The panel also voted in favor of legislation that would allow doctors to recommend CBD or THC-A oil to patients. We certainly applaud keeping people out of jail for cannabis use, and allowing doctors to recommend cannabis, but Virginia could do better.

oregon marijuana cannabis
Local grower tax: good idea?

The regulation of state-legal cannabis differs from any other commodity. One of the more interesting and consequential differences is the degree of autonomy and control that states tend to give local jurisdictions (cities and counties) with respect to commercial cannabis activity. Local jurisdictions are often allowed to tax cannabis sales, for example; to license marijuana businesses; and to opt out of marijuana activity altogether. This is different than what is allowed or accepted with standard commodities (think: apples, flowers or chewing gum), or even with restricted commodities (alcohol, tobacco or lottery tickets). The reason that local jurisdictions have such wide latitude regarding marijuana is simple: federal prohibition.

Along these lines, the Association of Oregon Counties (AOC) recently offered an unusual proposal for the local regulation of cannabis. The proposal is called the “Southern Oregon Marijuana Initiative” (the “Initiative”) and it would amend Oregon statutes to allow the five most economically distressed Oregon counties to impose a marijuana production tax on licensed growers, in order to fund law enforcement efforts vis-à-vis the local black market. (For some background on the Oregon cannabis black market, and Oregon’s cannabis oversupply issue, see our coverage here).

The Initiative follows an attractive logic model. It observes that the counties at issue have suffered tremendous fiscal hardship since the local timber industry faltered. The counties also comprise a banana belt for cannabis, with perfect soil and climate, and an established and pervasive culture of illegal cannabis farming. The Initiative thus observes that:

“the marijuana industry has largely replaced the timber industry as the natural resources economic engine in Southern Oregon. However, unlike the timber industry, the marijuana industry does not substantially contribute to public services in Southern Oregon, including, but not limited to, the very law enforcement and code enforcement services needed to help the industry survive and thrive….”

It is indisputable that the counties cited by AOC suffer from a lack of public services, from law enforcement to libraries. This problematic reality, along with the following factors, conspire to make the AOC pitch all the more timely: 1) recent pressure on state-legal marijuana from the federal Department of Justice; 2) Oregon U.S. Attorney Billy Williams’ stated concern with overproduction and black market production; and 3) the lack of state budget allocation for increased enforcement against illegal cannabis operators. Against this challenging backdrop, local actors like AOC are proposing creative local regulation, in an attempt to fill the void.

Whether the Initiative has any chance of finding its way into law is an open question. In our view, however, it likely to fail. Southern Oregon pot growers have well known lobbies that will likely oppose the Initiative for a myriad of reasons, from taxation to a broad desire to combat further regulation. Also, with the short legislative session beginning February 5, there will be few opportunities for movement on cannabis legislation (right now, we are looking at a possible hemp bill and a gut and stuff marijuana bill, which may or may not amount to anything).

Still, it is fascinating to see the effect that federal prohibition has had on the law and policy efforts surrounding cannabis, all the way down to sparsely populated locales. The recent federal emphasis on overproduction and illegal export has only accelerated these conversations. Although it is well established that supply-side drug control has never worked, the federal government has nonetheless told its lawyers: “feel free to enforce the laws of prohibition.” It seems that local jurisdictions—including those awash in cannabis—may be thinking along those lines as well.

Happy MLK Day!

For our international readers, Martin Luther King, Jr. Day is an American federal holiday marking the birthday of its eponymous civil rights hero. Dr. King was the chief spokesperson for nonviolent activism in the Civil Rights Movement, which successfully protested racial discrimination in federal and state law. Dr. King was assassinated in 1968, four years after the passage of one of the great U.S. laws of the 20th century, the Civil Rights Act of 1964. His death also came two years prior to one of the 20th century’s most controversial and insidious laws, the Federal Controlled Substances Act of 1970 (CSA).

mlk marijuana cannabis
Don’t forget that cannabis is a civil rights issue.

As cannabis business lawyers, we write about cannabis law topics every day of the year on this blog, but we seldom address pure social issues. When it comes to cannabis, however, it is sometimes difficult to separate law and policy. This is because the federal prohibition of marijuana in the United States has had a racially disparate impact on non-white individuals, especially black and Latino Americans. That should come as no surprise to anyone: It is well documented that former president Richard Nixon wanted to link marijuana use and its negative effects to African Americans and hippies, who he perceived to be his enemies, when he signed the CSA.

That was almost 50 years ago, but in a way, not much has changed. Although the Trump Administration has instated policies that make it more difficult to track drug arrests, publicly available FBI data reveals that 1,572,579 marijuana-related arrests occurred in 2016, comprising 42% of all reported U.S. drug arrests. This is 10,000 more marijuana arrests than were made in 2015. Thus, marijuana arrests are increasing, even as more states legalize possession and sale of the plant. It is profoundly regrettable that non-white individuals are arrested for marijuana crimes on a grossly disproportionate basis to whites, today and historically, despite lower levels of consumption overall. Most arrests are made for simple possession of small amounts of pot, and are made at the state and local level.

As far as federal enforcement and policy, both the Drug Enforcement Administration and the Federal Bureau of Investigation operate under the jurisdiction of the Department of Justice (DOJ), which is headed by Attorney General Jeff Sessions. Mr. Sessions has a long and well-documented history of fervent opposition to marijuana. Since his confirmation in January of 2017, Sessions has made various attempts to strengthen the hand of federal agencies in prosecution of marijuana-related crimes. Most of these attempts are either aggressively or latently anti-civil rights. These attempts include:

  • reversing a DOJ policy to combat draconian federal sentences for drug-related convictions (which affect blacks and Latinos disproportionately);
  • reversing a DOJ policy phasing out federal private prisons (which impound blacks and Latinos disproportionately);
  • calling for an inquiry into the link between marijuana and violent crime (likely to target blacks and Latinos disproportionately);
  • reinstating the police tool of asset forfeiture, a legally problematic procedure which allows law enforcement to seize property of individuals who have been suspected of, but not charged with, crimes (in violation of everyone’s civil rights, but to affect blacks and Latinos disproportionately);
  • petitioning Congress for funds to prosecute the retrograde War on Drugs, including recreational and medical marijuana (still more racially disparate impact);
  • importuning state governors with “serious questions” about their state cannabis programs, in an apparent effort to challenge the legitimacy of those programs (latently problematic); and
  • ripping up the Cole Memo, which gave some cover to marijuana businesses.

Jeff Sessions has been dogged by allegations of racism throughout his career, and his fusillade of anti-civil rights actions begs the question: If a racist were in charge of criminal justice for the United States, what would he do? The answer is literally everything listed above. Unfortunately, there may be more to come.

The War on Drugs started out as a war on minority groups, and not much has changed in 50 years. If Dr. Martin Luther King Jr. were alive today, it is almost certain that he would be advocating for an end to the War on Drugs, starting with removal of marijuana from Schedule I of the CSA. Until that happens, and in honor of Dr. King, here are some ways you can pitch in to reverse the racist, immoral and counterproductive state of federal law with respect to cannabis:

  • demand that your Senator co-sponsor the Marijuana Justice Act;
  • demand that other public officials in your state finally step up to de- or reschedule marijuana as relates to the CSA;
  • support organizations across the political spectrum, from the American Civil Liberties Union (ACLU) to Republicans Against Marijuana Prohibition (RAMP), with respect to their efforts to end federal prohibition;
  • support trade groups like the Minority Cannabis Business Association, which promote diversity in the cannabis industry; and
  • support and advocate for city and state programs that aim to help disadvantaged communities cash in on marijuana legalization.

Dr. King died 50 years ago, but his legacy continues to resonate and expand. On this day honoring one of our greatest leaders, it is important to remember all of the reasons we strive to put an end to prohibition, including the most important ones.

Oregon cannabis marijuana lease
Same advice for pot leases.

For any marijuana business not fortunate enough to own its land outright, there are few documents more important than the lease. Not only is the lease the only transactional document reviewed by the Oregon Liquor Control Commission (OLCC) prior to licensure, but it sets fundamental operating parameters than can determine the success –and even life cycle — of the business. Problematic lease arrangements can sink a ship fast.

In Oregon, there are four main varieties of leasehold: the residential lease, the commercial lease, the ground lease and the agricultural lease. We steer most of our pot industry clients toward commercial and agricultural leases, depending on the circumstance. That said, we have had people walk in with just about everything.

Below is a brief summary on each type of lease, what to look for, and when to use them.

Residential Lease

Do not use a residential lease for a commercial cannabis operation under any circumstances. Even if you think you can revise the lease form to suit your purposes, do not be tempted; and if your landlord insists on this form of lease, say no. We are currently aware of two pieces of landlord-tenant litigation in which the parties used a residential lease for a commercial cannabis grow: those leases were upside down on everything, including the eviction process. One goes to trial next week after thirteen months of litigation.

The only time a residential lease should involve cannabis is in the residential landlord-tenant context, discussing the right of an Oregon tenant to grow up to four plants for home use (not OLCC; not re-sale) in accordance with state law.

Commercial Lease

We have written on commercial leasing a fair bit on this blog, and we have adapted a handful of excellent lease forms for various buildings and circumstances. Generally speaking, commercial leases are broken into three categories: office, industrial and retail. The latter two are used extensively by cannabis businesses.

Prior to entering into a commercial lease, the parties will commonly run some due diligence on each other. From the landlord’s perspective, that usually means looking at a business’ operating history (if any) and financials; from the tenant perspective it’s more about local zoning laws and the space. This last piece is especially important: the lease almost always disclaims any liability for premises defects with “AS IS” language.

Prior to signing a lease, the parties will often start with a letter of intent (LOI) that nails down the high-level terms: e.g. duration, rights of renewal, rental amount, occupancy commencement, rent commencement, landlord and tenant improvements, taxes, insurance, common area maintenance, etc. Once the parties agree on these deal points, the next step is to get busy drafting. Here are some cannabis-centric things to watch for at that point.

Ground Lease

Ground leases are long-term leases (think, 20 years or more) where the parties intend for the tenant to construct a building and other improvements (think, a row of cannabis greenhouses) which ultimately become the property of the landlord. These are almost always “net rent” leases, where the tenant pays all taxes associated with the property, including taxes, insurance premiums, utilities and maintenance.

Recently, we’ve seen an uptick in multi-acre property owners choosing ground leases. In some cases, a master ground lease with a series of subleases for different OLCC licensees is used to create a complex of sorts, assuming compliance with local zoning law and the availability of water rights.

Agricultural Lease

Agricultural leases are a specialized subset of commercial and ground leases, and they are used commonly in rural cannabis grows. These agreements tend to be laced with various provisions not present in other commercial leases, like irrigation, water rights, sharing of farming costs, maintenance of equipment, etc. These leases may also be tailored specifically to the nature of the land. This means that in addition to describing the property at issue, the lease will describe buildings, structures, fixtures and other appurtenances included in (or excluded from) the leasehold.

It is important to note that although commercial and agricultural leases are related in many ways, use of a commercial lease on certain types of rural property, like Exclusive Farm Use (“EFU”) land could theoretically have disastrous effects. In Oregon, “commercial activity” is banned on EFU land. More than one attorney has speculated that use of a commercial lease on EFU land could lead to that parcel’s tax benefits being removed.

Sometimes, an agricultural lease is the only way to go.

california kamala harris cannabis
Talk is cheap.

When it comes to ending federal prohibition, some public officials are do-ers, and other are talkers. Here in Oregon, we are lucky enough to have Congressman Earl Blumenauer, who is a relentless advocate for ending prohibition. Blumenauer helped found the Congressional Cannabis Caucus, and appended his name to the Rohrabacher-Blumenauer Amendment (RBA), which prohibits the U.S. Department of Justice (DOJ) from spending money to interfere with state medical cannabis laws. We are also fortunate to have the likes of Ron Wyden and Jeff Merkley in the Senate, who introduced a marijuana banking bill as far back as 2015, and Governor Kate Brown, who has always been stellar on cannabis.

Those four individuals are Democrats, of course, but there are plenty of vocal Republican advocates for ending prohibition as well. Dana Rohrabacher (of RBA) gets an A+ rating from NORML, and Corey Gardner, the Republican Senator from Colorado, was one of the most strident critics of Jeff Sessions’ recent move to rescind the Cole Memo, pledging to block DOJ nominees until Sessions relents. All of this makes sense, given the status of the plant in these individuals’ respective states, but also the fact that a majority of Republican voters now support marijuana legalization nationwide.

At this point, you would think that every politician in a cannabis-legal state – especially adult-use states – would be pulling on the rope of ending prohibition. Some of our elected and appointed officials, though, are mostly just talk. These individuals give lip service to the notion that the federal government should stand down on cannabis, but they cannot be bothered to introduce legislation, let alone sponsor a bill or make any other attempt to re- or deschedule cannabis with respect to the federal Controlled Substances Act (CSA). President Obama’s Attorney General, Eric Holder, was sometimes criticized for this.

As DOJ head, Holder had the power to press Health and Human Services for an evaluation of cannabis, sufficient to remove it from the CSA. We explained how that works here. Whether Mr. Holder would have succeeded is an open question, but the fact that Holder is now one of the most vocal critics of Session and his cannabis policy, only lends credence to the argument that he should have done more when he had the chance.

Today, at this important time, there are other public officials who should be doing more to end the War on Drugs, but they too are mostly just talk. Case in point: California Democratic Senator Kamala Harris. There are several reasons why Ms. Harris has been catching significant flak for her half measures on cannabis, as compared to other officials: 1) she hails from California, the first state with a medical cannabis program and the world’s largest cannabis economy; 2) she comes from the executive side, having served as California Attorney General; 3) she is a celebrity national politician, who is often floated as a 2020 presidential candidate; and 4) she is constantly talking about the failed War on Drugs. In fact, she talks about it pretty much every single day.

But it’s all talk. As California Attorney General, Ms. Harris did little to advance her state’s interest as to cannabis. In 2014, when she was asked for her opinion on legalizing adult-use cannabis, her response was dismissive laughter. As a state Senator, she has failed to sponsor or even co-sign any bill to re- or deschedule marijuana (and there are some good ones). Aside from lots of talking, Harris’ one big move has been to put together a petition to decriminalize marijuana nationwide (but not to revise the CSA). My eight-year-old niece could do that.

Industry advocates, cannabis users, and voters in general should all pay attention to which of their representatives are talking the talk, and which are walking the walk when it comes to ending prohibition and protecting state industries. Given her career arc and superstar potential, Kamala Harris has famously been referred to as “Eric Holder in a skirt.” When it comes to cannabis, unfortunately, that comparison looks like a pretty good fit.

We recently wrote that we are working on a substantial number of merger and acquisition deals regarding Oregon marijuana businesses. One question that comes up in these deals, without exception, is how the Oregon Liquor Control Commission (OLCC) license acquisition process works for the incoming party. This is because licensing is a fundamental sale consideration: no economic activity will be allowed for the new ownership group until it receives state approval. Fortunately, when it comes to changes in ownership, OLCC works hard to expedite license turn-over.

A very common misconception among Oregon buyers and sellers is that a party can buy, sell or transfer an existing pot license. This is not allowed. Instead, as we explained last February on this blog, whenever 51% or more of a business is bought or sold—whether through an asset purchase agreement or stock sale—OLCC requires the new ownership group to apply for, and obtain, a new license.  The good news here is that the purchaser need not start from scratch: when representing buyers, we typically reach out to OLCC’s lead licensing technician and let her know that a new application has been submitted. She will pull the application out of the queue, and pass it along to one of two OLCC “change-in-ownership” technicians. In our experience, these individuals usually take about two weeks to review the application materials, and another week or so to schedule an inspection.

Assuming there are no issues with background checks or acquiring a replacement Land Use Compatibility Statement, OLCC will issue the new license and the buyer can begin to take on seller’s inventory. Typically, both the buyer’s and seller’s license are active for a day or two during the inventory transfer period. At this time, buyer presents an OLCC letter to METRC, and the parties put together a manifest to move everything over. After the inventory is fully transferred to buyer, the seller’s license is cancelled.

You may be wondering: “where can I find any of this information on the OLCC website?” The answer is, “you can’t.” OLCC has undertaken quite a few changes to its licensing process in the past year (mostly, for the better), and not all information applicable to licensing is available online, or even stated in the administrative rules. Instead, the parties and their lawyers need to work closely with OLCC to facilitate the licensing process, and both buyer and seller should try to keep abreast of any changes in protocol.

Finally, because the change-in-ownership licensing process takes three weeks or more, it is critical for the parties in any sale transaction to get the estimated closing timeline correct when drawing up paperwork. If the relevant sale agreements provide for a transaction closing date prior to when a license may realistically issue, at least one party will likely run the risk of default. For this reason, almost any well written sale agreement will be contingent upon the grant of a new OLCC license for buyer, and will not allow for the balance of the purchase price to transfer until the license issues.

For more on the purchase and sale of Oregon cannabis businesses, check out the following: