oregon marijuana cannabis subsidyRecently, there has been some talk here in Oregon that the state is not doing enough to support licensed cannabis businesses economically. These businesses generated more than $70 million in state tax revenue in FY 2017, after all. Although that revenue does not yet approach the combined $373 million in average annual revenue for beer, wine and spirits (combined), it appears to be closing the gap quickly, despite no option for interstate sales.

Comparing marijuana and alcohol receipts in Oregon is an awkward proposition, given the fact that Oregon marijuana revenues are collected through sales tax, whereas beer and wine vendors pay the state an excise tax, and liquor is distributed and sold by the state itself. At the end of the day, though, the economic impact of regulated cannabis will continue to gain on–and eat into–the alcohol economy, both in Oregon and nationwide. That is especially true if we factor in industrial hemp.

So what is the state doing to subsidize cannabis businesses in Oregon? Not much. The state did pass House Bill 4014 a few years back, which allows cannabis establishments to deduct business expenses allowable under the federal tax code when filing state returns; but that modest gesture pales in comparison to the institutional support given to craft beer and wine. Specifically, here are a few of the ways the wine industry is supported and subsidized by the state of Oregon:

  • The state created the Oregon Wine Board (OWB) to promote development of the wine industry within the state, and coordinate both domestic and report marketing efforts for the industry. OWB receives administrative support from the Oregon Department of Consumer and Business Services, and spends around $2.2 million annually on promoting the Oregon industry.
  • The state created the Oregon Wine Research Institute, housed at Oregon State University, to support Oregon grape growing and wine production.
  • Oregon statutes offer a tax exemption for the first 40,000 gallons, or 151,000 liters, of wine sold annually by any producer in Oregon, which effectively exempts 90% of them from paying any state excise tax.
  • The state offers grants for vineyards in an effort to increase tourism, as well as OWB grants related to viticulture and enology.
  • Oregon winery license fees are paltry compared to cannabis license fees. (Both licenses are issued and billed through the Oregon Liquor Control Commission.)

The above list is not exhaustive: It represents about five minutes of Google research. And at first glance, the favoritism shown to alcohol by the state feels unfair: As with the local wine industry, the Oregon cannabis industry has a world-renowned product, crowned with distinctive appellations. So why doesn’t the state do much for cannabis, aside from fulfilling its democratic mandate to roll out the program, and defending that program from the feds?

There are probably several factors at play:

  • “Marijuana” remains a Schedule I controlled substance at the federal level. While states may see a path forward to licensing cannabis businesses under the Tenth Amendment (see here and here), actually using public dollars to support specific businesses may feel like a bridge too far.
  • More people oppose the cannabis industry than the alcohol industry, so subsidies would likely face strong pushback from a vocal segment of the population.
  • Many of the Oregon wine subsidies listed above were enacted in periods of greater budget stability for the state, back when timber revenues and related federal subsidies were a real thing, and the state pension system was not $22 billion in the hole. Today, those alcohol subsidies are entrenched (although recent efforts at further subsidies have failed.)
  • The Oregon cannabis lobbies are smaller than alcohol lobbies.
  • The creation of a cannabis regulatory regime has been a heavy legislative lift over the past few years here in Oregon, crowding out other conversations related to cannabis.

With all of that said, Oregon could probably do more for the cannabis industry, and it could be more creative. California has at least explored the idea of a state-chartered bank. Along those lines, Washington has helped its legal businesses to open bank accounts, and Hawaii has announced a cashless system for buying medical marijuana. None of these actions are subsidies, but they do make business operations easier and they ultimately contribute to economic efficiency.

Other jurisdictions have gone even further. Colorado, for example, has had a research grant program going back to 2014. And certain cities, like Oakland and San Francisco, have offered bona fide, traditional subsidies like free rent and incubator programs for select marijuana entrepreneurs. So it is possible to funnel public funding into cannabis businesses — at least certain types of businesses, in certain cases.

Oregon will kick off another legislative session in early 2019. Most likely, the state will discuss important regulatory issues, like our U.S. Attorney’s concern with oversupply, alongside the usual re-tread items, like social consumption and event permits. Although these new business permissions would be marginally helpful, hopefully there is also room for discussion on how the state can support its regulated cannabis industry more directly, as it does with alcohol. Then, when federal prohibition ends in a couple of years, we will want it looking something like this.

WSLCB cannabis marijuana
The WSLCB approach is not working so well.

The Washington State Liquor and Cannabis Board (WSLCB) may finally be noticing that its current treatment of “true party of interest” violations is neither just nor sustainable. During an extended conversation at its monthly executive management team meeting in June, the WSLCB discussed potentially adopting a hidden ownership amnesty program. Basically, any existing businesses that had mistakenly created a true party of interest relationship would have a limited time to come forward and declare any owners or other true parties of interest in licensed marijuana businesses that had not been disclosed and vetted in the past. The licensee would then be able to get the person vetted, though some penalty other than license cancellation would potentially still be on the table.

The details are not set, and the WSLCB executive team is going to continue meeting and discussing the issue over the coming months. For those licensees in the middle of investigations or regulatory hearings with the WSLCB, there’s not much hope to pull from this. Even if the WSLCB moved with lightning speed to adopt something, the agency was clear that it would not avail anyone currently undergoing a formal investigation or violation hearing.

That the WSLCB is discussing the topic of leniency at all indicates that they are cognizant of problems with current regulations and enforcement, though their idea of an amnesty or leniency program won’t do anything to solve the underlying issues. The foremost issue right now is that the timing of getting financing approved doesn’t work. The WSLCB currently demands that all money contributed to a licensed business be approved prior to it being spent on behalf of the business. The approval process for capital can take months, even if the capital contributors have already been approved as owners or financiers of the business in the past. But the types of emergencies that require short-term capital infusions tend not to wait months for regulators to approve. Businesses are forced to violate a rule by either having current owners contribute new capital or having outsiders provide financing prior to getting WSLCB approval.

There are plenty of solutions to the financier predicament that the WSLCB could adopt. They could allow for after-the-fact vetting of certain types of loans. They could modernize and streamline their financial approval process. They could keep the exact same system and just hire more people so that new funds could get investigated and cleared immediately. Any move to temporarily allow for relaxed penalties for regulatory violators to come forward isn’t necessarily a bad thing, but the same problem will continue again and again. Academically speaking, the WSLCB is applying an over-inclusive rule to business actions that range from willfully criminal to entirely benign. This over-inclusive application of the law “makes regulatory unreasonableness not an occasional weakness but a pervasive problem.”[1]

[1] Quote is from the first full paragraph on page 40 of this linked article — the WSLCB should read it and redesign their enforcement structure.

The WSLCB’s current investigative and enforcement strategy feels targeted at unlucky businesses that have made mistakes. This is part of why their trigger-happy nature regarding license cancellation is so frustrating. Two of the cancellation cases that my law firm is currently working on have come because of voluntary disclosure of information by a licensee. There certainly are bad actors in the marijuana industry that are intentionally defrauding the WSCLB and may well have ties to organized crime, but the WSLCB seems to leave those businesses alone. It is tough, challenging work to investigate illegal activity when the actors are working hard to cover up the illegal activity. It is much easier to go after the low-hanging fruit of licensees that are fully transparent about their activities.

Fundamentally, the WSLCB underestimates the deterrent effect of large monetary fines and underestimates the huge collateral damage that business shutdowns can create. If the WSLCB wants to create real compliance, it is going to need to make some more drastic changes than temporary amnesty/leniency programs.

washington cannabis LCB
More crucial than ever for Washington operators.

We have represented clients in regulatory violation cases inside and outside the cannabis industry for years. Of all the jurisdictions in which we work, the Washington State Liquor and Cannabis Board in 2018 is unique in its eagerness shut down businesses. In case after case against licensed producers and processors, the WSLCB seems determined to seek violations that could lead to license cancellation and is generally refusing to offer alternative penalties. Because so many of these cases are still pending, it is hard to go into too much detail, but the WSLCB’s actions in these cases indicate a desire to cull the number of licensed producer/processors.

For those producer/processors in Washington that aren’t currently being investigated for regulatory violations, the WSLCB’s current policy generates mixed reactions. When licenses were available for application in November and December 2013, thousands of businesses applied for the right to cultivate and process marijuana. As the market as matured, wholesale prices of marijuana have continued to fall, and the ability of licensees to maximize production has continued to increase. There is so much marijuana available on the market right now that it is hard for producer/processors to compete. Just having a license isn’t enough to run a profitable business, and many of the top performing producer/processors in the state are not generating the profits that most outsiders would assume.

At the same time, the types of violations that can cause the WSLCB to cancel a license and shut down a business are surprisingly easy to commit, even for dedicated compliant businesses. For example, let’s say that a licensed producer/processor has an unexpected bad month and doesn’t have enough money in the bank to make payroll. There isn’t any way for a licensee to get expedited approval of a cash infusion from the business’s owners If those owners contribute more of their own money before getting that approval, though, the WSLCB will still cancel the licenses. Or let’s say that a licensee enters into a licensing deal to manufacture branded products developed by another company. If the contract for that deal includes any terms that the WSLCB determines allow the licensor to exert too much control, they will cancel the license.

License cancellation is not innocuous. Marijuana business regulations bar a company from using a licensed location for business other than marijuana operations. Therefore, any type of license cancellation is really a death penalty for the business itself. These businesses employ anywhere between a few individuals and more than fifty people. Many of the employees are not the most employable in other industries either; legal cannabis jobs are the only thing standing between them and poverty.

And this is where it is clear that the WSLCB’s primary goal in cancelling licenses has to be to reduce the number of active licenses overall. Even in cases where the owner that is the “cause” of the regulatory violation has offered to transfer ownership interest in the business to a third party, the WSLCB still seems determined to cancel the licenses. They don’t seem to consider the effect that license cancellation has on innocent employees, landlords, investors, and contracting parties.

If you’re a licensed producer/processor in Washington (retailers seem to get more leeway), there’s not much you can do about this in the short term other than to stay compliant. There are certainly strategic alternatives that could engender better compliance among licensees, but it isn’t clear that compliance is the WSLCB’s current primary goal. Until the WSLCB starts accepting alternative penalties for certain seemingly innocuous violations for which they are authorized to cancel licenses, though, licensees will not receive the benefit of the doubt from the WSLCB. The correct attitude to take is that the regulators do not want you to have a license to engage in marijuana business activities, and they will do everything in their power to take it away.

marijuana cannabis oregon initiative
The goal of your ballot initiative is to get to a vote.

Oregon successfully legalized the use, sale, processing, and production of recreational marijuana in 2014 through the initiative process. The initiative process is a method of direct democracy that allows people to propose laws outside of the normal legislative process. Oregon’s marijuana statute (ORS 475B) allows cities and counties to “opt-out” of commercial recreational marijuana. In other words, cities and counties do not have to allow for the sale, processing, or producing of marijuana within their jurisdictional borders. ORS 475B, as originally written, allowed cities and counties to automatically opt-out if registered voters in the jurisdiction voted at least 55% against the legalization. All other cities or counties could either create reasonable time, place, and manner restrictions for marijuana businesses or could put up an opt-out vote to the public at the next general election.

Many cities and counties chose to opt-out from legalized recreational marijuana. In these jurisdictions, citizens can still use and possess marijuana, but licensed recreational businesses are not allowed to operate in jurisdictions that opted-out. Still, citizens can use the initiative process to change these local laws. The initiative process allows for citizens to propose a city or county ordinance allowing Oregon Liquor Control Commission (OLCC) licensed marijuana businesses within the jurisdiction. We have expertise in navigating this process and we are, in fact, running one initiative in an “opt out” jurisdiction right now.

The initiative process, much like many forms of our government, is overly complicated with a host of rules and technical requirements. It requires a lot of steps, careful planning, patience, and organization. Once an entrepreneur decides he or she wants to change the laws, the initiative process starts by filing a prospective petition with the local elections official. The prospective petition includes the language of the proposed ordinance. The language is an opportunity to develop a local ordinance that fulfills your goals and the citizens goals for licensed marijuana businesses.

After the prospective petition is submitted, the city or county will approve it for circulation. This is when the real work starts. Initiative petitions are not automatically guaranteed a spot on the ballot. Instead, initiative petitions must gather the support of the public to be included on the next election’s ballot. Almost all of us have been accosted by a circulator on the MAX or downtown in Portland asking if we are a registered voter and if we’ll sign the petition sheet to get a measure on the ballot. City initiative petitions require valid signatures from 15% of the registered voters in the city and County initiative petitions require 8% of registered voters.

If the local elections official determines enough valid signatures were received, the initiative will be referred to the local governing body. The local governing body has the option to adopt the petition without sending it to the ballot. They can also choose to allow the petition to be voted on in the next election. If it makes it onto the ballot, the initiative must receive a majority of approval from the voters to pass. If it receives a majority of votes, the initiative will be enacted as law.

Initiative petitions are one way to attempt to change local laws surrounding marijuana businesses. These petitions can be drafted in favor of their drafters, who may attempt to set themselves up for success once an initiative passes. Over the past few years, some citizens in Oregon have attempted and failed, while others have successfully changed local law to allow for recreational marijuana licensees. The process is long and complex, but the upside can be tremendous.

Tomorrow, June 5th, Californians will go to the polls and vote on a number of state and local races, along with tax measures and other proposed laws. Cannabis will play a large role in many of them.

In the gubernatorial primary race the two favorites, Lt. Governor Gavin Newsom and former Los Angeles Mayor Antonio Villaraigosa, are both Democrats and they both support the cannabis industry and social justice reforms to right the drug wars’ wrongs. California Treasurer John Chiang is also running for governor and he has made increasing banking opportunities (which we covered here) for cannabis businesses one of his most pressing goals. Even if Mr. Chiang doesn’t win, we hope he continues making progress on this front as lack of access to banking severely hampers cannabis business owners and needlessly creates a danger to public safety. The Republican candidates for governor, John Cox and Travis Allen, hold the same traditional shortsighted and draconian Republican position: cannabis is bad, lock everyone up. To quote the current eloquent speaker in the White House: SAD! Although both Republican candidates are longshots to make the statewide election in November, one of them could get lucky if the Democratic favorites split a large number of votes. That’s because California has an open primary system with the top two vote getters, regardless of party affiliation, moving on to the November election.

Keep the momentum going, California!

Making sure the top two gubernatorial candidates support the cannabis industry and social justice reforms is extremely important but there also a number of other races and measures to keep an eye on tomorrow:

  • Republican Congressman Dana Rohrabacher faces what looks like a tough race as he’s being challenged by a Republican and a Democrat. Mr. Rohrabacher is one of the biggest Republican supporters of the cannabis industry (If you’ve never heard of the Rohrabacher-Blumenaur amendment, we covered that for you here.) The best-case scenario is that Mr. Rohrabacher and one of the Democratic candidates receive the most votes. Worst-case scenario is that Mr. Rohrabacher and the other Republican candidate, Scott Baugh, move on the November election and Mr. Baugh wins. Mr. Baugh has chastised Mr. Rohrabacher’s support of the cannabis industry, so a Baugh-Blumenaur collaboration is highly unlikely.
  • Residents of the Southern California City of Jurupa Valley will vote on whether to allow commercial cannabis activities in certain commercial zones.
  • Ballot Measure CC in the City of Pasadena would authorize up to six retailers, four cultivators, and four testing laboratories to operate in the City. There will also be a cannabis tax measure on the ballot.
  • The City of San Rafael, which we recently covered in our California Cannabis Countdown series, will also place a tax measure on its ballot. Measure G would authorize the City to tax cannabis business up to 8%.
  • There’s also a tax measure on the County of Santa Barbara’s ballot, however Measure T’s passage carries more than just tax consequences – if Measure T fails then the cannabis ordinance passed by the Board of Supervisors that would allow commercial cannabis activities will not go into effect.
  • The County of San Luis Obispo will also put forth a tax measure on its ballot and just as in Santa Barbary County, if the tax measure doesn’t pass then commercial cannabis businesses will not be able to operate in SLO County.
  • Yolo County is proposing a tax measure that would place an initial four percent (4%) cultivation tax and an initial five percent (5%) tax on all other cannabis businesses.

There are other marijuana related measures that will be on ballots throughout California this Tuesday and it’s extremely important for current cannabis business owners, future entrepreneurs, and cannabis industry supporters to pay close attention to the language of the ballot measures–especially tax measures tied to the enactment of cannabis ordinances–and the cannabis positions on those running for elected office. The cannabis industry has made great strides recently and now is not the time to let up. Get out there on Tuesday and vote!

Last week I wrote about how the United States is close to approaching the tipping point when it comes to ending the federal government’s prohibition on cannabis. Legalization is long overdue. And just this week, U.S. Attorney General Jeff Sessions, while testifying before the U.S. Senate, surprisingly said that cannabis should be researched and that there may be some benefits to medical marijuana. We’ll take a lukewarm comment from the man that said “good people don’t smoke marijuana” and take that to the bank. Which brings me to the topic of today’s post, banking (a transition as smooth as my middle school dance moves).

california cannabis banking
Will California clear a way for banking?

It’s no secret that many cannabis operators have to operate as cash only businesses since many financial institutions still refuse to offer banking services to the cannabis sector (which has led to an increase in interest in cryptocurrencies). In California, many banking institutions that were considering openly banking cannabis businesses decided to remain on the sidelines once A.G. Sessions rescinded the Cole Memo this January. However, like the slow but forceful gravitational pull of the moon, we’re starting to see tide shift towards more banking opportunities on the horizon.

Part of the shift has to do with fact that the cannabis licensing agencies in California (the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health) will start issuing annual licenses in May. To date, all of these agencies have only issued temporary permits, which required little more than a local permit, a location, and a premises diagram. The application for an annual license requires much greater detail. Although some applicants may balk at the amount of information they must provide, the fact intensive nature of the application process will undoubtedly help cannabis operators obtain banking services. A cannabis business owner that has received an annual permit from the state, can use that permit as a stamp of approval when walking into a bank to open an account. Possession of an annual license will signify to banks that you’ve passed a background investigation and proven to the state that you have the procedures in place to run a compliant cannabis business. Don’t lose sight of that fact as you’re cursing all the hoops you’re jumping through.

Another step in the right direction when it comes to opening banking services to the cannabis industry is the progress of Senate Bill 930 in the California state legislature. SB 930 was first introduced by State Sen. Robert Hertzberg (D-Van Nuys) on January 25, 2018, and was approved by the Governance and Finance Committee last Wednesday. SB 930 would provide for the licensure and regulation of cannabis limited charter banks and credit unions whose sole purpose would be to provide banking services to the cannabis industry. SB 930 is more workable and has a stronger likelihood of success than the prospect of a state backed bank, which we last discussed here.

In order for SB 930 to be successful, it is paramount that the FinCEN guidance issued by the Department of Treasury remain in place (see here for the importance of the FinCEN guidance). The bill would also create the Cannabis Limited Charter Advisory Board (“Board”) that would hold public hearings, submit reports of enforcement activities, and provide guidance on specified investment activities. The Board will be comprised of the state Treasurer (you can find our analysis of the Treasurer’s banking report, here), the state Controller, and Chief of the Bureau of Cannabis Control. SB 930 would also authorize charter banks and credit unions to issue special purpose checks for the following:

  • To pay fees or taxes to the state or local jurisdiction;
  • To pay rent on property that is associated with the account holder’s cannabis business; and
  • To pay a vendor that is located in California for expenses related to goods and services associated with the account holder’s cannabis business.

SB 930 will still have to clear some procedural hurdles before it’s in front of the full Senate for a vote, but this is definitely another step in the right direction to ease the logistical burden – and enormous public safety concern – that dealing in all cash poses on cannabis businesses. SB 930 is yet another piece in the fight against the federal government’s unjust war on cannabis. Eventually the final blow will have to come from the federal government, but in the interim California, along with many other states, will continue to lead the way.

sonoma california cannabis
Will Sonoma stay green?

In 1996 Californians voted for the Compassionate Use Act (aka Prop 215), but more than twenty years later Californians are still fighting for their cannabis rights. One of the biggest misconceptions out there is that the entire state of California is open to cannabis businesses. Our San Francisco and Los Angeles offices field calls from new clients every week looking to start a cannabis business but on many occasions, I have to crush their business plans before they can even get started. It’s not that their business plan isn’t sound, it’s that their business is prohibited in the city or county where they wish to operate.

These bans exist because the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) explicitly authorizes local jurisdictions to regulate (or outright prohibit) as they see fit. This authority granted to local jurisdictions is just one of the reasons why commercial cannabis licensing has gotten off to a rocky start. After I tell the client that they can’t operate in Butte County, for example, the next question I usually get is “where can I operate?” If you’re a reader of our California Cannabis Countdown series, you’ll know that cannabis friendly jurisdictions do exist, but whether these locales will always remain open to cannabis is another question. There’s an unfortunate trend occurring throughout the state where local jurisdictions are passing laws authorizing commercial cannabis activities only to later change their minds. This brings me to Sonoma County.

Sonoma County would fall into the category of a cannabis friendly jurisdiction, as the County authorizes all seed to sale license types (for medical cannabis businesses anyway). However, recent events have put the County’s cannabis friendly tag in serious peril. There have been a number of high profile robberies (one of which was sadly fatal) of alleged cultivation grow houses, and cannabis opponents have been highlighting these robberies to press the County to make restrictive changes to its cannabis ordinance. The fact that the perpetrators were from out of state and came with the specific goal of targeting grow houses is also being used to further stoke fears. What the prohibitionists are not mentioning is that the houses that were targeted were not legally licensed cultivators, but instead were selected because they were suspected of being illegal grow houses. Licensed operators have security plans and security protocols, whereas illegal operators do not. This push to restrict cannabis activities in Sonoma is misguided as it will strengthen the black market and thereby increase crime. This small but vocal group of cannabis opponents have approached the Board of Supervisors and requested that the County:

  • Freeze issuing any cannabis permits until the County’s ordinance is amended;
  • Authorize only indoor cultivation, and ban all outdoor cultivation;
  • Restrict cultivation to only industrial zoned areas;
  • Place a cap on the number of cultivation permits based on the amount of cannabis necessary to supply only County residents;
  • Disband the Cannabis Advisory Group; and
  • Make these changes retroactive to apply to existing permit applicants.

If this vocal group of opponents is able to persuade the County’s Board of Supervisors to change the County’s cannabis ordinance to include these restrictive changes, the effect on operators who have spent extensive time and capital to abide by the law will be disastrous. Only those that have never been interested in complying will have benefited.

We’ve spoken at length about the importance of showing up to your local hearings and public support is needed now in Sonoma County now more than ever. We don’t want Sonoma to end up like Calaveras County. The Board of Supervisors are meeting this Tuesday at 1:30pm and the Sonoma County Growers Alliance is requesting that supporters come dressed in green. I hope to see you there wearing your St. Patrick’s Day best.

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

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

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

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.

As most everyone now knows California’s statewide licensing and regulatory regime for medical and adult-use cannabis businesses took effect on January 1st of this year. However what readers of our Canna Law Blog know is that every jurisdiction is free to decide whether to regulate or prohibit cannabis businesses within their border. It’s the state’s deference to cities and counties that make our California Cannabis Countdown series so popular. Not only are local jurisdictions regulating what types of cannabis businesses they’ll allow, but also WHO is eligible for a cannabis license.

california cannabis marijuana
Oakland and San Francisco are trying to even the balance.

In many of California’s major metropolises local legislators have made it a priority to enact social equity programs. The goal behind many of these social equity programs is clear: the war on drugs disproportionally affected communities of color and as a just society we need to right that wrong. In the Bay Area both Oakland and San Francisco have enacted legislation that stresses the importance of social equity programs.

We previously covered Oakland’s regulatory regime here but as a quick refresher Oakland’s ordinance requires that half of all cannabis businesses permits are issued to equity applicants. Oakland defines an equity applicant as an individual that:

  • Is an Oakland resident; and
  • Has an annual income at or less than 80% of Oakland’s average median income;
  • and either
  • Was arrested after November 05, 1996 and has a cannabis conviction in Oakland, or;
  • Has lived for 10 of the last 20 years in a number of police beats

After equity applicants, Oakland’s licensing regime gives priority to general applicants that are equity incubators. In order to serve as an equity incubator a general applicant must provide the following:

  • Providing free rent for a minimum of three years;
  • Provide a minimum of 1,000 square feet to the equity applicant; and
  • Provide the equity applicant with all required security measures.

Oakland has also realized that just providing priority processing to equity applicants alone is not enough to combat a history of disproportionate targeting of communities of color for criminal law enforcement. Oakland will also be hosting cannabis summits, orientations, and bootcamps for equity applicants. They’ve also created an online portal for equity applicants to connect with incubation partners.

San Francisco, like Oakland, has also created an equity program but has also taken the extra step by placing restrictions on who can apply for a cannabis business license. In 2018, San Francisco’s Office of Cannabis (“Office”) will only issue cannabis licenses to applicants that meet one of following criteria:

  • Qualify as an equity applicant or equity incubator;
  • Previously possess a valid medical dispensary permit under Article 33 of the Health Code;
  • Were issued a temporary cannabis business permit by the Office of Cannabis (which required you to register with the Office and show proof of operation prior to September 26, 2017);
  • Demonstrate compliance with the Compassion Use Act of 1996 (a/k/a Prop 215) and were shut down by federal prosecution or threat of federal prosecution;
  • Applied and received approval for a medical cannabis dispensary from the Planning Commission; or
  • Registered with the Office as pre-existing non-conforming operator.

On top of restricting the individuals that can obtain a license in 2018, San Francisco is placing an emphasis on social equity by granting equity applicants and equity incubators with priority processing in the permitting process. San Francisco’s equity applicant definition and incubator requirements differ from Oakland’s. In San Francisco an equity applicant is defined as someone that meets at least three of the following six conditions:

  • Meet certain household income limits (income limit varies depending on the number of people in your household);
  • Have been arrested from 1971 to 2016 for a cannabis offense;
  • Had a parent, sibling, or child arrested from 1971 to 2016 for a cannabis offense;
  • Lost housing in San Francisco after 1995 through eviction, foreclosure, or subsidy cancellation;
  • Attended school in the San Francisco Unified School District for a total of five years from 1971 to 2016; or
  • For a total of 5 years from 1971 to 2016, have lived in San Francisco census tracts where at least 17% of the households had incomes at or below the federal poverty level.

On top of those requirements there are also certain ownership interests and corporate positions that an equity applicant must hold in the cannabis business. If you want to operate a cannabis business in San Francisco in 2018 and don’t meet any of the criteria previously mentioned (prior operator or equity applicant) you’ll have to act as an equity incubator, which requires ALL of the following for three years:

  • Have local residents perform 30% of all work hours;
  • Have half your employees meet three of the six conditions for equity applicants; and
  • Provide a community investment plan with businesses and residents within 500 feet of your location.

And at least one of the following conditions:

  • Submit a plan to the Office of Cannabis for providing guidance to equity applicants running a new cannabis business; or
  • Provide an equity applicant with rent-free commercial space and use of security services for three years. The rent-free space has to equal or exceed 800 square feet or be at least 10% of the incubator’s space.

Both Oakland and San Francisco will be issuing progress reports on the status of their respective social equity programs and it will be interesting to see how many cannabis permits end up being issued. These are noble and necessary programs and we hope that they succeed. We’ll be sure to keep you posted.

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.