Recreational Marijuana

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.

When California was getting ready to legalize adult-use and medically commercial cannabis sales on January 1, 2018, we all knew it would be a bumpy ride. Going from the collective, cooperative, and non-profit models that governed marijuana operators (and I use the term “governed” loosely) prior to 2018, to a robust regulatory regime that was going to keep the federal government on the sidelines (hopefully) and better serve the public and the environment was never going to be easy.

When the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) was enacted in June of 2017, it merged the Medical Cannabis Regulation and Safety Act (MCRSA) and the Adult-Use of Marijuana Act (AUMA) into one regulatory regime. Under MAUCRSA there are three state agencies responsible for regulating and licensing cannabis operators: 1) The California Department of Food and Agriculture (CDFA), regulates cultivators, processors, and nurseries; 2) The California Department of Public Health’s (CDPH) Manufactured Cannabis Safety Branch regulates cannabis manufacturers; and 3) The Bureau of Cannabis Control (BCC) regulates distributors, retailers, delivery-only retailers, microbusinesses, temporary cannabis events, and laboratories.

In November of last year, all three agencies released their emergency regulations and licensing requirements (which we covered here and here). Upon gathering input from the public and cannabis businesses, all three state agencies made changes to their emergency regulations and readopted them last month.

In both the initial and readopted regulations, cannabis businesses were provided with a transition period that allowed for exceptions from certain regulatory provisions. The goal of the transition period was to grant cannabis businesses with a period of less stringent regulations so that they could sell cannabis products that were already in their inventory. The cost of compliance is a steep one and the transition period was an attempt to soften the blow. The readopted regulations made a number of changes (which we covered here) but what they didn’t change is the transition period’s termination date. The transition period ends on June 30, 2018, so starting on July 1 (which is also Canada Day!) the following regulations will apply:

July 1 is almost here!
  • Untested cannabis goods cannot be sold by a retailer and must be destroyed, nor will a retailer will be able to send the untested cannabis goods for testing.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in possession of a distributor that are owned by the distributor will have to be destroyed.
  • Untested cannabis goods manufactured or harvested before January 1, 2018, in the possession of a distributor owned by a manufacturer or cultivator may be returned to them. The manufacturer or cultivator could then sell the returned cannabis goods after sending them to a distributor and they pass all of the testing requirements.
  • All packaging and labeling of cannabis goods must be properly performed before being transported to a retailer. This also applies to cannabis goods that were in a retailer’s inventory before July 1. The only exception is that a retailer will be able to affix “FOR MEDICAL USE ONLY” for medicinal sales.
  • Cannabis goods in a retailer’s possession that do not meet packaging and labeling requirements will have to be destroyed.
  • All cannabis goods must be in child-resistant packaging, only having exit or secondary packaging be child-resistant shall no longer suffice.
  • Edible cannabis goods may no longer exceed 10 milligrams of THC per serving and may not exceed 100 milligrams of THC per package.
  • Non-edible cannabis products shall not contain more than 1,000 milligrams of THC per package in the adult-use market.
  • Non-edible cannabis products shall not contain more than 2,000 milligrams of THC per package in the medicinal market.
  • All products sold by a retailer will have to meet the CDPH’s requirements for ingredients and appearance.

In the long-term, the end of the transition period will benefit the public as the cannabis goods consumed will have passed stricter testing requirements. However, come July 1, you can expect to see less inventory on retailers’ shelves as there will inevitably be a number of cannabis goods that cannot pass the stricter testing requirements. Cannabis businesses that have been planning for the expiration of the transition period regulations are going to be the ones with good compliance programs and they’ll be able to take advantage of a less crowded marketplace as less forward-looking operators struggle to adapt.

One major concern for the California cannabis industry is whether there are enough licensed laboratories to meet demand. The BCC has currently issued temporary licenses to approximately twenty-nine (29) laboratories and whether they have the capacity to test all the cannabis products supplied by cultivators and manufacturers will have a direct impact on how fast a retailer can restock their inventory. In the short-term, you can expect to see some steep discounts from retailers as they’re forced to unload all their marijuana products that they’d have to destroy if not sold by July 1. Be ready for longer than normal lines at your favorite cannabis retailer on June 30!

It’s no secret that the City of Los Angeles has struggled with implementing its commercial cannabis program under the Medicinal and Adult-Use Cannabis Act (“MAUCRSA“). The licensing of existing medical marijuana dispensaries (“EMMDs”) under Measure M has been a slow and opaque process, but Los Angeles is committed to the success of its cannabis program long-term and isn’t in any rush to act hastily when it comes to continued licensing by the Department of Cannabis Regulation (“DCR“) and Cannabis Regulation Commission. Indeed, just last week, the Los Angeles City Council adopted a handful of ordinances and made several recommendations to the City Attorney (and other City departments) to tighten, clarify, and technically fix its current commercial cannabis legislation. The amended regulations take effect on July 23, 2018.

Here are the major highlights:

  • Off-site Advertising. Ordinance No. 185607 addresses commercial cannabis advertising in the City. We now have a 700-foot distance buffer for any off premises advertising for “Cannabis, Cannabis Products, or Cannabis Activity” in any “Publicly Visible Location” from “any School, Public Park, Public Library, Alcoholism or Drug Abuse Recovery or Treatment Facility, Day Care Center, and Permanent Supportive Housing,” except for those advertising signs that are located inside the licensed premises (unless it’s a window sign), or if the advertising sign is on any “commercial vehicle used exclusively for transporting or delivering cannabis or cannabis products.” The distance buffer also doesn’t apply to “the display of public service messages or similar announcements cautioning against the use of Cannabis or Cannabis Products or that are designed to encourage minors to refrain from using or purchasing Cannabis or Cannabis Products.” However, this exemption won’t be used “. . .to permit an advertisement that purports to caution against the use of Cannabis or Cannabis Products when that message is conveyed in conjunction with the display of a logo, trademark or name used by any person or entity engaged in any Cannabis Activity for marketing or promotion of Cannabis or Cannabis Products.” Lastly, the 700-foot buffer is measured as the crow flies from the property line of the prohibited facility to the “closest visible edge of the advertising sign face of the off-site sign.”
  • On-site Advertising. Ordinance No. 185607 also tackles on-premises advertising. Only one on-site sign per street frontage is allowed. And that signage is included in the “maximum sign area” allowed for the property (this is in addition to any mandatory state signage under MAUCRSA). On-site signage is now going to be content controlled–you can only have the following information on the sign: “name of business; ‘logogram’ of business; and business’ address, hours of operation and contact information. Other than the foregoing information, no advertising for Cannabis or Cannabis Products shall be displayed on any sign in a Publicly Visible Location.” And here’s the list of all the fun signage you CAN’T utilize: Portable signs or sandwich signs located in the public right-of-way; Digital signs; Spinner signs; Monument signs; Illuminated architectural canopy signs; Pole signs; Marquee signs; Roof signs; Temporary signs; Moving signs and signs with moving parts; and Supergraphic signs.
  • Testing. Ordinance No. 185609 addresses quality assurance testing in that licensees won’t have to have their products fully tested “until 120 days after City licensure, or until required under State of California Code of Regulations Title 16, Division 42, Chapter 5, Section 5715, whichever is sooner, after which all cannabis goods shall be labeled and tested.”
  • Technical fix legislation. Ordinance No. 185608 is the first technical fix legislation for existing commercial cannabis regulations in L.A. Here are the need-to-knows:
    1. EMMDs that entered into a payment plan with the Office of Finance to become current on outstanding taxes owed will be considered fully paid up for priority licensure (which closed back in March).
    2. The Type 10 Delivery Retailer License has been deleted–Type 10’s under state law outright allow delivery anyway.
    3. Crimes that will bar you from applying from a license have been further amended to include: “A Person with a felony conviction for violating any State or local law involving violent crimes, sex trafficking, rape, crimes against children, gun crimes or hate crimes for a period of 20 years from the date of conviction or completion of a term of imprisonment, supervised release or probation imposed as a sentence for the conviction, whichever is later.”
    4. EMMDs can now be approved for the full type 11 distribution license (not just “self-distribution transport only”).
    5. Since the April 1, 2018 deadline for accepting “Non-Retail” priority applications has come and gone, the DCR’s new standard is that it will accept those applications for no more than 30 days after it opens that particular application window. There’s City-wide speculation that this window will open on July 1, but the City hasn’t made anything official yet.
    6. If a testing lab obtains and maintains an ISO/IEC 17025 accreditation, the DCR may issue temporary approval to the testing lab before completion of a pre-licensing inspection.

What is probably even more interesting than the foregoing is that the City Council also asked (based on a June 5th motion) that the City Attorney, in conjunction with the DCR and other City offices, prepare and present an ordinance to make the following additional changes to existing cannabis regulations:

  • Address and control cannabis management companies. The City proposed that “management company” be defined as “any person who participates in the management, direction or control of the operations of a business licensed to conduct commercial cannabis activity, or any person who participates in the management, direction or control of another person who participates in the management, direction or control of the operations of a business licensed to conduct commercial cannabis activity.” The City Council has also proposed that “a management company shall not hold equity ownership in the applicant licensee or have the authority to make major decisions impacting the corporate structure of the applicant or licensee or the license held by the applicant or licensee.” However, a management company would be able to “receive revenue or profit-based compensation, subject to limitations established by the DCR.” Of course, this would still make the management company a financial interest holder under MAUCRSA.

Social Equity Program applicants (“SEPs”) and regular licensees would also have to get written approval from the DCR before engaging with a management company. All SEPs and licensees would also have to disclose to the DCR all written agreements or contracts with a management company and all other documents the DCR requires to identify all persons who will act as the management company for the business premises. And if you can’t qualify for licensure from the DCR, the DCR may also stop you from acting as a management company. Or if you’ve violated any local or state cannabis laws, the DCR may also knock you out from acting as a management company to a SEP or licensee. SEPs and licensee will be responsible for all acts or omissions of its management company in connection with compliance with state and city laws. All management companies engaged in commercial cannabis activity within the City of Los Angeles would have to register and maintain appropriate records with the DCR. Finally, management companies would be limited to entering into management agreements for no more than 3% of commercial cannabis businesses within the City of Los Angeles, by license type. That percentage will increase 1% on July 1st of every year beginning in 2019 until a total of 7% is reached. Tier 1 and Tier 2 SEPs would be exempt from these management company license limits.

  • More clarity on the social equity program and allowing more flexibility for Social Equity-licensed businesses. Among other tweaks and additions, Tier 1 and Tier 2 SEPs would be able to apply for retail licenses under the 2:1 ratio already set by the City, and Tier 3 applicants won’t be able to apply for retail licenses. Tiers 1 through 3 applicants would though be able to apply for non-retail licenses under the 1:1 ratio set by the City. The City also wants to allow the DCR to license incubator projects with multiple licenses for the education, training, etc. for SEPs. The City also asked that SEPs be allowed to apply for licensure even if they do not have local land use authorization, but local land use authorization must be obtained prior to completing the licensing process. The City would also increase term of Social Equity Program agreements to five years, and would allow Social Equity-licensed businesses to terminate their agreement with the actual SEP after five years, all with the approval of the DCR. Interestingly, the City added that the Social Equity-licensed business would have the right of first refusal to buy out the SEP applicant (presumably at any time). The City is also planning to allow the Social Equity-licensed business to replace the SEP under certain criteria and conditions.
  • Taxes and Cannabis Reinvestment Act. The City Council also asked the City Attorney to draft an election “Ordinance and Resolutions” to place a ballot measure before the voters at the November 6, 2018 State General Election entitled the “Cannabis Reinvestment Act,” and that the ballot measure would, among other revenue captures, implement a one percent gross receipts tax on all commercial cannabis activity to be “reinvested in the community with all funds going to a newly created Cannabis Reinvestment Trust Fund” earmarked for various City items and groups.

Without a doubt in the coming weeks we’re going to see even more legislation from L.A. regarding amending its current cannabis regulations (with specific regard to its much-anticipated Social Equity program), and these forthcoming changes will also directly affect would-be licensees’ ability to pursue licensure in the long run in what may end up being California’s largest cannabis marketplace. So, stay tuned!

…all the way through the patent application process.

The cannabis industry relies on trade secrets and increasingly, patents, to protect intellectual property (IP) assets. Patents protect new and non-obvious inventions, including plants, processes, and machines, while trade secrets protect any information, including “patentable inventions,” that provide economic value to the holder if kept confidential. Accordingly, the same information could potentially be protected by patents or trade secrets.

Although patents and trade secrets are alternative protections, marijuana businesses should treat them as complementary to expand the lifetime of a trade secret disclosed in a patent application until the patent issues.

Patents afford the most powerful IP protection in that they provide their owner with a temporary monopoly to exploit her invention, including against those who independently discover the invention. In exchange for this temporary monopoly, the patent owner is required to fully disclose the invention to the public, so that once the patent expires, anyone may freely utilize the invention.

Generally, the disclosure of the invention occurs roughly eighteen months from the date of filing through a process known as “publication.” Publication does not grant the patent nor does it guarantee that the patent will be issued by the United States Patent and Trademark Office (USPTO). Instead, publication simply allows the public to examine the patent application while it is being reviewed.

The initial filing of a patent application does not immediately break the confidentiality of the trade secret disclosed in the application. The law requires the USPTO to keep all patent applications—with a few exceptions—confidential before they are published. Before publication, the trade secret will not lose its secrecy so long as the trade secret owner continues to take reasonable confidentiality measures.

At the end of the eighteen-month period, an applicant may extend the confidentiality of the patent application by avoiding publication. The applicant may do so by expressly abandoning the patent application, or by filing a request for non-publication (so long as the applicant does not seek patent protection in a foreign country). Maintaining an application as confidential as long as possible allows the applicant to delay the disclosure of its invention until the patent issues. In a highly fragmented and competitive market like cannabis, this can make a world of difference.

Once the USPTO decides that the patent application meets all the patentability requirements, the patent will issue in its final form. At that point, even an unpublished patent application inescapably becomes public and loses its trade secret protection. However, in return, the patent holder now has a patent that it can enforce against infringers. In other words, trade secret protection is no longer required.

So despite their significant differences, patents and trade secrets are closely intertwined and should be considered concurrently when applying for a cannabis-related patent. By keeping the patent application from becoming public for as long as possible, you can extend your trade secret protection until the moment the patent issues. That is a critical competitive advantage, especially in a rapidly developing industry.

For more on cannabis patents and trade secrets, check out the following:

bank marijuana cannabis
Banking is within reach for many cannabis businesses.

In my previous post, I wrote about avoiding the scammers that abound when it comes to cannabis banking. Because cannabis is federally illegal, getting a bank account has been very difficult for cannabis businesses even though the 2014 FinCEN guidelines (see here) allow financial institutions to provide banking services to cannabis businesses under certain circumstances — which guidelines are still alive despite Attorney General Jeff Sessions rescinding the Cole Memo. Ultimately, FinCEN makes clear in its guidelines that they “should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses.”

But what exactly should a cannabis business do to get a legitimate bank account with a real financial institution? Plain and simple, you make it as easy as possible for the bank or credit union to abide by the FinCEN guidelines. This means you do not lie about or omit anything regarding your cannabis business.

To even get to this point though, your cannabis business must be in a state with “robust regulations” that give its regulators the authority to tightly control and govern its cannabis industry. And not all states are created equal when it comes to this.

In states like Washington, Oregon, and Colorado, banking is made a little easier because those states have hardcore regulations ranging from financial and criminal background checking on all cannabis business owners to knowing every single dollar that comes into a given cannabis operation and its source. In medical cannabis states like New Mexico and Arizona, which are basically unregulated medical cannabis states, banking is non-existent.  And in California (where I am based), which still has relatively weak cannabis licensing rules (for example, there are no spousal vetting requirements for owners of cannabis businesses), it is still nearly impossible for a cannabis business to get a bank account and this is not likely to change until California tightens up on its licensing regime.

But if you’re in a state with robust cannabis regulation, here’s what you need to do and expect when pursuing a bank account under the FinCEN guidelines:

  1. Banks that follow the FinCEN guidelines do so in open violation of the Bank Secrecy Act (BSA). This is the case because they are directly engaging in money laundering because cannabis remains federally illegal and this is why virtually none of the really big banks (like Bank of America and Wells Fargo) will knowingly take on cannabis accounts. But for those banks that are willing to take on cannabis bank accounts, you need to be prepared to basically do whatever the bank tells you to do to secure that account because the bank will be the one to be held accountable to the federal government for violating the BSA.
  2. You should expect your bank or credit union to conduct comprehensive due diligence on your cannabis business – nearly always at your expense. This due diligence usually will include the following:

(i) verifying with the appropriate state authorities whether your cannabis business is duly licensed and registered;

(ii) reviewing your cannabis license application and other documents your cannabis business submitted to obtain its state license to operate;

(iii) requesting information about your business and its related parties from state licensing and enforcement authorities;

(iv) developing an understanding of the normal and expected activity of your business, including the products to be sold and the type of customers to be served (e.g., medical versus recreational customers);

(v) ongoing monitoring of publicly available sources for adverse information about your business and its related parties;

(vi) ongoing monitoring for suspicious activity, including for any of the red flags described in the FinCen guidance; and

(vii) constantly updating the above information.

  1. Don’t get frustrated with the bank or credit union over this mandatory due diligence. Your job is to fork over as much documentation as you can to demonstrate that you are licensed and in full compliance with state and local laws.
  2. The Cole Memo, though rescinded, still matters to FinCEN. Specifically, the FinCen guidelines state that “[a]s part of its customer due diligence, a financial institution should consider whether a marijuana-related business implicates one of the Cole Memo priorities or violates state law. This is a particularly important factor for a financial institution to consider when assessing the risk of providing financial services to a marijuana-related business. Considering this factor also enables the financial institution to provide information in BSA reports pertinent to law enforcement’s priorities. A financial institution that decides to provide financial services to a marijuana-related business would be required to file suspicious activity reports (“SARs”).” This means you should review the eight Cole Memo priorities and implement them in your business practices.
  3. Your bank will regularly file SARs on your business. A financial institution is required to file a SAR if it knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution: (i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade regulations promulgated under the BSA; or (iii) lacks a business or apparent lawful purpose. Because commercial cannabis activity is federally illegal, SARs are a must in the cannabis banking world.
  4. The following SARs will likely apply to your cannabis business: (i) Marijuana limited SARs, which mean you are not violating state law or violating a Cole Memo priority; (ii) Marijuana priority SARs, which mean the bank believes you are violating state law or a Cole Memo priority; and (iii) Marijuana termination SARs, which mean the bank thinks you are a threat to its anti-money laundering systems under the BSA so it must end its relationship with you. All these SARs get sent to the federal government for possible investigation.
  5. Your bank will constantly monitor the financial activity of your cannabis business because it must do so under the FinCEN guidelines. Your bank will monitor everything from your deposits to your social media accounts to your ability to keep your license in good standing to ensure that you are complying with state laws and rules. Again, if you want to keep your bank account, you need to assist your bank with this continued due diligence.
  6. The FinCEN guidelines list various red flags banks must watch for. One of those red flags is using management companies or middlemen to secure your bank accounts. The FinCEN guidelines are clear that Cole Memo priorities may be violated if a “customer seeks to conceal or disguise involvement in marijuana-related business activity. For example, the customer may be using a business with a non-descript name (e.g., a “consulting,” “holding,” or “management” company) that purports to engage in commercial activity unrelated to marijuana, but is depositing cash that smells like marijuana.” Cash structuring, commingling of funds with an unrelated business, and “deposits by third parties with no apparent connection to the accountholder” are additional red flags. Pay attention to the FinCEN guidelines’ red flags list and strive to avoid them.

Securing a bank account will not be easy but it is possible if you are in the right state and you prepare and act accordingly. Though state public banking and cryptocurrency have been floated as ways to provide wider access to banking, the FinCEN guidelines are still the key for both cannabis operators and financial institutions. And that’s not likely going to change anytime soon.

Editor’s Note: This post originally appeared in an Above the Law column, also by Hilary Bricken.

cannabis trade secretIn the world of intellectual property (“IP”), there are four categories under which your IP may fall:

  1. A trademark is any word, phrase, symbol and/or design that identifies and distinguishes the source of the goods of one party from those of others. Similarly, a service mark is a word, phrase, symbol, and/or design that identifies and distinguishes the source of a service rather than goods. Trademarks are your brand names, and can remain in place forever so long as you are making actual, lawful use of your mark in commerce.
  2. A patent is a limited duration property right relating to an invention that is granted by the United States Patent and Trademark Office in exchange for public disclosure of the invention. Patentable materials may include machines, manufactured articles, industrial processes, chemical compositions, and certain plant genetics. Design patents will give the patent holder exclusive rights to exploit the patented materials for 15 years from the filing date, and a utility patent or plant patent will be valid for 20 years from the filing date.
  3. Copyrights protect original works of authorship including literary, dramatic, musical, and artistic works, including poetry, novels, movies, songs, computer software, and architecture. Generally, for works created by an individual, copyright protection lasts for the life of the author, plus 70 years. For works created anonymously, pseudonymously, and for hire, protection lasts 95 years from the date of publication or 120 years from the date of creation, whichever is shorter.
  4. Trade secrets (the subject of this post) in general can be comprised of any confidential business information that provides a company with a competitive edge. Trade secrets can include manufacturing or industrial secrets like recipes, formulas, processes or techniques, as well as commercial secrets, such as client lists or business plans that have commercial value because of their secrecy. Unauthorized use of this information by anyone other than its owner is an unfair practice and violation of the trade secret. The key to trade secret law is that something is only regarded as a trade secret so long as it’s kept secret.

Many clients come to me with the belief that patent protection is more valuable than trade secret protection, but that isn’t always the case. Where patent protection is available for a limited duration, trade secrets can provide their owners with protection so long as the secrets are not disclosed to anyone. In some cases, this can be a very long time. Perhaps the most famous example of a trade secret is the recipe to Coca-Cola. Coca-Cola claims this to be the “world’s most guarded secret,” as it is known to only a few key employees at any given time. The recipe is locked in a purpose-built vault in the company’s museum in Atlanta.

If Coca-Cola had opted instead to patent their recipe, it would have been disclosed to the public, and they would have had the ability to exclusively exploit the recipe for only 20 years. Protection under trade secret law, however, will benefit them for much longer, but the key is in taking adequate steps to prevent trade secrets from being revealed. In a case for misappropriation of trade secrets, one of the factors considered by the court is whether the owner of a purported trade secret implemented adequate measures to keep their secrets secret.

Steps that can be taken to protect trade secrets include limiting the number of individuals who know the secret, implementing security protocols in the facility that holds the secret, and requiring employees and others with access to the trade secret to sign a thorough confidentiality and non-disclosure agreement (NDA). These types of agreements are used extensively by marijuana businesses.

Although trade secrets abound in the cannabis industry, information and techniques have also been shared quite freely for a very long time. And information that has been disclosed is not subject to trade secret protection under the Uniform Trade Secrets Act or the Defend Trade Secrets Act of 2016. However, even if you determine that your recipes or processes or other business information doesn’t qualify for trade secret protection, they may still have value as proprietary information, which can be licensed. For this reason, we encourage all of our clients to have confidentiality and non-disclosure agreements in place with their employees and with other key individuals with whom they transact business. Even if you don’t have a claim for misappropriation of trade secrets under trade secret law, you can still go after someone in court to try to stop them from disclosing your confidential information or for damages for having disclosed such information pursuant to your NDA.

The necessity for keeping trade secrets secret is why it is important to consult with an IP attorney as early in your development process as possible to determine whether patent or trade secret protection makes the most sense. And regardless of whether your business materials meet the criteria for trade secret protection, every company should have a form NDA that they can have employees and others exposed to confidential information sign.

“What do you do?”

When meeting someone for the first time this is a pretty standard ice-breaker. Usually the responses are pretty innocuous: “I’m in sales” or “I’m in IT”. But if you add “…in the cannabis industry” to those answers you’re bound to get a number of follow up questions. When I tell people that I advise businesses, investors, and ancillary service providers in the marijuana industry, without fail the first question that I get is “Aren’t you worried about the federal government?” I then go into discussion on the Rohrabacher-Blumenaur Amendment (formerly the Rohrabacher-Farr Amendment), the history of the Cole Memo (which although rescinded still plays an important role in banking), and the importance of complying with your state’s cannabis regulations. Lastly, I talk about the change in the national discussion and perception of the cannabis industry. Gone are the days of the “lazy stoner” stereotypes (although perhaps not for U.S. Attorney General Jeff Sessions). Instead we have sophisticated cannabis businesses providing products to a large and diverse section of America – with more and more states looking to legalize either medical or adult-use marijuana activities this year.

For those of us who follow cannabis bills in the U.S. Capitol and in our state legislative houses, it’s clear that there is momentum towards ending America’s shortsighted and draconian war on cannabis (we covered recent developments on the federal level here). While Republicans and Democrats in Congress can’t seem to agree on anything nowadays, support for individual states to regulate cannabis activities as they see fit for their constituents is one of the few areas where bipartisan support exists. Every day, more Republicans in Congress are signing on as sponsors to bills that will support the cannabis and hemp industries (we see you Mitch McConnell!). And now we can add to the list of cannabis supporting Republicans: President Donald Trump?

Could Trump actually point us in the right direction?

Just last week, the President, while boarding a helicopter for the G-7 summit in Canada, mentioned his support for what Senator Cory Gardner (R-CO) is doing. What exactly is Senator Gardner doing you ask? He, along with Senator Elizabeth Warren (D-MA), and Representatives David Joyce (R-OH) and Earl Blumenauer (D-OR), have introduced the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. You’ll recall that Senator Gardner didn’t take too well to A.G. Sessions rescinding the Cole Memo, so he vowed to block all Department of Justice appointments in return. After meeting with the President, Sen. Gardner put an end to his blockade (which we covered, here) when the President assured him that “he will support a federalism-based legislative solution to fix this states’ rights issue once and for all.” At the time of the meeting there was no agreement as to what the “federalism-based legislative solution” would look like. Today there is. Here’s a list of what the STATES Act would and wouldn’t do:

  • It would amend the federal Controlled Substances Act (“CSA”) so that the CSA would not apply “to any person acting in compliance with state law relating to the manufacture, production, possession, distribution, dispensation, administration, or delivery of marihuana.”
  • It would also amend the CSA so that the same exclusion would apply to persons acting in compliance with the law of a federally recognized Indian tribe within its jurisdiction.
  • It would deschedule industrial hemp from the CSA entirely.
  • It would make access to banking easier for cannabis businesses as state legal cannabis sales and transactions would no longer be considered trafficking.
  • It would not change the law in states that continue to criminalize cannabis activities.
  • It would not apply to any of the other substances identified in the CSA.
  • It doesn’t guarantee that President Trump will keep his word.

That last point isn’t actually written into the bill, but it’s the 800-pound gorilla in the room that no one can ignore. The President, to be polite, has had a tenuous relationship with the truth and keeping his word, so it’s far from certain that he will throw his support behind the STATES Act. An off-the-cuff remark before meeting with G-7 allies (or are they adversaries now?) does not constitute unwavering support. We’ll have to see more consistent and direct support from the President before we can feel confident that the STATES Act will become law. The President’s support is necessary because he’s still very popular with the Republican base and can therefore give recalcitrant Republicans in Congress cover if they’ve been cannabis opponents previously.

Let’s keep our fingers crossed that the North Korea Summit meeting goes well (who cares about cannabis legalization if nuclear war’s broken out?), that Congress pushes this one through, and that the President carries that high over to the STATES Act.

marijuana cannabis oregon CLEThis Thursday, June 7th, our own Vince Sliwoski will co-chair an all-day continuing legal education (CLE) event in Portland called The Business of Marijuana in Oregon, along with Jesse Sweet, a lawyer and senior policy analyst at the Oregon Liquor Control Commission (OLCC). The roster of speakers lined up for this CLE is better than any year to date, and everyone, including non-lawyers, would be well served to attend. Other Harris Bricken lawyers presenting include Megan Vaniman (employment) and John Mansfield (litigation). For a full event description, including topics, speakers and registration links, click here.

Looking back over the past four years, it is amazing to see how much things have changed in Oregon cannabis. At this point, the OLCC’s recreational marijuana program is fully built out, with over 3,400 applicants now on file with the state. We are proud to call many of these Oregon producers, processors, wholesalers and retailers our clients, alongside the many investors and ancillary service providers we represent.

Sometimes, it is said that pioneers get slaughtered and settlers get rich. Now that the Oregon regulatory groundwork has stabilized, we have begun to see a second wave of entrepreneurs and investors move in on the local industry. Many of these new entrants bring skills, capital and experience from other regulated markets, while others are new to the space. Over the next year or so, we expect to see big changes in the marijuana industry, especially given OLCC’s announcement last week to pause the acceptance of new applications.

Oregon attorneys and business owners alike need to be familiar with the unique regulatory concepts and industry dynamics that will be discussed on Thursday in order to best serve the Oregon cannabis industry. These concepts include state laws and administrative rules, developments in the highly dynamic federal sphere, and practical approaches to working with and in the cannabis industry. Attendees will hear from regulators, bankers, CPAs, and, of course, lawyers aplenty.

If you are in or around Portland, we hope you will join us on Thursday for an eight-hour survey of Oregon cannabis that is both broad and deep. And if you are a Harris Bricken client or a friend of the firm, please click here to request a promotional discount code, which can be applied to either the webcast, or to in-person attendance.

See you soon.

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!

Yesterday afternoon, the Oregon Liquor Control Commission (“OLCC”) published a news release titled “OLCC Will Pause Acceptance of Marijuana License Applications.” This “pause” takes effect Friday, June 15th. The agency’s sudden announcement was a big surprise to almost everyone, and we received a flood of emails and phone calls throughout the afternoon.

Personally, I cannot remember receiving so many urgent calls and emails related to an administrative or political development at any point in the past seven years of working with cannabis businesses. That includes industry shakeout after recent seismic events like the election of Donald Trump, the appointment of Jeff Sessions as U.S. Attorney General, and Mr. Sessions’ rescission of the Cole Memo. In all, the OLCC announcement caused a major stir.

This post will address questions along the lines of those we received yesterday afternoon, in an attempt to give some consolidated thoughts as to what is going on with Oregon marijuana licensing.

The OLCC announcement says it will “temporarily shift licensing staff to exclusively process recreational marijuana license renewals and applications…”. Does the word “applications” refer to new applications, as well as change in ownership applications? What about “applications” for changes in financial interest?

We have confirmed with OLCC that the announcement refers only to new applications. We also have confirmed that the agency will continue to accept new applications after June 15th cut-off. However, OLCC will not move those applications forward in the queue or begin to process them. The focus will shift entirely on applications submitted prior to June 15th, changes within existing licenses, and renewals.

How long is the pause?

We don’t know. And OLCC probably doesn’t even know at this point. Conceivably, it could last through the next legislative session, beginning in early 2019, when the OLCC may look to the legislature to set some parameters on new license issuances. At a minimum, it seems likely that the pause will extend into the fall, given the application backlog and given the fact that the announcement states OLCC’s intent to put “additional resources into the field for compliance activity, with a focus on targeting Oregon’s 2018 fall outdoor harvest.”

Can the pause go on indefinitely?

Probably not, unless the legislature changes something. In our discussions with OLCC over the past few years, the agency has always acknowledged that the current statutory structure prevents it from capping the number of licenses it awards. Thus, under current law, the only way OLCC can limit the amount of marijuana being produced in Oregon is through controlling canopy sizes (which it has not sought to do).

Is OLCC going to ask the legislature for further statutory controls for licensing in 2019?

It seems likely, yes.

I am closing a large real estate transaction next week! There is no way I can get a LUCS and everything else I need to apply by June 15th. Am I screwed?

You might be. If you aren’t willing to forfeit your earnest money and walk away, the best you can do is close the deal and apply for a license, and wait and hope for OLCC to re-start its conveyor belt.

Is there any chance OLCC will extend this abrupt deadline?

Anything is possible but that seems unlikely. It’s also possible that we could see a carve-out for prospective applicants who can somehow prove compelling circumstances or financial hardship due to the abrupt deadline. But that also seems unlikely, and it’s hard to know how those parameters would even be set.

Why are they really doing this?

The reasons stated in the news release are compelling. Given all of the mergers and acquisitions going on in the Oregon industry, our Portland office processes a large amount of change-in-ownership, loan clearance, and other types of transactions with OLCC. We can confirm that the process has become painstakingly slow for businesses and investors, despite OLCC’s best efforts. Applications for new businesses are also very slow. In addition, the announcement references the need to “put additional resources into compliance activity” as stated above. That’s a good idea generally, but there is doubtless some political pressure behind this objective, too.

What do we do next?

More information will be available in the coming days and weeks. So sit tight and stay tuned. Alternatively, you can always head to California. They have the opposite problem.