marijuana federal employment cannabis
Will the laws change for federal worker marijuana use?

Could the federal government protect the rights of federal employees to use marijuana in states where its legal?

Possibly. A bipartisan bill was introduced in Congress on July 28 proposing to protect federal employees’ personal and private use of marijuana in states where it is legal. Congressmen Charlie Crist (D-Fl) and Drew Ferguson (R-Ga) jointly introduced the “Fairness in Federal Drug Testing Under State Laws Act”, which would prohibit federal employers from denying employment or subjecting federal employees to adverse personnel action if they test positive for marijuana and live in a state where it is legal.

Today, because marijuana remains an illegal substance under the Controlled Substance Act, federal employees can be terminated or denied employment if they test positive for marijuana on a drug test (and many federal agencies require regular or periodic testing). The bill would not apply to individuals occupying or seeking positions requiring top-secret clearance (meaning, they could still be tested), and the bill would allow federal employers to terminate employees for being impaired at work.

The bill, while incredibly important for federal employees, could also significantly impact private employers in states with legal cannabis. A majority of states have some form of legal marijuana, either medical or recreational. However, many of those states still allow employers to terminate employees for off-work use of marijuana, even medical marijuana patients. Several states, including Oregon and California, have attempted to pass legislation protecting employees’ off-work marijuana use, but the bills have failed in committees or did not garner enough votes to pass. Thus, both Oregon and California currently have statutes and/or case law allowing employers to terminate employees for off-work use.

So why are the state proposals failing? One big reason is that they have not made exceptions for private employers who contract with the federal government. Private employers who contract with the federal government are required to have drug-free workplace policies in place—meaning they have to terminate employees for positive drug tests to maintain their federal contracts. If the Fairness in Federal Drug Testing law passes, it likely would extend to private employers contracting with the government. And if the federal law passes, states may have a clearer path to protecting off-work use.

It is also important to note that the state laws and cases permitting employers to terminate employees for off-work marijuana use rests on marijuana’s continued classification as a Schedule I controlled substance under the federal Controlled Substance Act. While the Fairness in Federal Drug Testing act would not change marijuana’s status as controlled substance, states would at least be able to rely on the federal government’s position that it will not fire employees for off-work use. It seems more likely that the states where marijuana is legal in some form would be successful in passing legislation protecting employees’ off-work use of marijuana.

It will certainly be interesting to see if the Fairness in Federal Drug Testing bill gains momentum in committee and in front of Congress. We will be sure to keep you posted for any movement on the bill after Congress returns from their August recess.

cannabis marijuana patent litigation

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

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

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

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

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

For more on cannabis patents, see our series here:

At the end of June, the U.S. Senate passed its version of the 2018 Farm Bill, which included the full text of McConnell’s Hemp Farming Act of 2018. If the Senate version is enacted, hemp and derivatives, extracts, and cannabinoids derived from hemp would be treated as agricultural commodities and removed from the purview of the Controlled Substances Act and the Drug Enforcement Administration. Though this is certainly exciting news, it’s not quite time to pop the CBD-infused champagne just yet. 

Both the Senate and the House have passed their own versions of the Farm Bill.  The Senate included the full text of McConnell’s Hemp Farming Act, but the House version was silent on hemp. The Farm Bill covers a vast range of agricultural issues including subsidies and crop insurance. Now the House and Senate must harmonize their versions of the Bill, including the provisions that relate to industrial hemp.

The House and Senate passed motions to proceed to conference for their respective the Farm Bills. Both chambers will need to agree on which portions of each bill will be included in a conference agreement. U.S. Hemp Roundtable compiled a list of conferees for the House and Senate. The House is represented by 47 conferees and the Senate is represented by 9 conferees.

The 9 Senate conferees show that the both Republicans and Democrats will be represented. The Senate Republicans will include Pat Roberts (Kan.), John Hoeven (N.D.), Joni Ernst (Iowa), John Boozman (Ark.), and Senate Majority Leader Mitch McConnell (Ky.). Senate Democrats Debbie Stabenow (Mich.), Patrick Leahy (Vt.), Sherrod Brown (Ohio). and Heidi Heitkamp (N.D.) will also negotiate on behalf of the Senate.

McConnell’s involvement is important for industrial hemp. McConnell was instrumental in passing the 2014 Farm Bill’s industrial hemp provision and continues to advocate for legalizing hemp. He even recently toured a hemp cultivation facility in Kentucky, as reported by the Lexington Herald Leader. He also happens to be the Senate Majority Leader making him one of the most powerful politicians in the country.

Here’s what McConnell had to say about the 2018 Farm Bill and his decision to sponsor the Hemp Farming Act:

I have proudly served on the Agriculture Committee since my first day in the Senate and know exactly how important this legislation is to agricultural communities across Kentucky, so as Majority Leader, I put myself on the Conference, and we’re ready to get to work to ensure the future of American agriculture. I will advocate for Kentucky’s multi-billion-dollar agriculture industry that supports thousands of good jobs and families in nearly every corner of the Commonwealth. Additionally, I will strongly advocate to legalize industrial hemp. I’m optimistic that my Hemp Farming Act, which I secured in the Senate bill, will be included in the final bill sent to the President for his signature. I am also glad to have the support of Congressman Comer on the Conference for legalizing industrial hemp.

If the House and Senate reach a resolution, they will issue a Conference Report that will be sent back to the House and Senate for final passage. If the passed in both chambers, the Bill would head to the Donald Trump’s desk for signature. For industrial hemp farmers, the sooner this happens, the better.

The 2014 Farm Bill is set to expire on September 30 or at the end of the applicable crop year. Hemp farmers operating under the 2014 Farm Bill will certainly be watching carefully to see whether the 2018 Farm Bill is signed prior to that date. If the 2014 Farm Bill expires, so too will the legal basis for cultivating industrial hemp under federal law. It’s possible that the 2014 Farm Bill will be extended in the event that the 2018 Farm Bill fails to pass. McConnell is hoping that the conference can reach agreement by Labor Day.

california cbd epidiolex

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

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

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

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

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

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

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

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

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

wine cannabis marijuana california

Our own Hilary Bricken will have the great pleasure of speaking at the 2nd annual North Coast Wine & Weed Symposium (presented by the Wine Industry Network) on Thursday, August 2, in Santa Rosa. While the Symposium will focus on a variety of topics covering the cross section of the wine and cannabis industries, Hilary’s panel will specifically cover “Rules, Regulations, and Policy Updates” in regards to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) and its corresponding readopted emergency rules and the current proposed permanent rules.

The breakdown of Hilary’s panel is as follows:

The rules & regulations around cannabis continue to evolve at a rapid pace and can be drastically different from one county, or town, to the next. This session, with Hezekiah Allen, Executive Director of Cal Growers Association, Hilary Bricken, Partner, Harris Bricken, and Erin Carlstrom, Senior Counsel of Dickenson, Peatman and Fogarty, will provide an update and overview of the latest changes in regulations at the state level and local level, along with any expected changes to take place in the upcoming year.

We expect a lively and interesting discussion at this symposium: Although the wine and cannabis industries don’t always get along, these two industries have a lot more in common than you might think, and knowing the current status of California’s cannabis rules and laws as well as ongoing policy debates surrounding MAUCRSA, will no doubt have an impact on both industries.

For all your questions about wine and cannabis, as well as specifics regarding the regulatory challenges under MAUCRSA, we sincerely hope you can make it to the Wine & Weed Symposium!

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

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

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

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

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

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

marijuana cannabis MFOA
Our thoughts on the new Senate cannabis bill.

Yesterday, U.S. Senator Chuck Schumer (D-NY) introduced the Marijuana Freedom and Opportunity Act (“MFOA”). The MFOA is also co-sponsored by Senators Bernie Sanders (I-VT), Tim Kaine (D-VA), and Tammy Duckworth (D-IL). Coming on the heels of the STATES Act, the MFOA is the latest–and hopefully a successful–attempt to put an end to America’s unjust and immoral stance on marijuana (show us the way Canada!). The MFOA, as it’s currently drafted, pulls no punches: Its stated purpose is “To decriminalize marijuana, and for other purposes.” It only gets better from there as other provisions are as follows:

  • It officially removes “marihuana” (that’s how it’s spelled in the Controlled Substances Act) as a Schedule I drug of the CSA.
  • It would create the Marijuana Opportunity Trust Fund (“Fund”) – think social equity programs but on a federal level. The Secretary of Treasury would transfer the greater of ten percent of all tax revenue generated by the cannabis industry or $10 million to the Fund. The amount transferred into the Fund would then be made available to small cannabis businesses owned by women, and by socially and economically disadvantaged individuals. There’s no doubt that America’s “war on drugs” has been implemented by law enforcement to disproportionately affect people of color and the poor. Although the establishment of the Fund won’t be able to right that wrong, it’s a step in the right direction.
  • It would authorize up to $250 million over five years for highway safety research and to help expedite the development of enhanced strategies and procedures to reliably determine the impairment of a driver under the influence of THC.
  • It authorizes $500 million over five years for critical public health research to better understand the effects of THC on the brain and the efficacy of medicinal marijuana for specific ailments.
  • It would allow the Alcohol and Tobacco Tax and Trade Bureau to regulate advertisements and promotions in order to prohibit promotions to individuals 18 years of age and under.
  • It authorizes up to $100 million for state and local governments to create expungement or sealing programs for those with prior marijuana convictions.
  • It would still grant States the authority to prohibit marijuana if they decided they preferred to live in the dark ages.

The MFOA has a little bit in it for everyone and hopefully that will lead to its passage: The cannabis industry would be able to operate, and therefore bank, without fear of government intervention; Populations disproportionately impacted by the war on cannabis will have access to capital; Funds will be allocated to prevent impaired driving and promotions aimed at minors, and; States can still criminalize cannabis if that’s their cup of non-THC-infused tea. The MFOA still has a long way to go and who knows what the November midterms or how President Trump’s position on it will vacillate from week to week (or day to day) but let’s make sure to contact our federal legislators and tell them that we demand they support the MFOA.

fda epidiolex cannabis
Big win today for GW Pharma.

In a previous post, we discussed GW Pharmaceuticals, the leading developer of cannabis-based pharmaceuticals. Today, the FDA announced the approval of GW Pharmaceutical’s drug Epidiolex (cannabidiol), an oral solution for treatment of seizures associated with two rare forms of epilepsy, Lennox-Gastaut syndrome and Dravet syndrome, in patients two years of age and older. This announcement is important for several reasons.

First, although the FDA has previously approved drugs using synthetic THC as the active ingredient (Marinol, Sydros, and Cesamet), Epidiolex is the first approval for a purified drug substance derived from marijuana plants.

Second, this is the first approval for cannabidiol (CBD), which is not psychoactive, unlike tetrahydrocannabinol (THC), which is.

Third, and perhaps most importantly, the approval of Epidiolex could present the Drug Enforcement Administration (DEA) with an opportunity to review the status of cannabinoids under the Controlled Substances Act (CSA). Currently, CBD from marijuana is a Schedule I substance because it is a chemical component of the marijuana plant. In support of the Epidiolex new drug application, GW Pharmaceuticals conducted clinical and nonclinical trials assessing the abuse potential of CBD, a critical factor in determining appropriate scheduling under the CSA. This means that DEA will likely now consider the appropriate CSA scheduling of Epidiolex in light of these data. It is too early to tell whether DEA will reschedule Epidiolex, but DEA has previously approved Schedule II and Schedule III status for THC-containing products Marinol, Sydros, and Cesamet.

Finally, the FDA confirmed that while it continues to support the development of medical marijuana therapies, it does so only under the existing drug approval process. According to FDA Commissioner Scott Gottlieb, M.D.:

“This approval serves as a reminder that advancing sound development programs that properly evaluate active ingredients contained in marijuana can lead to important medical therapies. And, the FDA is committed to this kind of careful scientific research and drug development. Controlled clinical trials testing the safety and efficacy of a drug, along with careful review through the FDA’s drug approval process, is the most appropriate way to bring marijuana-derived treatments to patients. Because of the adequate and well-controlled clinical studies that supported this approval, prescribers can have confidence in the drug’s uniform strength and consistent delivery that support appropriate dosing needed for treating patients with these complex and serious epilepsy syndromes. We’ll continue to support rigorous scientific research on the potential medical uses of marijuana-derived products and work with product developers who are interested in bringing patients safe and effective, high quality products.”

CBD producers should note that FDA Commissioner Gottlieb makes clear that this does not mean that CBD is now legal:

“But, at the same time, we are prepared to take action when we see the illegal marketing of CBD-containing products with serious, unproven medical claims. Marketing unapproved products, with uncertain dosages and formulations can keep patients from accessing appropriate, recognized therapies to treat serious and even fatal diseases.”

Regardless of how Epidiolex is eventually scheduled, it’s now approved, and GW Pharmaceuticals’ aggressive research and development program has pushed the cause of medical marijuana one large step forward.

cannabis 280E marijuana taxOn June 13, the U.S. Tax Court issued an opinion regarding the application of IRC §280E. In Alterman v Commissioner of Internal Revenue (“Alterman“) the Court held, yet again, that IRC §280E operates to disallow a cannabis businesses’ tax deductions. A few days later, the Court also issued Loughman vs. Commissioner of Internal Revenue (“Loughman“). In that case, the Court held that IRC §280E disallowed the deduction of wages paid to S Corporation shareholders. The disappointing but predictable outcomes in these cases highlight the need for Congress to repeal or modify IRC §280E.

By now, the destructive force of IRC §280E is well known. IRC §280E disallows deductions and credits to a business trafficking in a controlled substance. One exception is cost of goods sold (“COGS”). Other than a 2015 IRS General Counsel memorandum, the IRS has not offered much guidance regarding the application of IRC §280E. With this gap in IRS guidance, it is the courts that have outlined the (fairly narrow) parameters of IRC §280E.

Reading the IRS guidance and court rulings together, it is clear that selling or growing cannabis is always considered trafficking and expenses related to such activity are disallowed. A cannabis business can deduct all expenses related to a separate trade or business. A court is more likely to accept a separate business activity if that business can operate independently of a cannabis business.

Alterman

Alterman does not offer broad guidance regarding IRC §280E. In part, this is because the Court issued a Memoranda opinion.  A Memoranda opinion does not set a precedent for taxpayers; however, they are useful to illustrate how the Court may analyze the law.

Laurel Alterman and William Gibson operated a Colorado medical marijuana grow and dispensary. These taxpayers also sold cannabis paraphernalia, hats and shirts. The Court held that the sale of paraphernalia, hats and shirts was not a separate trade or business primarily due to the lack of records. Accordingly, costs associated with these activities were not deductible under IRC §280E.

In addition, the Court determined that certain costs were not allowable as COGS because of insufficient records, which should be a lesson to any cannabis business owner: It’s not enough to have potentially deductible costs, if you don’t keep records! Interestingly, the opinion uncharacteristically discusses, in detail, the records available, only to hold that those records were insufficient. (Court cases that disallow deductions because of poor recordkeeping typically do not discuss in detail, the records examined.)

Because of the fact-specific nature of this case, Alterman offers little guidance to cannabis businesses other than recordkeeping must be sufficient to support deductions.

Loughman

In Loughman, the Court did not address the issue of record keeping or substantiation. Instead, the Court addressed the issue of double taxation of income because of IRC §280E. And the Court concluded that double taxation is allowed.

Jesse and Desa Loughman were licensed in Colorado to grow and sell cannabis through a Colorado corporation, Colorado Alternative Health Care (“CAHC”). The Loughmans were the sole shareholders of CAHC and elected to be treated as an S Corporation for federal tax purposes.

An S corporation is not subject to tax; instead shareholders are taxed on S Corporation income at the individual level. Special rules treat S Corporation shareholder/officers as employees and require the S Corporation to pay them a reasonable wage. Under ordinary circumstances, an S Corporation deducts shareholder/officer wages; the shareholder/officer then pays income tax on the wages. The S Corporation’s deduction of wages prevents double taxation.

In this case, the IRS applied IRC §280E and disallowed CAHC’s deduction for wages paid to the Loughmans. Consequently, the amount of S Corporation income passed through to the Loughmans increased. The result is that the Loughmans wages are taxed twice — first as an employee and then as S Corporation shareholders.

The Court rejected the argument that IRC§280E discriminates against S Corporation shareholders operating a cannabis business. The Court reasoned that wage payments to a third-party performing the same services as the Loughmans would not be deductible under IRC §280E. Accordingly, the amount of pass through income to the Loughmans would not change: IRC §280E applies equally to increase S Corporation income, regardless of who receives wages. Furthermore, the Court noted that the taxpayer did not have to, but chose to, elect S Corporation status for their cannabis business.

As in Alterman, the Court issued a memorandum opinion. Accordingly, the Court’s determination only applies to the Loughmans and does not set precedent. Nonetheless, the Court highlighted a serious disadvantage to operating a cannabis business through an S Corporation– namely, double taxation.

The STATES Act

So where does that leave us? These cases highlight the dire need for a legislative fix of IRC §280E. On June 7, 2018, Senators Gardner and Warren introduced the Strengthening the Tenth Amendment Through Entrusting States Act (The “STATES Act”). The STATES Act exempts persons from the Controlled Substances Act, so long as they are acting in compliance with a state’s cannabis law. Specifically, under the STATES Act, the production or sale of cannabis in a cannabis legal state “shall not constitute trafficking”. Because IRC §280E applies to a trade or business that consists of trafficking, the STATES Act would effectively eliminate the impact of IRC §280E.

As more cannabis businesses are audited, expect more cases like Loughman and Alterman to move through the system. In addition, expect similar results on similar facts, unless Congress finally takes action. The STATES Act would do a lot of good for the industry, and eliminating the oppressive impact of IRC §280E is high on the list.

No shortage of cannabis news in Oregon.

Here we are a few years into legalization of recreational cannabis sales in Oregon, and it’s never a dull moment. Over the past week or so, there were three significant developments around the state with respect to marijuana law and policy. We summarize each below.

     1.     The OLCC hit “pause” on accepting license applications.

A few weeks back, we covered the dramatic Oregon Liquor Control Commission (OLCC) announcement that it would “pause acceptance of marijuana applications” effective June 15th. The apparent goal was to ensure that our licensing paralegal, Meghan Saunders, would receive hundreds of urgent client emails and phone calls over a two-week period. And she definitely did.

The official explanation, of course, is that the agency was simply too far behind to perform adequate services for existing applicants and licensees. That is the explanation OLCC Executive Director Steve Marks gave in the May 30th announcement, and it’s the explanation OLCC Policy Director Jesse Sweet gave at the seminar that he and I co-chaired on June 7th. All in all, it seems like a reasonable explanation.

Fortunately, some of the pressure from the initial announcement was alleviated on June 8th, when OLCC clarified that it would consider an application to be timely received for deadline purposes, even if it did not include an approved Land Use Compatibility Statement (LUCS). The pause ultimately took effect last Friday as promised, but not before dozens of our clients submitted last ditch applications (with and without LUCS) and made their way into the forward moving queue. In all, OLCC reports that an astonishing 1,001 additional applications were received in the two week period between its big announcement and the June 15thdeadline.

If you are looking for more evidence that people are extremely interested in being involved in the Oregon marijuana industry, the OLCC reports that as of yesterday morning a grand total of 1,915 active licenses currently exist in the state (over half of them producers), with another 766 applicants assigned to investigators, 530 ready for assignment and 1,070 businesses in line but without an approved LUCS. There are also 30,018 active marijuana worker permits statewide, with another 17,217 approved and awaiting payment. Despite intense competition and price instability, people keep on coming.

     2.     Billy Williams went to court.

Last month, we wrote about the Williams Memo, a policy document authored by Oregon U.S. Attorney Billy Williams regarding his concerns about overproduction of marijuana in Oregon and black market activity. We observed that industry seemed unfazed by the memo, because it would be too costly, too politically hazardous, and ultimately, too late for U.S. Attorneys to attempt to shutter Oregon’s state-sanctioned cannabis programs.

Mr. Williams and others instead have begun working around the edges, drawing lines in the sand on policy and going after bad (black market) actors. Last week, Mr. Williams filed two federal criminal lawsuits concurrent with law enforcement raiding a licensed Corvallis retailer for allegedly selling pot across state lines, and running an illegal credit card scheme. The raid was led by DEA in concert with Corvallis police, and based upon information gathered by the FBI and the U.S. Postal Service. Those agencies, in turn, began their investigations back in December 2016.

For anyone thinking running a state licensed cannabis business is cover for committing state and federal crimes – including the export of marijuana beyond Oregon – hopefully last week’s news will serve as a wake-up call. And hopefully, Billy Williams and the feds continue to chase these people down.

     3.     Josephine County lost again.

Josephine County has had a rough go with cannabis, especially as of late. We covered its half-baked efforts to curb marijuana farming through restrictive zoning ordinances here, here, here and here, and examined the problematic dynamics in southern Oregon cannabis production more generally here and here. Last week, the Oregon Court of Appeals rejected the County’s appeal of a decision that it had failed to give land owners proper notice of the County’s proposal to ban cannabis farming on smaller, rural residential lots.

The decision being appealed was handed down by the Land Use Board of Appeals, a somewhat obscure Oregon court that rules on the validity of governmental land use decisions. In theory, the County could petition the Oregon Supreme Court for certiorari, and seek a reversal of last week’s Court of Appeals decision. But it seems unlikely that the Oregon Supreme Court would take the case, and less likely still that the County would win.

In that sense, the County is in the same position as with its seemingly desperate federal court lawsuit to quash all cannabis production entirely, and hearken back to the days of prohibition. We expect them to lose that one, too.