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.

Oregon safety marijauana
The OSHA model. And a good look for cannabis business.

So, what is Oregon OSHA (“OR OSHA”)?

OR OSHA is the Oregon Occupational Safety and Health Act. This law requires employers to “furnish employment and a place of employment which are safe and healthful for employees.” In other words, employers are required to maintain safe workplaces. This means that employers are required to identify potential workplace hazards, prevent such hazards, and provide safety measures to employees to protect their health and safety, in all situations where hazards are inherent in the job or otherwise unavoidable. Does this law apply to cannabis employers? You bet.

OR OSHA also identifies certain conditions as inherently hazardous or unsafe, and regulates the condition or practice by imposing employer requirements to mitigate the condition or practice (think fall protection when on a ladder). The kind of marijuana business you run will dictate what OR OSHA regulations are triggered.

For example: marijuana producers are subject to the OSHA agricultural rules. These rules require employers to protect employees from things such as machine hazards, mold, electrical hazards, and heat exposure, among other things agricultural employees are subject to.  Marijuana processors must comply with special requirements for employees handling extraction chemicals. Retail operators must ensure employees are safe from slips, trips, and falls. Etc.

In addition to protecting employees from hazards at work, OSHA imposes reporting requirements on employers. Employers must report to OR OSHA within eight hours epodes like the death of an employee or a catastrophe. A catastrophe is defined as two or more employees fatally injured or three or more employees admitted to a hospital or an equivalent medical facility. Employers must report to OR OSHA within 24 hour of any employee being hospitalized, losing an eye or an amputation, or avulsion that results in bone loss. In addition to these reporting requirements, employers with 10 or more employees must record their injuries and illnesses that are a result of the work environment on a form called the OSHA 300 Log. Employers must also summarize the 300 log on a form called an OSHA 300-A.

Somewhat similar to the Oregon Liquor Control Commission (“OLCC”) — which is the state agency that administers marijuana licenses — OR OSHA has the power to investigate employers to determine whether or not they are compliant with OSHA requirements. OR OSHA does not have to provide advance notice of inspections, and the agency may randomly show up at an employer’s place of business to conduct an inspection.

So where might the agency show up? OR OSHA prioritizes inspections at locations that are determined to be the most unsafe. An OR OSHA investigator will investigate the employer’s property to determine if there are any violations. If there are violations, the investigator can issue a citation based on the type of violation. As with OLCC citation powers, the type of penalty associated with the citation depends on how serious the violation is.

OR OSHA safety requirements are comprehensive. The agency encourages employer compliance and has a series of free tools available to employers to assist with that compliance. OR OSHA’s most significant tool is its consultation services. Free of charge, an OSHA consultant will inspect a work site and provide safety, health, and ergonomic hazard assessments, recommendations to control and eliminate hazards, a written program evaluation, industrial hygiene services, training on health and safety topics, and assistance with safety and health programs. In short, a consultant will come out and point out potential OSHA violations and provide a plan to help with compliance.

Pro tip: A consultant is a great and free way to assess your compliance with OSHA prior to an inspector coming to your place of business.

Like with most employer regulations, compliance in the first place is the best way to avoid a hefty civil penalty or litigation. However, citations happen even when the best intentions are in place. This post has only scratched the surface of OSHA requirements. If you have additional questions, give us a call.

industrial hemp CBD legal

As CBD and hemp continue to grow in popularity we are receiving an increasing number of calls and emails from companies that want to distribute hemp across the country. We have written about the legality of hemp and CBD under federal law:

This post focuses on another topic: state law on CBD and Industrial Hemp.

The 2014 Farm Bill grants states the authority to regulate Industrial Hemp, which contains less than .3%  THC on a dry weight basis, through an Agricultural Pilot Program. The Farm Bill also requires that Industrial Hemp is overseen by a state’s department of agriculture. The Farm Bill is light on additional details and states have taken different approaches to regulating Industrial Hemp and CBD derived from Industrial Hemp.

Colorado cemented its place in history as a cannabis pioneer by legalizing marijuana in 2012 along with Washington. Colorado’s hemp credentials are also solid as it has dedicated more acreage to the cultivation of hemp than any other state. Cultivators are permitted to sell hemp to the public. Colorado does not oversee the processing of hemp though which makes the extraction process largely unregulated.

Unlike Colorado, Oregon regulates both the production and processing of Industrial Hemp. Oregon’s Department of Agriculture (ODA) oversees the state’s industrial hemp program. “Growers” must register with the ODA in order to produce Industrial Hemp and “Handlers” must register to process Industrial Hemp. Oregon differs from Colorado in that it does not permit its Growers to sell Industrial Hemp directly to the public. Conversely, Handlers are permitted to sell Industrial Hemp to any person. Growers and Handlers may also sell their products to licensed recreational marijuana businesses giving them access the state’s recreational marijuana market. Growers and Handlers can apply to the Oregon Liquor Control Commission (OLCC) for an Industrial Hemp certificate to transfer hemp to recreational processors. OLCC retailers can then turn around and sell these hemp-based products to Oregon consumers.

Washington recently passed a law that sets up a similar structure. You can read about this law here, as we covered it a few months ago when it was still a proposed  bill. Washington’s licensed processors will soon be allowed to use additives derived from hemp-based products that were grown outside of its licensed marijuana system. These additives may come from Washington’s own Industrial Hemp program, which has been stalled for the last few years due to budget issues, or from Industrial Hemp sourced from other sources.

California has followed a similar path to Washington in that its hemp program has failed to launch in a meaningful way. Part of the hold up has been that California requires that Industrial Hemp only be grown by those on the list of approved hemp seed cultivars. That list includes only hemp seed cultivars certified on or before January 1, 2013. Industrial hemp may only be grown as a densely planted fiber or oilseed crop, or both, in minimum acreages. Growers of industrial hemp and seed breeders must register with the county agricultural commissioner and pay a registration and/or renewal fee. We wrote about proposed changes to California’s program here.

Michigan‘s office of Licensing and Regulatory Affairs (LARA) recently issued an Advisory Bulletin that only permits the sale of CBD in licensed medical marijuana dispensaries. The Bulletin first states that CBD cannot be found in portions of the cannabis plant that fall outside the state’s definition of “marihuana” (i.e., the mature stalks, seeds incapable of germination, fiber from stalks, oil or cake made from seeds or other derivatives of the mature stalks) other than in trace amounts. The Bulletin goes onto state that Michigan’s Industrial Hemp program does not authorize the “sale or transfer” of Industrial Hemp.

This is significant as it means that CBD derived from Industrial Hemp cannot be sold and that CBD derived from marijuana can only be sold in dispensaries. The Bulletin also seems to include Industrial Hemp from other states as it concludes with the following:

Any possession or transfer of industrial hemp – or any product claimed to be “hemp”-related – must be done in compliance with Michigan’s Industrial Hemp Research Act.

The bottom line in Michigan is that to sell CBD in that state, whether from marijuana or hemp, you need to go through a dispensary.

Also keep in mind that some states do not regulate Industrial Hemp at all. This should not be interpreted to mean that they will turn a blind eye to hemp products distributed within their borders. Other states, regulate CBD specifically, which can be found in Industrial Hemp, and those states limit the use of CBD to patients who have received an authorization from a physician for its medical use.

If you want to distribute Industrial Hemp across the country it is not as simple as making sure that you have a licensed cultivator. Sure, you need to know the laws of the state in which you are sourcing hemp, but that’s not enough. You need to also consider the legal landscape of the places you intend to ship and sell Industrial Hemp products.

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.

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.

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.

Seems like a good approach.

Once upon a time, the cannabis industry had something called the Ogden Memorandum. That was back in 2009, prior to any state legalizing cannabis for recreational use. The Ogden Memo gave prosecutorial guidelines to U.S. Attorneys in medical marijuana states. Many people read the Ogden Memo too cavalierly for the feds’ liking (to wit, over 1,000 new Colorado dispensaries opened that year), and Eric Holder’s office attempted to cool industry expectations with the first Cole Memo in 2011. A few years later, after Colorado and Washington legalized adult use cannabis, we got the second Cole Memo and its famous eight federal enforcement priorities to help guide state lawmaking. The second Cole Memo, which everyone just called the “Cole Memo”, lasted an astonishing 4.5 years until Jeff Sessions rescinded that guidance in early 2017, with a memo of his own. The Sessions Memo effectively reset everything to a primitive ground zero, lecturing that “marijuana is a dangerous drug and marijuana activity is a serious crime.”

Aside from disrupting longstanding federal policy framework on cannabis, the Sessions Memo directed federal prosecutors “to weigh all relevant considerations” in bringing prosecutions for violations of the federal Controlled Substances Act. As of last week, one such prosecutor gave explicit indications as to what relevant considerations will take priority in his district. That U.S. Attorney was Billy Williams of the District of Oregon. So now we now have the Williams Memo.

The Williams Memo is a thoughtful if somewhat awkward document. In the classic posture, it reserves prosecutorial discretion and promises nothing to anyone. Instead, it explains that lawyers in Mr. Williams’ office will primarily focus on five enforcement priorities when deciding whether to enforce the draconian federal laws against cannabis operators. Those priorities are:

  • Overproduction and interstate trafficking;
  • Protecting Oregon’s children;
  • Violence, firearms, or other public safety threats;
  • Organized crime – including tax evasion and money laundering; and
  • Protecting natural lands, natural resources, and Oregon’s environment.

The one that has state compliant operators a little worried is “overproduction,” given that the Oregon legislature has not capped marijuana licenses and does not require verticality in licensees. When I say “a little worried” I mean very little: So far, of the large number of Oregon cannabis and cannabis-adjacent clients my firm represents, I’ve heard from exactly zero of them with concerns over the Williams Memo. The only people I’ve heard from are reporters.

Still, the Williams Memo is important because it could serve as a template for U.S. attorneys in other states, and it illustrates the curious and uncomfortable bind that U.S. attorneys in states like Oregon find themselves. These attorneys are not going to attempt to shutter licensed and compliant cannabis businesses. It would be too costly, too politically hazardous, and ultimately, too late. On the other hand, when you have serious issues of overproduction, and especially interstate leakage, federal actors appointed by “tough on crime” executives may feel compelled to say something. So Williams did.

For states like Oregon, the hardest part about overproduction is that it is driven by significant and unrelenting demand beyond the four corners of the state. This means that if Oregon were to cap marijuana licenses tomorrow, or to shrink the pool of available licenses to a very small number over time, black market activity would persist. Prices for illegal marijuana would rise within Oregon, but there is nothing to suggest that demand would decrease elsewhere. Said another way: As long as there is demand for Oregon marijuana nationwide, Oregon marijuana will ship nationwide.

Federal drug enforcement policy in the U.S. has always focused on the supply side, with abysmal results. (If you’d like to understand the economics of this, there are many years of data and interpretation, e.g. here, here and here.) Still, the federal government refuses to abandon or adequately reform its supply-side policies. For its part, the Oregon legislature recently enacted SB 1544, which funds interdiction of illegal grows at the state level, but the level of funding is unlikely to kneecap black market activity in any real sense. Southern Oregon especially will always be a banana belt for cannabis.

Given market dynamics and the failures of federal prohibition, the Williams Memo does a nice job of walking the line between what Williams’ bosses probably want and what Oregonians definitely want, as demonstrated by Measure 91 and elsewhere. Ultimately, this memo is unique in that is was penned by a U.S. District Attorney, but it’s nothing new. And it really shouldn’t matter much for state-compliant businesses.

marijuana oregon seminar

On June 7, our own Vince Sliwoski will chair an all-day continuing legal education (CLE) event called The Business of Marijuana in Oregon, along with Jesse Sweet, a lawyer and senior policy analyst at the Oregon Liquor Control Commission (OLCC). This will be Vince’s fourth year presenting at the event and his third year as chair. 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. 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 a fair amount of market consolidation throughout the Oregon cannabis industry. (See our most recent observations on the “state of the State” here).

Oregon attorneys and business owners alike need to be familiar with the unique regulatory concepts and industry dynamics that will be discussed on June 7, 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.

We hope you will join us on June 7 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.

Yesterday, we received a call from Congressman Earl Blumenauer’s office here in Portland, Oregon. The purpose of the call was to discuss an idea to deal with the oversupply of marijuana in the state sanctioned Oregon market. Specifically, the idea was to explore the possibility of an interstate compact with California, where Oregon would sell its excess cannabis to the Golden State, much like Oregon has sold its excess renewable energy over the years. Unfortunately, we don’t think it’s a great idea.

Could a west coast cannabis exchange really work?

We have been writing about the oversupply issue for a while (see here and here). Recently, oversupply has also begun to receive a surge in media coverage (see here, here and here). To be sure, we have a ton of clients who have been affected by depressed cannabis prices lately: These clients include not just farms but processors and retailers who are struggling to move product and cover costs, let alone turn profits. This predictably has resulted in fair bit of industry consolidation as of late, and we have been buying and selling cannabis businesses nonstop for a while now.

Various approaches have been suggested to deal with the oversupply issue in the regulated Oregon market. These approaches include having the state legislature cap the issuance of licenses, like Washington, or having the Oregon Liquor Control Commission (OLCC) curtail maximum allowed canopy sizes. To date, neither approach has gained any traction. Instead, policy makers are simply watching the market attempt to sort itself out, which means watching a significant number of operators fail, while others are swept up by out-of-state and even international investment.

So why don’t we think an interstate compact with California is a great idea? There are a few different reasons. The first is that California has plenty of cannabis in its own right: It just needs to recalibrate regulations that are currently seen as too restrictive to allow most small and mid-sized operators to enter the regulated market. The second reason is that California’s adult use program is too new: The state will almost certainly wish to keep and grow its own legal cannabis, rather than import product from Oregon while a black market thrives. But the biggest reason of all may be that an interstate compact, while exotic, is legally and politically hazardous.

For 22 years and over the course of four presidential administrations, the federal government has taken a general posture of restraint as states have promulgated medical and then recreational cannabis programs. There are a variety of reasons for this, but one is surely the compelling argument that states have under the 10th Amendment of the Constitution to roll out these programs. An interstate compact for the transfer of marijuana, conversely, would be legally indefensible. Not only does the federal Controlled Substances Act, at 21 USC §801, expressly provide that trafficking in “interstate and foreign commerce” justifies federal control of certain substances, but the Supreme Court itself has held that the commerce clause creates grounds for enforcement of prohibition even within state borders.

Moreover, in order to succeed, the interstate compact would almost certainly need to be buttressed by Congressional consent, which is a formal legislative action contemplated by Article I, Section 10, Clause 3 of the Constitution. When Congressional consent is given, an interstate compact literally transforms into federal law. But how would this work if federal law makes the possession and sale of marijuana illegal? And why would Congress grant an inherently problematic consent decree, when it could simply re- or deschedule marijuana? The answer is: It would not. Given this context, any effort by two states to set up a cannabis exchange, if challenged, would go down in flames.

Given the foregoing, and given the increase in Oregon licensees coming online, the local industry is not going to shake its oversupply issue anytime soon. That is why our pragmatic politicians like Congressman Blumenauer are wise to explore paths to establish Oregon as a leading marijuana exporter. For now, though, the focus should be on building and promoting infrastructure within the four corners of the state. This will ensure that Oregon is set up to succeed in a couple of years, when the walls come down nationwide.

oregon hemp cbd
So it goes with Oregon hemp.

In the past six to twelve months, we have seen an extraordinary increase in businesses and individuals interested in growing and processing industrial hemp. This is especially true in Oregon, where Department of Agriculture (ODA) grower and handler registrations are fast, cheap and easy to acquire. In many cases, these registrants are cultivating and processing hemp in order to create cannabidiol (CBD) based products. The products can be sold state-wide without limitation, including into the Oregon Liquor Control Commission (OLCC) adult use marijuana market via hemp-endorsed OLCC processors.

Other entrepreneurs, in Oregon and elsewhere, are extracting CBD for sale interstate. This is a legally nebulous area at the federal level, although interstate sales are not prohibited under Oregon law. With CBD isolate changing hands at upwards of $4,500 per kilo, however, and given the proliferation of CBD products making their way into big box retail, many businesses and individuals feel the risk is worth taking. Perhaps for this reason, we have been getting numerous weekly inquiries as to the viability of CBD sales interstate, especially as of late.

From a state rules perspective, Oregon has taken significant steps in the past several months in building out its industrial hemp regime. We wrote about the recent OLCC rules promulgated in December, which allowed for ODA hemp registrants to sell into the OLCC market; and more recently we wrote about House Bill 4089, which tied up a number of loose ends related to the tracking of those sales. The upshot of all of this is that we now have unprecedented interplay between the OLCC and ODA markets. And as the OLCC hustles to write rules implementing HB 4089, there is a fair bit of confusion about what is actually allowed.

One question that keeps coming up is whether an OLCC processor applicant may process ODA hemp (under both ODA and OLCC rules) while waiting to receive its license from OLCC. According to our reading of the rules, recently confirmed to us by OLCC, the answer is “yes.” Much in the way that marijuana growers used to attempt to “squeeze in” a medical marijuana crop pending their OLCC inspection and licensure, ODA hemp processors can float their operations by processing industrial hemp while in line with OLCC. Note that this is allowed even for ODA processors that are not seeking a hemp endorsement in their OLCC processor applications.

Of course, ODA, local fire marshals and other state or local actors may place limitations on hemp processing operations, or may require certain approvals. And just like with medical marijuana growers converting to OLCC production, OLCC may require that all hemp and hemp-derived items be removed from the processor’s premises as a condition of passing the necessary site inspection. If you think about it, this makes sense: Under OLCC rules, a licensed marijuana processor may not have hemp on its premises except if endorsed to receive that hemp via the OLCC Cannabis Tracking System (CTS) from an ODA grower or handler. Thus, pre-existing hemp items must be removed from the OLCC applicant’s premises prior to receiving the OLCC license.

Once licensed by OLCC with a hemp endorsement, the OLCC processor may receive hemp concentrates and extracts from ODA handlers, and the OLCC processor may receive raw hemp, hemp commodities and hemp products from ODA growers. Note that any form of hemp the OLCC processor receives from an ODA registrant must 1) come with clean ODA test results; and 2) be logged in CTS. Regarding the latter requirement, this means that no sale or transfer is allowed outside of OLCC channels, or to anyone other than OLCC wholesalers and retailers.

Finally, regarding ODA hemp processors–including those businesses waiting in the OLCC application queue–that’s another story. In keeping with the analysis above, those processors can sell their hemp products to anyone under Oregon law. When it comes to interstate sales and federal law, though, that’s a whole ‘nother question.

Happy 4/20.