Photo of Vince Sliwoski

Vince manages Harris Bricken’s Portland office and is a professor of Cannabis Law and Policy at Lewis & Clark Law School. He is a well-rounded attorney with expertise in a wide range of transactional law.

oregon marijuana cannabis
Time to kick back and consider Oregon cannabis.

On January 31, the Oregon Secretary of State released an audit of Oregon marijuana regulation. The audit is a hefty 37 pages, but its core findings are listed right there on the cover sheet: “Oregon’s framework for regulating marijuana should be strengthened to better mitigate diversion risk and improve laboratory testing.” Now: we would all like to see less diversion and better testing, but those findings are not exactly surprising. And no one should expect big fixes anytime soon.

Below is some straight talk about the audit’s two primary conclusions, and a few thoughts about where things are headed.

  1. Much of the medical market is a black market and diversion is unstoppable at this time.

The Oregon Medical Marijuana Act (OMMA) was passed over 20 years ago, in 1998. As we explained a few years back, OMMA was (and is) little more than an affirmative defense for designated marijuana possessors and distributers from state criminal prosecution, and from federal hassles to the extent possible. Those are commendable goals, but the program never made sense from a commercial perspective. Thus, the Oregon Health Authority (OHA) has always found itself in the unenviable position of struggling to write rules around legislation that creates a marketplace while ignoring the market itself.

When the legislature did decide to shepherd the primitive market, it did so in fits and starts. It took seven years to put a grow site registry together, and fifteen years for dispensary licensing. Heck, even the first grow site inspections (and there haven’t been many) didn’t occur until 2016. All of this was toothpicks and BAND-AIDS. And all the while, many people made money trading in the “medical” market. Did a lot of that weed and cash make its way across the country? You bet.

Even if Oregon were to follow the audit recommendations, however, and ramp up funding for inspections and enforcement in both the OHA and OLCC (adult use) programs, there are inherent and well documented limits to supply-side efforts when it comes to federally controlled substances. Oregon can invest heavily in keeping its cannabis under seal, but its energy would be better focused on federal lobbying to de- or reschedule marijuana under the federal Controlled Substances Act, or even on longshot solutions like promotion of interstate marijuana exchanges.

The state should also continue to push medical marijuana regulation, including enforcement, into the OLCC purview. The audit briefly suggests as much, and we’ve been talking about that forever on this blog. It’s not such a political quagmire anymore, especially as more overlap comes with each legislative session. The fundamental question is this: why have a revenue raising agency and a health authority both focus on intensive regulation of the same plant, especially when both are under-supported? It doesn’t make a lot of sense.

Finally, here’s the part that administrators, legislators and even executive branch actors aren’t saying out loud: leakage into interstate commerce really doesn’t matter at this point, especially if the state is running its studies and making token efforts to stop it. There may be some federal enforcement against black market actors (which is great), but no one is shutting these state programs down. In 2019, cannabis leakage exerts more pressure on the feds to find legislative solutions than enforcement ones.

  1. Testing is a tough issue, but more fixable.

Back in the day, when OHA first started licensing dispensaries, there were no real rules around testing. People would take weed to labs with inadequate equipment and inconsistent practices. They would leave with unreliable results. In 2016, when OHA began accrediting the first laboratories for the medical and adult use (OLCC) markets, not many of them signed up. In the OLCC market, this meant bottlenecks for an extended period.

Nowadays, all cannabis making its way to retail sale is tested more strictly than other agricultural crops, but medical marijuana outside that channel typically goes untested (unless the flower is processed by a medical marijuana processor, which is pretty niche). That’s a shame because medical marijuana patients are the ones who would benefit from testing the most: many of these individuals have conditions like cancer and HIV that directly compromise their immune systems. And roughly 10% of Oregon’s medical marijuana patient community includes children under 18 years of age and seniors over 70.

As far as testing issues that affect our industry clients (OLCC businesses and financiers) the audit recommends expanding testing requirements to screen for microbiological and heavy metal testing, and it promotes “shelf audits” at dispensaries. In theory, those steps could drive up costs along the supply chain, but we wouldn’t expect much variance. Altogether, the testing push is more about protecting vulnerable individuals in Oregon, including people in limited, patient-caregiver relationships. We can get behind that.

international law marijuana united nations

On February 1, it was reported that the World Health Organization (WHO) made some significant and long overdue recommendations with respect to cannabis. Those recommendations have not been formally released, but we expect that to happen soon. If adopted wholesale by the United Nations (UN), the recommendations will have a significant impact globally as to controls placed on cannabis and its constituent parts.

It is important to note that the WHO is not recommending the unfettered legalization of marijuana. Therefore, no one should expect the doors to swing wide on international cannabis trade overnight. Still, the WHO development is welcome news after nearly 60 years of unmerited and unexamined prohibition of marijuana under international law.

The WHO recommendations are reported as follows:

  • Remove whole plant marijuana and cannabis resin from Schedule IV of the Single Convention on Narcotic Drugs of 1961 (the “Single Convention”), but leave them on Schedule I of that treaty. (Under international law, Schedule I drugs are relatively safe, and Schedule IV drugs are the most heavily controlled.)
  • Place cannabis extracts and tinctures containing delta-9-tetrahydrocannabinol (THC) in Schedule III of the Single Convention.
  • Remove THC and its isomers completely from the 1972 Protocol to the Single Convention. (The 1972 Protocol is a follow-up treaty requiring states to actually enforce laws on their books against cannabis cultivation.)
  • Clarify that that cannabidiol and CBD-focused preparations containing no more than 0.2 percent THC are “not under international control” at all.

So what would all of this mean? First, cannabis containing more than trace amounts of THC would still be controlled. Whole plant marijuana would no longer be in the same class of drugs as heroin and fentanyl, but it would not be eligible for trade in the same way as coffee or even tobacco. Second, concentrated preparations of THC would be controlled more strictly than flower, but not at draconian levels. Third, penalties for possession and distribution of cannabis in any form would significantly decrease. And fourth, CBD would be treated like bonbons. In all, the WHO approach is measured and scientific, seeking to isolate various parts and preparations of the plant, and distinguish their effects.

When it comes to implications for U.S. law, the WHO’s assessment of CBD could have the most immediate impact. Readers of this blog may recall that the U.S. Drug Enforcement Administration (DEA) has taken the position that the U.S. would “not be able to keep obligations under the [Single Convention] if CBD were decontrolled under the CSA”. The Food and Drug Administration (FDA) ultimately fell in line with the DEA’s interpretation, scheduled Epidiolex (an approved CBD drug), and recently issued a public statement warning that it is unlawful “to introduce food containing added CBD … into interstate commerce.”

If the WHO recommendation is adopted by the UN, though, the FDA may reverse course quickly. When the FDA agreed to schedule Epidiolex, it advised:

If treaty obligations do not require control of CBD, or the international controls on CBD … are removed at some future time, the recommendation for Schedule V under the CSA would need to be revisited promptly.

Presumably, state health authorities would fall in line with the FDA’s ruling, and we would stop seeing things like last week’s raids in New York and Maine.

At some point this year, it is likely that the UN will vote on the WHO’s cannabis rescheduling recommendations. A really, really interesting question is where the U.S. will cast its lot on that momentous day. The U.S. has always been an international hardliner when it comes to cannabis, even as a vast majority of its states have legalized marijuana for medical or recreational use. These days, though, things are changing fast – both domestically and worldwide.

For more on cannabis and international law, check out the following:

marijuana civil rights

Happy MLK Day!

For our international readers, Martin Luther King, Jr. Day is a federal U.S. 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 Controlled Substances Act of 1970 (CSA).

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 U.S. 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 black people 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 659,700 marijuana-related arrests occurred in 2017, comprising 40.4% of all reported U.S. drug arrests. This is nearly 12,000 more marijuana arrests than were made in 2016 (which, in turn, saw an increase from 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 weed, and are made at the state and local level.

Last year at this time, Jeff Sessions was our attorney general. Although he is gone, his retrograde policies live on as Department of Justice directives with respect to marijuana and marijuana-adjacent issues. These policies include:

  • Support of draconian federal sentences for drug-related convictions (which affect blacks and Latinos disproportionately);
  • Support of federal private prisons (which impound blacks and Latinos disproportionately);
  • Support of 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); and
  • Rescission of the Cole Memo, which gave some cover to marijuana businesses.

Today, it seems fairly certain that William Barr will be our next confirmed attorney general. He won’t be as bad as Sessions, but he is no friend of marijuana either. Barr commented last week that although he would not use federal dollars to chase state-compliant actors, “it’s a mistake to back off marijuana.” That’s not the type of leadership we need from the nation’s chief law enforcement officer.

As to Congress, it recently passed the First Step Act, a mild reformation of the federal criminal justice system. That law is mostly a dud when it comes to marijuana, however. And none of the “straight” marijuana bills, from the STATES Act on down, have made it to a floor vote. All the while, marijuana arrests continue to increase, despite the facts that: a) two in three Americans now support legalizing marijuana, and b) new adult use and medical marijuana states are coming online in waves.

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 marijuana:

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.

Let’s hope to finally see some meaningful progress on marijuana and civil rights in 2019, particularly at the federal level.

We have spilled a lot of ink on this blog related to the 2018 Farm Bill, which legalized hemp at the federal level. It’s huge news. And there are so many ramifications, from food law to trademarks to the financial services environment. This blog post is going to cover financial institutions and hemp at about 10,000 feet. Since late December, we’ve had many clients come to us with frustrations about the ongoing lack of access post-Farm Bill, and questions about how things will play out in 2019.

To frame this issue, it’s important to summarize what the Farm Bill actually is and does. In a recent post, we explained that “the 2018 Farm Bill modified the Controlled Substances Act (the ‘CSA’) to exempt hemp from the definition of marijuana. Not only is hemp now clearly excluded from this definition and thus not a scheduled drug, but states and tribes also cannot prohibit the distribution of hemp.” Seems easy, right?

industrial hemp bank credit unionIf only. Going forward, hemp will be subject to stiff regulation at the state and federal levels. For example, although hemp is no longer a controlled substance under the CSA, the Farm Bill reserves certification rights to the Department of Agriculture over state and tribal industrial hemp production “plans.” Those plans will be nuanced, and what any given state’s plan will look like next year is unknown. That fact alone may be the biggest reason that most financial institutions are still on the sidelines.

Financial institutions are also conservative by nature. We represent a handful of banks (and a larger handful of credit unions), and we give those outfits advice on banking hemp and marijuana. A few of these clients are relatively nimble and bold, but at the end of the day they are still banks. They have directors who worry about individual liability, lawyers and officers who worry about byzantine state and federal laws and policy, and shareholders and members who may see outsized risk and steep learning curves. When banks move into these areas, they tend to offer limited services, which are seldom more than basic merchant accounts.

Financial institutions also understand that when a new piece of federal regulation is enacted, it takes some time for rules to be written in support of the new law (both federally and by states), for programs to be staffed and built, for guidance to issue, etc. Finally, there is often a wave or two of litigation to interpret the administrative environment. All of that happens over the course of years, not months, and all of that will happen with hemp and the Farm Bill. Like the rest of us, financial institutions cannot see around corners and will be watching closely.

So what does all of this mean? Ultimately there will be banking, but banks and credit unions will not come in all at once. When they do come in, early actors will likely provide services for hemp clients that look similar to what is out there today in states like Washington and Oregon for hemp and marijuana businesses. This means limited access to institutional lending, ongoing compliance reporting and audits, and short leashes overall. Everything that happens will be fluid and consistent with best practices for high-risk industries.

Ending prohibition is a lot of fun, but then you get to wake up and go to work. We are optimistic that the hemp industry will have ample banking options. It will take some time, though. In the meantime, we will continue to monitor this issue and other hemp-related matters closely. Stay tuned.

cannabis marijuana 2018
By any measure, cannabis had a banner year in 2018.

We had a blast celebrating all of the big wins for cannabis on this blog this past year. Looking back, it was a monumental year for cannabis reform, both in the United States but also internationally. At this point, it feels like there is no realistic scenario in which prohibition carries the day: Federal legalization of marijuana, at least in the United States, feels like a fait accompli. Below are the ten biggest developments in cannabis law and policy over the past twelve months.

  1. California commenced its adult use marketplace.

California is the fifth largest economy in the world. It was the first U.S. state to pass a medical marijuana ballot initiative, back in 1996, and given the interim developments in states like Colorado, Oregon and Washington, adult-use legalization in the Golden State has been a long time coming. There are still a ton of unknowns about California’s cannabis regulations (it also passed a hemp law), but the size, scope and influence of this program on other states—and even other countries—will be staggering. Our Los Angeles and San Francisco cannabis business lawyers will continue to report on these exciting and complex developments every step of the way.

  1. Canada legalized marijuana federally.

Canada did it right. Instead of mucking around with local referenda, Canada took charge of the matter by legalizing cannabis nationwide through its federal legislature. This approach should result in more coherent, organized policy on everything from banking to taxation to supply chain structure. The Canadian government is also taking progressive steps that are not feasible in the U.S., like earmarking funds for hospitals and universities to study the effects of legalization. All of this has resulted in an early competitive advantage for Canada, which is well deserved.

  1. The U.S. legalized hemp.

This happened just last week, and it was about damn time. Hemp is a cultivar of the cannabis plant that doesn’t get anyone high. Instead, it has a vast array of industrial uses, from textiles to paper to building materials. It also may be used to source cannabidiol (CBD), which now has federally approved medical applications. The U.S. hemp industry generated $820 million in nationwide sales in 2017, and that was well before the recent federal action. By 2022, that number is expected to approach $2 billion.

  1. The midterms: Michigan, Utah and Missouri forged ahead.

In the 2018 midterm elections, Michigan voters decisively voted to legalize adult use marijuana statewide, with a 56% approval rate. Michigan is the first midwestern state to fully end prohibition, demonstrating that the will to legalize is not confined to “liberal” western or New England states. In Utah and Missouri, the approval of medical marijuana programs was also big news. In fact, it would have been nearly unthinkable for either state to have taken such action just a few years ago. Given these and other developments, we expect more state dominoes to fall in 2019.

  1. State legislatures began looking carefully at legalization.

This is an under-reported but very important development. Historically, state legislatures have lacked the political courage to tackle marijuana legalization (medical or otherwise). Instead, everything was done in “direct democracy” states via ballot initiatives. In January, Vermont broke this barrier, becoming the first state to legalize marijuana use through the legislature. That approach should result in a more orderly roll-out, and give legislators a chance enact policy proactively (i.e., do their jobs), rather than reactively (which, in the cannabis context, often means re-writing ballot provisions down the line). Look for the New York, New Jersey, Illinois, Connecticut, Minnesota and New Mexico legislatures to each take a hard look at legalization in 2019.

  1. The international community began looking carefully at legalization.

In August, we covered the United Nations’ movement to take a closer look at cannabis prohibition under international law, and the World Health Organization’s (“WHO”) recommendation that CBD no longer be controlled. These developments continued in December, with the WHO declaring that it will make a formal recommendation on the international legal status of cannabis (and not just CBD), next month. Sensible drug policy at the international level will make actions taken in Canada, the U.S. and elsewhere even easier. We are very excited about this overdue development.

  1. Civil rights were in focus.

With the never-ending stream of cannabis industry developments, it can be easy to forget that cannabis is also a civil rights issue. In 2018, the federal government cast an inadvertent spotlight on cannabis and civil rights, due to the regressive actions of Jeff Sessions and others. Those actions gave increased momentum to marijuana civil rights legislation, from sweeping federal proposals like Corey Booker’s Marijuana Justice Act, to social equity programs at the state and municipal levels. In 2019, expect discussion around cannabis racial and social equity to continue to amplify, particularly at the federal level.

  1. Sessions (and Sessions) got the boot.

When the definitive story of cannabis legalization is finally written, the tenure of Jeff Sessions as U.S. Attorney General will likely go down as the death rattle of prohibition. A footnote to Sessions’ failures will be those of similarly minded legislators, including Pete Sessions, who single-handedly blocked countless marijuana reform efforts until he was ousted from Congress last month. In 2019, discussion around enforcing federal prohibition will be a non-starter for the first time in 50 years. The only question now is how legalization happens.

  1. The industry got so much bigger.

Legal marijuana was a $10.4 billion industry in the U.S. in 2018. Looking at the U.S. and Canada together, investors poured another $10 billion into cannabis, or twice the amount invested over the past three years combined. Reflecting this trend, our cannabis business lawyers in Seattle, Portland, San Francisco and Los Angeles were up to their ears in investment deals and new client requests over the past 12 months– more so than at any period going back to 2010. We don’t expect things to slow one bit in 2019.

  1. President Trump voiced support for ending marijuana prohibition.

President Trump says a lot of things. He says so many things that his comment of “really” supporting a marijuana bill didn’t make a lot of waves, but he did become the first sitting president to embrace legislation to end federal prohibition. The bill endorsed by Trump is knowns as the STATES Act, and it amends the federal Controlled Substances Act to exempt state-legal marijuana from its parade of horribles. Trump is just one of many prominent national politicians to embrace the end of prohibition. Let’s hope it finally happens in 2019 or 2020.

oregon cannabis industry

Here we are at the end of 2018, which means it’s time for the third annual “State of the State” post on Oregon cannabis (the 2017 post is here and the 2016 post is here). The year 2018 was truly remarkable in the Oregon industry, and we saw a lot of change, from regulatory evolution to industry consolidation to overall market dynamism. Below is a high-level summary of what we are seeing in the industry as we move into the new year.

Competition is intense.

The marijuana market is saturated with both licensees and product. October is always the peak month for harvest, and the Portland Business Journal, by way of OLCC, reports that producers brought in 2.54 million pounds that month (measured in wet weight). This was a slight increase from 2.48 million harvested pounds in 2017. For the full year, production was running 9% higher than 2017, and wholesale prices fell by more than 50% from mid-2017 to mid-2018. As any store owner will tell you, retail prices have fallen significantly too.

In addition to product saturation in the market, the number of licensees has continued to grow. OLCC issued an additional 300+ producer licenses in 2018, bringing the total number to 1,110. There are also 1,141 additional producers awaiting licensure. With respect to retail, there are now 606 active dispensaries in the state, including 173 of them in the City of Portland alone. Although OLCC officially “paused” its review of all new applications submitted after June 15th, we don’t see the market becoming less competitive anytime soon.

The M&A market is also intense.

There are no readily available statistics on the number of purchases and sales of marijuana businesses statewide. Anecdotally though, the amount of this activity coming through our office is remarkable. In the past 12 months, we have handled more cannabis business mergers and acquisitions than we ever could have predicted. These transactions range from people giving up failed businesses for a song, to leading local brands joining forces, to the seemingly never-ending stream of reverse mergers and acquisitions involving Canadian public companies. Although Oregon is no longer the only state to allow non-resident ownership, we don’t see a slowdown in this type of activity anytime soon. Expect Oregon to remain a buyer’s market in 2019.

The rules are pretty settled…

Oregon’s statutory changes and administrative rules didn’t change radically in 2018– at least compared to the past few years. OLCC continues to work around the edges, as with the recent push to end the alternating proprietor arrangement and to tighten up the definition on banned “added substances” in finished products. Overall, though, much of the legislative and agency efforts were centered on black market eradication and on building out the industrial hemp program. We applaud both of those efforts.

… But people keep stepping in it.

If the leading 2018 activity for our Portland marijuana business lawyers was buying and selling businesses, dealing with administrative violations was a close second. OLCC has stepped up its efforts program-wide in this manner: It begins with application scrutiny and extends through notices of violation against licensed operators. Certain violations are unfortunately common. Those include “financial interest” violations (yes, lenders must be disclosed), unapproved site changes, camera issues and manifest issues. We are seeing the same types of things, over and over, from companies large and small. Although many of these matters can be settled, they require extreme care and attention, and are best avoided through vigilant compliance.

People are suing each other.

We mentioned litigation last year, and this year is no different. Some of these disputes stem from business failure, undocumented transactions or deals gone south. We still come across the odd con job. There are also more exotic matters like RICO lawsuits and nuisance battles between marijuana and hemp farms. As long as the industry continues to evolve at its current rapid pace, we expect to see more litigation than in other commodities markets.

Hemp just keeps getting bigger.

This has been another big practice area for our office. Industrial hemp demand skyrocketed in 2018 with the CBD craze. Many Oregon farms and processors capitalized, with the number of Oregon Department of Agriculture (ODA) growers rapidly expanding from 233 to 568. As compared to OLCC licensing, acquiring a hemp grower’s or handler’s registration from the ODA is fast and easy, and restrictions on sale are far less cumbersome. Now that hemp is legal nationwide, we only expect this trend to continue into 2019.

oregon cannabis license marijuanaRunning a cannabis business is difficult and many people fail. There are a myriad of reasons why these ventures bottom out, although owners tend to blame federal law issues first of all. It’s true that federal law creates a tough environment for cannabis businesses (banking issues, tax issues, branding issues, etc.), but federal prohibition also kept big money sidelined at first, giving small business a real head start. My personal view, after seeing many spectacular business failures and slow motion crashes over the past several years, is that most are some combination of the following: 1) a challenging legal and regulatory environment, 2) saturated markets, and 3) operator error.

A start-up cannabis business cannot control the first two items listed above, but should be able to navigate them. The third item is a different animal. Margin of error tends to be slim for most new ventures, and self-inflicted wounds are difficult to overcome. This blog post covers the five biggest mistakes we continue to see in early stage Oregon cannabis business, and gives suggestions to avoid them.

  1. Failure to properly estimate license transition timelines

Because the Oregon Liquor Control Commission (OLCC) “paused” review of applications submitted after June 15, 2018, most new market entrants are buying their way in through asset or stock sales from existing licensees. The OLCC has a small and overtasked team of change-in-ownership investigators who work with both buyers and sellers on these transactions. Recently, agency higher-ups have advised us that these changes can still happen in as quickly as four to six weeks. However, that almost never occurs. Four to six months seems more common.

Even a non-cannabis business sale can be delayed by many things, from diligence issues to lease negotiations to ironing out terms in final agreements. In the Oregon cannabis industry, administrative vetting and disclosure requirements must be added to that list. Delays are almost always on the buyer side, stemming from initial business structuring, filling out OLCC business structure and individual history forms, submitting fingerprints, etc. Buyers should create realistic timelines to avoid hemorrhaging cash during this phase, and should strongly consider working with someone who has navigated the change-in-ownership process before. It’s a singular process and there is definitely some art to it.

  1. Paying lawyers to expedite your OLCC application

This is a bad idea, but many people do it. Whether for new applications (pretty straightforward) or change-in-ownership (harder) many new businesses spend significant money on lawyers to guide them through the application process. Our Portland office philosophy has always been not to blow through client retainers on ministerial work: We want people to succeed so we can work with them for years. For that reason, we have trained licensing paralegals who push these applications through efficiently and expertly. Attorneys only come in for unusual situations. The bottom line here is that new businesses should save their legal budgets for work that cannot be done by non-lawyers.

  1. Starry-eyed forecasting

You are not going to sell your marijuana for $2,000 a pound in Oregon. Forget it. You also do not have a strain of marijuana that you will patent and license one day to big pharma. You are not the only person trying to run down hemp for distillate, and, closer to home, you should not budget a six-figure salary for yourself or anyone else in the early stage. Although the market challenges have been well publicized, too many people believe that an OLCC marijuana license is tantamount to a license to print money. It’s not. All of this means that it is crucial to dial in your research and expectations before starting out – especially if you are taking on investment and the legal risk attached to that.

  1. Employment issues

For whatever reason, employment practices are often subpar with cannabis businesses. There are a couple of important things to note here. The first is that employee actions, even if unauthorized, can lead to license revocation in Oregon. This means you must ensure your employees are well versed in compliance, and you have to watch them. The second thing to note is employment law is complex and seems to change as often as cannabis licensing rules. We have a host of new employer requirements coming online January 1, 2019 in Oregon, for example. Whenever there is a dispute, courts and administrative bodies tend to favor employees, so it’s important to keep your team in order.

  1. Bad (or no) business agreements

You do not need a tall stack of complex documents to start a cannabis business. You do need the basics, though, and those agreements should be solid. If you are renting property, get a tailored industry lease. If you are organizing an LLC, get an operating agreement that covers matters important to your business, such as management, distributions, protocol for when someone jeopardizes the OLCC license, etc. Or, if you have a white label agreement, ensure that all processes and intellectual property ownership are delineated. The list goes on.

Starting a business can be expensive, and people tend to skim on legal. But nearly all of the cannabis litigation matters my firm is currently handling stem from defective contracts, and from people operating informally in that sense. Reasonably tailored contracts should be a part of any new business plan, and they should not break the bank. These contracts will set both guidelines and expectations for the business, and they operate like insurance when things go wrong.

Oregon psilocybin psychedelic mushrooms

Back in August, I covered the landmark Food and Drug Administration (FDA) drug trial approval for psilocybin, the naturally occurring, psychedelic ingredient found in around 200 species of mushrooms. I speculated that if everything goes well, we could see an approved psilocybin drug hit the market sometime in the next 5 to 10 years. I also mentioned that it’s possible that psilocybin could be legalized in certain states before that, including Oregon. Last month that came one step closer to happening, when Oregon Attorney General approved ballot measure language to legalize psilocybin statewide.

Initiative Petition 2020-12 (the “Initiative”) can be found here, and a link to the Official PSI 2020 Campaign Website can be found here. If you just want to see a summary of the Initiative ballot title as it would appear in 2020, though, we’ve got you covered:

Currently, federal/state law prohibits the manufacture, delivery, and possession of psilocybin (hallucinogen from fungus). Initiative amends state law to reduce most criminal penalties for unlawful/unlicensed psilocybin manufacture, delivery, possession to violations or misdemeanors; retains felonies for large weight of psilocybin and/or some convicted felons. Initiative amends state law to require Oregon Health Authority (OHA) to establish Oregon Psilocybin Services Program to allow licensed/regulated production, processing, delivery, possession of psilocybin, and administration of “psilocybin service” (defined) by licensed “facilitator” (defined) to “qualified client” (defined). Grants OHA authority to implement, administer, and enforce program. Establishes fund for program administration and OHA appointed advisory board to advise OHA director. Preempts local laws inconsistent with program except “reasonable regulations” (defined). Other provisions.

That’s a fair bit to digest, but if you’ve been around this stuff for a while you might observe that the Initiative offers a structure similar to Oregon’s early-stage medical marijuana program. That program also: 1) was borne of an initiative back in 1998; 2) was solely administered by OHA (through its predecessor); 3) reduced criminal penalties, and 4) created a doctor-patient-caregiver program similar to the facilitator-client concept on offer for psilocybin. It appears that the Initiative’s chief petitioners are wisely working off the model.

The steep and imminent challenge for the petitioners is the requirement to gather 140,000 signatures over the next 18 months in order to get the Initiative onto the ballot. If that somehow happens, an even steeper challenge will be convincing 51% of everybody to vote “Yes” to legalizing psilocybin. All in all, it feels like a bit much, even for Oregon. Our guess is that the signatures hurdle will sink the initiative, as recently occurred with a similar effort in California.

Still, you never know. Oregon can boast a history of progressive action on controlled substances, dating back to 1973 when it became the first state to decriminalize possession of small amounts of cannabis. That action was taken against the strong headwinds of the recently enacted federal Controlled Substances Act. Today, the zeitgeist is quite a bit different.

If you want to get involved in legalizing psilocybin in Oregon, the landing page for volunteers is here. Otherwise, we will keep you posted on any major developments as they arise.

oregon marijuana cannabis clackamas deschutes We always talk about the cannabis industry being dynamic. That’s true from a markets perspective and it’s true from a regulatory point of view. When it comes to regulations in particular, industry observers tend to focus on the big picture developments: e.g., whether marijuana will finally be re- or de-scheduled at the federal level, whether we will get a farm bill legalizing industrial hemp nationwide, or which new states have legalized cannabis. Those broad issues deservedly get a lot of press. However, marijuana business owners are often more concerned about what is going on locally, at the city or county level. In fact, most cannabis business owners get more passionate about proposed changes to local regulations than proposed state- or even federal law developments.

My law firm has worked with regulated cannabis business in Oregon, Washington and California since 2010. I suspect that none of our cannabis business lawyers support extensive local regulation of marijuana (let alone local licensing programs). Because states tend to promulgate extensive regulatory structures, local rules tend to be duplicative and controversial once you get beyond basic land use concepts. That said, cities and counties are often pressed by their citizens to regulate cannabis businesses, and state governments give ample regulatory authority to local jurisdictions– often including the choice to “opt out” of industry participation altogether.

When localities do regulate cannabis, the process is often iterative, meaning rules are adopted and amended over time. Sometimes the changes accrue in response to changes in state law; sometimes they are in response to litigation; sometimes they are needed when current rules are failing; and sometimes the local population just changes its opinion about cannabis businesses altogether (usually, for the better).

We continue to see cities and counties modify their rules in Oregon. Below is a brief encapsulation of what is going on around the state today, based on client projects. This list is probably not exhaustive, so if you have updates on what is going on in your area, we’d love to hear from you.

Clackamas County

Clackamas County is home to 220 cannabis licenses by our count, making it home to over 10% of OLCC licensees and the fourth largest cannabis county statewide. We have been a part of most rulemaking processes on offer at the County, from the original implementation of Measure 91 to the reversal of the ban on cannabis processing. Recently, Clackamas County proposed to modify its rules yet again, by limiting the availability of production on certain lots. The relevant Planning Commission hearing was held last night, and the Board of Commissioners will hold a public hearing on the proposed license limits on January 16. The amendments, if approved, would limit continguous lots of record under the same ownership to one OLCC producer license, or one medical marijuana (OHA) grow site. The change would apply only to lots zoned as Ag/Forest, Exclusive Farm Use, and Timber. Current OLCC producer licenses existing on contiguous lots in these zones would be grandfathered. The proposed revised regulations are here, and an FAQ is here. There is still plenty of time to submit comments.

Josephine County

Anyone familiar with the Oregon marijuana industry knows that Josephine County has had a rough time in its efforts to regulate cannabis. The County has suffered several consecutive legal setbacks, but apparently is pushing forward with a new effort to limit OLCC marijuana activities on “rural residential” zoned properties. The Board of Commissioners most recently held a land use hearing on November 7, with a first reading of the proposed new ordinance. No word yet on next steps, but it appears that the County is going through the proper public notice requirements this time, and fortunately the current ordinance draft includes grandfathering rights for current licensees (“non-conforming use” application options).

Deschutes County

Deschutes County Ordinance 2018-012 took effect on Friday. The new regulations reduced the available County acreage for cannabis by 17%, mostly by prohibiting marijuana production and processing in the multiple use agricultural (MUA) zone. The ordinance contains many other provisions as well, from new setback requirements to noise and odor mitigation rules. Although Ordinance 2018-012 is now in effect, we are including Deschutes County here because an appeal of this ordinance was filed with the Oregon Land Use Board of Appeals a few weeks back. The appeal means that these regulations are in flux to some extent, and will not be affirmed or rejected for several months.

New Oregon cities 

Last month, we covered the industry-friendly reversals of Ontario, Klamath Falls, Clatskanie and Sumpter, a quartet of cities scattered about the state which initially prohibited cannabis but are now opening their borders to OLCC licensed businesses. It now appears that the cities of Gates and Joseph may have “legalized” as well. For information on Ontario rulemaking, go here. For information on the Klamath Falls process, go here. We do not yet have information on the remaining four cities, but interested parties should reach out to those City Councils to gauge plans for rulemaking in the newly green jurisdictions.

cannabis business contractsYou can spend a lot of money on lawyers, accountants and consultants when starting a cannabis business. There is so much ground to cover from concept to execution– especially in a complex and highly regulated industry. Related to this issue, we have written on this blog about finding a team, and we have talked about the importance of things like operating formally, staying away from generic agreements and avoiding the seemingly bottomless pit of industry scams and schemes.

Today’s blog post will cover which documents are really necessary when structuring a cannabis business, and what you may be able to do without— at least in the beginning. Note that these are general guidelines. They are not intended to serve as legal advice and every business should use its best judgment and consult with counsel on these items.

  1. Stuff you cannot do without

Articles of Incorporation or Organization

This is very basic, but you cannot have a company unless the entity has been duly registered with the relevant Secretary of State. These days, most filings in most states can be done online, although there are situations where online filings are a bad idea, like when you want to do anything nonstandard with your Articles of Incorporation (for a corporation) or Articles of Organization (for an LLC). Those situations arise somewhat frequently. For example, you may want specific indemnity provisions for your board of directors beyond what the statutes contemplate. Or you may need to outline the attributes of preferred stock your corporation plans to issue. Many state registration portals do not allow “check the box” options for this type of tailored structuring. Get a solid cannabis business lawyer to help.

Internal Governance Agreements

If you have registered a multi-member LLC, it is a bad idea to proceed without an operating agreement and without an initial set of consent resolutions. The operating agreement in particular is going to define the spectrum of voting and economic rights each member has in the company, as well as crucial operational concepts. These concepts include non-industry specific matters (what happens when the company requires more capital?) to cannabis-specific matters (what happens when a member endangers the company’s state-issued license?).

In a corporation, you are going to have a few more agreements to start. Of these, bylaws and initial consent resolutions cannot be skipped. You will also need a shareholder agreement in most instances, and you will need to issue shares to owners (certificated or uncertificated). Other items, like a voting agreement, proxy agreements, etc., may be less important for some companies and you can often skip these to start.

Lease Agreement

Even if one of the cannabis business owners also owns the real estate at issue, you are going to need an industry-specific lease. A well drafted lease will insulate the property and its owners from liability if the cannabis business fails, or finds itself in litigation. When your business is leasing from a perfect stranger, the lease becomes even more important to outline the basic terms of the landlord-tenant relationship, on everything from your rights to occupy the property, to your rights to make modifications required to obtain a license.

Employee Handbook

If you have even one employee in your new business, get a handbook together. These internal business documents serve as a key communication tool between a business and its employees. A good handbook will set forth guidelines and expectations for workers, and perhaps most importantly, it can give a broad array of legal protections to business owners, as we previously explained here.

Third-Party Agreements

If your brand new cannabis business is doing a business transaction with a third party (some frequent, early examples include loans and services agreements) make sure you have adequately papered those items. Not memorializing a business or financial relationship in writing is asking for trouble.

  1. Stuff you can probably skip (for now)

Employment Agreements

Today, all states recognize at-will employment, with various limitations. This means that a written employment agreement is not needed (or even desirable) for many types of employees. An exception may be where the employee is occupying a highly specialized or highly compensated position, or has rights to vest in ownership. But if all you are worried about is an employee having access to proprietary information, you can generally cover this in an employee handbook, or through a simple non-disclosure agreement.

Stock Purchase Agreement

Lots of cannabis businesses try to raise capital shortly after formation, or as they approach licensure. They do this by selling stock or another form of ownership in the company. In our experience, though, it’s often best to wait until the business understands exactly how much money it needs to raise, and from whom, before drafting a stock purchase agreement. In many cases funds are raised from just one or two targets, and it does not make sense to draft purchase agreements until terms have been negotiated, or even memorialized in a letter of intent or other term sheet with prospective purchasers.

Business Plan

It’s a great idea to have a business plan, but not to pay a lawyer or consultant thousands of dollars to draft this for you. There is enough publicly available information out there for anyone to put together his or her own marijuana business plan these days; and you will know more than anyone you could hire about your goals. Even if you are unsure about some of the concepts at first, doing the research needed to put this document together will go a long way in educating and setting yourself up for success.


It’s easy to get lost when starting a business, and to rack up costs on unnecessary items, or items that are less important in the near term. Focus on the basics to start, and enlist a knowledgeable cannabis business attorney to get you off the ground. The lawyer should be able to provide you estimates for basic services, and allow you to focus mostly on what matters most– running a successful cannabis industry business.