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

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

  1. Failure to properly estimate license transition timelines

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

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

  1. Paying lawyers to expedite your OLCC application

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

  1. Starry-eyed forecasting

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

  1. Employment issues

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

  1. Bad (or no) business agreements

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

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

employment law oregon cannabisOwning a cannabis business can present formidable challenges. Adhering to the OLCC rules can be complex in and of itself, but your business must also comply with an array of state and federal employment laws and regulations.

If you are an OLCC licensed cannabis business with employees, Harris Bricken employment lawyer Megan Vaniman will present a free webinar tomorrow, December 12, 2018 at 12pm PST to help you better understand these issues. Throughout the presentation, Megan will discuss how to navigate employment law for cannabis businesses, and provide you with tips and tricks to ensure compliance. Topics Include:

  • What to consider when hiring
  • Oregon’s sick leave requirements
  • Oregon and Portland’s “ban-the-box” ordinance
  • Final pay checks
  • Independent Contractor vs Employee designation

Moderated by Harris Bricken cannabis attorney Vince Sliwoski, Megan will also address audience questions throughout the presentation. Please register by clicking here. For any additional questions regarding the webinar, please contact firm@harrisbricken.com. We hope you can join us!

Oregon psilocybin psychedelic mushrooms

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

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

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

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

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

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

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

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

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

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

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

Clackamas County

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

Josephine County

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

Deschutes County

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

New Oregon cities 

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

oregon marijuana OLCC report
Pretty good report for licensed Oregon producers.

On Monday, the Oregon Liquor Control Commission (“OLCC”) released results of enforcement inspections of recreational marijuana producers, which indicate that the majority of inspected licensees are in compliance with Oregon laws and the OLCC rules.

“Operation Good Harvest” was a saturation compliance effort that focused on Oregon’s fall 2018 legal outdoor cannabis harvest. OLCC inspectors were in the field for the past two months and conducted 354 inspections across the state, with an emphasis on southern Oregon, a hotbed of marijuana production, accounting for more than a third of the recreational marijuana licenses in the state.

The OLCC inspected a total of 354 outdoor producer licensees and found that 259, or 73 percent of them did not have any “deficiencies” nor were they likely to commit potential violations. Of the 95 licensees with deficiencies, 41 have potential violations that could lead to the cancellations of their license, which roughly represents 12 percent of the outdoor producer facilities inspected. A more comprehensive overview of the inspection results is as follows:

Region

Inspections Licensees with Deficiencies Compliance Rate

Possible License Cancellations

Statewide

354

95

73%

41

Bend

11

5

55%

2

Eugene

44

9 44%

5

Medford

167

43 74%

22

Portland Metro

102

33 68%

11

Salem

30

5

83%

1

The inspections reflect our agency’s effort to prevent diversion from Oregon’s legal cannabis market, and we’ll continue compliance activity across all license categories to maintain the well-regulated market that Oregonians expect”, declared Steve Marks, OLCC Executive Director.

The results of Operation Good Harvest demonstrate that the OLCC continues to take steps to corral Oregon’s overproduction of marijuana by taking a tougher stance on rule violations by licensees. (For some background on this administrative policy progression, we have recently written about OLCC’s recent “tightening up”, from application scrutiny through dealing with non-compliance.)

The result of Operation Good Harvest also seems to reinforce the fact that the surplus of marijuana in our state does not generally emanate from cannabis grown and produced by OLCC licensees, despite earlier reports to the contrary. Instead, illegal export tends to stem from unlicensed grows and from poorly regulated, quasi-commercial systems like the Oregon Medical Marijuana Program.

As far as the violations actually turned up by OLCC inspections in Operation Good Harvest, the most common deficiencies pertained to issues with cameras and surveillance coverage. Other common violations included:

  • Data in the Cannabis Tracking System (METRC) not matching plants or product found on the licensed premises;
  • Marijuana plants not tagged and entered into METRC;
  • Failure to provide the OLCC with harvest notification information;
  • Making unapproved alterations to the licensed premises; and
  • Using scales not approved by the Oregon Department of Agriculture.

The agency is currently investigating licensees for alleged violations and will decide how to charge these license holders once its investigations are complete. Any licensees whose license will be revoked will be entitled to challenge the OLCC charges through the State of Oregon’s Administrative Hearings process However, the final decision on any charges will be made by the OLCC Commission.

Operation Good Harvest produced promising results, showing that Oregon continues to be a leader in regulating cannabis, and that this nascent industry is slowly but surely finding its equilibrium.

OLCC oregon violation license
Recommended compliance level for Oregon licensees.

A couple of months ago, the Oregon Liquor Control Commission (OLCC), for the first time, rejected a settlement offer from a licensee who had violated OLCC rules. At the time, we speculated the OLCC was done with settling and moving towards stricter compliance requirements. It seems, along with more stringent review of applications, the OLCC is doing exactly what we predicted and either rejecting settlement agreements or negotiating tougher settlements that result in licensees voluntarily giving up their licenses.

On September 21, the OLCC approved an administrative law judge’s (ALJ) order to temporarily suspend the marijuana license of the Corvallis Cannabis Club. Typically, a licensee is allowed to continue to operate as normal after receiving a charging document from the OLCC pending the outcome of a settlement or hearing. However, the Corvallis Cannabis Club was under investigation from the federal DEA and the OLCC agreed with the ALJ that a temporary suspension was necessary.

That same day, the OLCC also cancelled High Cascade Farms license after determining the licensee had violated 13 OLCC rules including transporting marijuana to an off-site location and intentionally misrepresenting to the OLCC what happened to the plants.

On October 26, 2018, the Oregon Bud Works agreed to surrender its license to the OLCC after committing 10 OLCC rule violations including changing the licensed premises without approval from the OLCC, failing to keep required surveillance video, and misrepresenting data in METRC.

I have spoken with several people at the OLCC recently about these developments. They all have the same message: now more than ever, it’s time to ensure compliance with the rules. The OLCC believes there has been sufficient time since legalization and the rules have rolled out for licensees to understand and abide by the rules. They are no longer willing to consider settlements that allow licensees to keep their licenses when there are multiple rule violations or especially egregious rule violations.

It unlikely that the OLCC will ever go back to reduced penalties for egregious violations or multiple violations. The agency seems less interested in teaching compliance at this point, than culling the herd. So what can you, an OLCC licensee do?

First and foremost, get familiar with the rules. Undoubtedly, the rules are expansive and overwhelming. They also change frequently. However, if you want to preserve your license, one of the most important assets you can have is a compliance person whose job it is to know the rules and ensure that your company complies at all times. On this point, make sure all of your employees are familiar with the rules, as well. The fact that an employee has a marijuana worker permit is not enough– your business is on the hook for any violation they may commit.

Second, when you have questions about whether a step or process is correct, specialized cannabis business attorneys are a great resource to assist. If you can have person dedicated to ensuring compliance and an attorney to help with interpretation when necessary, hopefully your licensed business will avoid a charging document from the OLCC. Those documents are looking more and more dangerous, and contesting them can be quite a process.

oregon cannabis marijuana sisters sumpter klamath clatskanie ontario
Oregon is getting greener and greener each cycle.

Cannabis not only won big around the country on Election Day 2018, but also on a local level last week within states that had already legalized adult use marijuana, such as Oregon and California. As to Oregon in particular, a handful of cities voted to lift bans on recreational marijuana on November 6. Nearly all of them succeeded.

As we’ve previously explained, Oregon allowed cities and counties to opt out of the legal sale of recreational cannabis. Many cities and counties–particularly rural areas east of the Cascades–chose to go this route. One of the few ways cities and counties can lift the ban is through local initiatives that are presented to the voters. On November 6, some of those previously opted-out Oregon cities were able to life their bans through this process.

Ontario

Back in 2014, when Oregonians as a whole voted on the legalization of recreational cannabis use and sales, Ontario, Oregon was one of the cities that overwhelming voted against legalization. Ontario’s strong stance against the legalization of recreational marijuana allowed the city to ban the sale and production of marijuana. That all changed on November 6, 2018. According to preliminary results, the city lifted the ban with 1904 citizen voting in favor of the sale and taxation of marijuana within the city and 1450 voting against. The ban will officially lift on January 2, 2018. At that time, marijuana business owners can submit applications to the city for conditional use permits to open retail stores in the City. (Full disclosure: We worked on this initiative process.)

Klamath Falls

Similar to Ontario, Klamath Falls banned marijuana after the November 2014 statewide vote. On election night 2018, the Klamath Falls voters passed an initiative allowing recreational sale of marijuana in the city. Klamath Falls ban on recreational sales will be lifted in February 2019.

Klamath Falls faced strong opposition in an anti-pot PAC that raised more than $23,000 against the petition. Not a small measure for a local election. The surrounding county, unfortunately, is still dry.

Clatskanie

Unlike Ontario and Klamath Falls, Clatskanie citizens voted on what is known as a “referendum.” A referendum is an ordinance passed by the City Council that is put to public vote. Here, the city council of Clatskanie proposed a vote on banning marijuana businesses in the City limits. The voters made their intentions clear and struck down the ordinance—meaning the City must allow marijuana businesses within City limits. Another win.

Sumpter

Sumpter may have squeaked out a victory for recreational marijuana businesses on election night. According to the Baker City Herald, 73 persons voted no to banning marijuana businesses whereas 72 voted yes to the ban. Sumpter may be joining Klamath Falls and Ontario in the new year licensing recreational marijuana businesses. This one is incredibly close.

Sisters

Unfortunately, Sisters was unable to generate enough votes to lift the ban. Nearly 57 percent of voters in Sisters voted to keep its current ban on recreational marijuana businesses banned in the city limits. Perhaps city residents were biased after two Sisters residents were arrested on October 11 related to an illegal operation.


All in all, it was a good night for local cities. Many Oregon cities have tried and failed to lift bans in past elections, however, there seems to be a clear movement towards lifting bans in cities to allow the recreational sale of marijuana (and getting access to that growing stream of state-wide tax revenue). We here at Harris Bricken are hopeful the trend will continue, and are excited to be a part of it along the way.

label CBD hemp oregon FDA
Start from scratch with your CBD product labels.

Since the beginning of the year, our firm has received a growing number of inquiries related to the labeling of cannabinoids (“CBD”)-infused foods. This legal issue is particularly confusing given the fact that the U.S. Food and Drug Administration (“FDA”) has yet to provide clear guidance for this category of products. This post aims to shed some light on the matter by addressing some of the requirements with which manufacturers and distributors of CBD-infused foods, specifically those derived from industrial hemp, must comply in Oregon.

Unlike the State of Indiana, which recently adopted the most stringent labeling rules for hemp-derived CBD products, Oregon opted to defer to the labeling rules promulgated by the FDA.

The Fair Packaging and Labeling Act (“FPL”) directs the FDA to issue regulations requiring that all “consumer commodities” be labeled to disclose net contents, identity of commodity, and the name and place of business of the products’ manufacturer, packer or distributor. Specifically, the FDA rules aim to ensure that foods sold in the United States are safe, wholesome and properly labeled.

The FDA rules provide two ways to label packages and containers:

  1. Place all label statements on the front label panel (also known as the “principal display panel” or “PDP”), which is the portion of the package label that is most likely to be seen by the consumer at the time of purchase (i.e., the front of the package or container); or
  2. Place certain statements on the PDP and others on the information panel, which is the label panel immediately to the right of the PDP, as seen by the consumer facing the product.

Although the FDA gives you the option of placing all label statements on the PDP or split them between the PDP and the information panel, you must ensure that the following label statements appear on the PDP:

  • The statement of identity or name the food as commonly known or used (e., chocolate, pasta); and
  • The net quantity statement or amount of product.

Due to the FDA’s ambiguous position on CBD, manufacturers and distributors should refrain from using the term “CBD” in their statement of identity and should favor instead the term “industrial hemp-infused.” (If you have been on Amazon lately, you will notice that everyone has moved over from the “CBD” to “industrial hemp” terminology.) Note also that the FDA rules impose strict font sizes and methods to accurately determine the weight of your product. Make sure you comply!

In addition to the statement of identity and the net quantity statement, labels will have to provide:

  • The Manufacturer/Distributor Information.
  • Ingredients List: Each ingredient must be listed in descending order of predominance (i.e., heaviest to lightest).
  • Nutrition Labeling, unless you qualify for an exemption, such as the “manufactured by small businesses” exemption which applies to companies that refrain from making nutritional claims and generate $50,000 or less in annual sales.
  • Serving Size.

Lastly, manufacturers and distributors should abstain from making any health claims in fear of being investigated by the FDA which treats products with labels containing health claims as drugs, not food (see here and here more information on this issue). Sometimes, “health claims” can be a fine line, so you should assume that the FDA is going to take a restrictive view of what you can and cannot say.

Although the FDA does not impose a pre-approval process of food labels, manufacturers and distributors of CBD-infused foods should have their labels reviewed by an attorney before they enter the market. Relying on attorneys who are well-versed on the issue of CBD law will ensures compliance with the FDA rules, but also help manufactures and distributors avoid wasting money on reprinting labels and marketing materials.

oregon cannabis salesperson representative

Outside sales people can be a great tool to sell your cannabis product. They may be invaluable to your company. In Oregon, outside sales people may be exempt from minimum wage and overtime requirements if certain requirements are met. Lately, we’ve seen more and more Oregon marijuana companies start working with outside sales people (sometimes called a “sales representative”, “account representative”, etc.) in order to get a leg up in the highly competitive Oregon industry.

As with any sort of employment-adjacent relationship, working with outside salespersons is covered by administrative rules, in this case through the Bureau of Labor and Industry (BOLI). As such, OAR 839-020-0005(4) defines an “Outside Sales Person” as:

an employee who is customarily and regularly engaged away from the employer’s place of business and the salesperson is employed for the purpose of making sales or obtaining orders or contracts for services or for use of facilities for which a consideration will be paid by the client or customer, and the person’s hours of work spent engaged in activities other than sales does not exceed 30 percent of the hours worked in the workweek by non-exempt employees of the employer.

That’s a mouthful: Let’s look at how that might work in practice. A producer could have an employee that travels to processors, wholesalers, or retail stores to induce them to buy the producer’s product. The employee may provide samples to the prospective buyer in accordance with Oregon Liquor Control Commission (OLCC) rules, and induce them to enter into a contract to purchase the producer’s flower. If the employee is performing this type of work, outside of the producer’s farm a majority of the time, they may legally be qualified as an outside sales person. If so, minimum wage and overtime laws would not apply to the outside sales person.

For practical purposes, this means you would not be required to pay the outside sales person the current Oregon minimum wage of $10.75 per hour, nor would you be required to pay the sales person time and half for when the person works over 40 hours in a week. However, if you employ an outside sales person, you shouldn’t take this as permission to pay them less than the current minimum wage. The exemption exists for outside sales persons because they are typically paid commission wages. Commission wages is typically a percentage of sales. If an outside sales person is unable to enter into enough contracts to obtain minimum wage based on their commission status, the exemption is there to protect employers from having to supplement their wages to ensure they are receiving minimum wage.

Because we are talking cannabis, things are more complicated, of course, especially where a cannabis employer chooses to pay an employee commission wages instead of hourly wages. Under OLCC rules, any employee that receives commission payments is considered a person with a “financial interest” in the business. Persons with a financial interest in a cannabis business must be disclosed to the OLCC, and in certain circumstances, the OLCC may require the person to undergo a background check.

What the take-away from this information? An outside sales person can be a great employee to have as a cannabis business in Oregon. In certain circumstances, you may not be required to pay the employee minimum wage, and instead, create a commission structure for the employee’s wages. However, before this is done, the employee should be disclosed to the OLCC as a person with a financial interest in the business. If you are ever unsure if an employee qualifies as an outside sales person or needs to be disclosed to the OLCC, it’s always best to consult an attorney before making any changes that could have legal consequences. And it’s very important to have the scope of the relationship in writing, in order to protect your business from BOLI and other claims.

cannabis marijuana RICO litigation
Time for some of these plaintiffs’ lawyers to pack it up.

We’ve been writing about RICO lawsuits on this blog for a while. These lawsuits are typically brought by neighbors of state-licensed cannabis farms, who allege they are bothered by noise and smells associated with cannabis production, and that their property values have been damaged by extension. Generally speaking, these plaintiffs tend to have strong prohibitionist beliefs. Filing RICO lawsuits has also become a cottage industry for certain lawyers, and there are even educational courses for attorneys who want to spend their time on this sort of thing.

As a reminder, RICO is a federal statute that provides for a civil cause of action for acts performed as part of an ongoing criminal organization (in addition to criminal penalties). Because RICO complaints sound in federal law and implicate supply chain and vendor defendants, these cases differ from your ordinary nuisance-and-trespass actions, which pursue only the marijuana grower itself, and are also occasionally brought against cannabis farms.

The first RICO lawsuits started popping up a few years ago, and some of them are backed by prohibitionist groups attempting to rattle the industry. One common strategy of RICO plaintiffs, particularly in the early litigations, was to name every vendor doing business with the cannabis farm, including those that never touched the plant itself: e.g., banks, insurance vendors and equipment providers. The RICO plaintiffs would then dismiss these defendants one by one, as each defendant cut ties with the defendant farm— which seems like a racket if there ever was one.

Although pot-neighbor litigation is probably not what Congress had in mind back when it wrote the Racketeer Influenced and Corrupt Organizations Act, RICO litigants have found some success with their approach, most notably in a 10th Circuit case called Safe Streets v. Hickenlooper, which allowed a RICO lawsuit to proceed in Colorado. More recently, however, the U.S. District Court for the District of Oregon dismissed a RICO lawsuit brought by a different marijuana farm neighbor for “failure to state a claim.” That case is known as Ainsworth v. Owenby and Judge McShane’s well-reasoned decision tees up a potential circuit split.

Like most leading business law firms who specialize in the cannabis industry, we have had quite a few clients ensnared in RICO lawsuits. These client defendants have included everyone from the property owners themselves, to far-off dispensaries that were unaware the cannabis they sold came from a defendant farm. Fortunately, these lawsuits aren’t really panning out for plaintiffs and we expect to see the RICO trend wind down. Recent case law developments in both Oregon and Colorado show why.

Oregon

Last month, a case known as Rice v. Ambrocio settled relatively quickly, having been filed only five months before. Rice was a waste of time and money, and it’s a good example of why people don’t like lawyers. The 56-page complaint named almost 50 defendants, although not all of them “appeared” in the case and a few were never served. The parties ultimately settled for a $60,000 collective payment to the plaintiffs (a guy who runs an anti-cannabis website, and his partner), which pencils out to a measly $1,200 per defendant on average. Most importantly for defendants, the settlement agreement is non-confidential.

This unimpressive plaintiffs’ outcome should make potential RICO litigants think twice about filing a lawsuit—especially one where it appears that the marijuana activity has all but ended on the defendant property before papers are even filed. Ultimately, if you want to file a complaint in federal court and take on 50 defendants, you are going to burn a LOT of cash just getting the thing filed and served. And, even if you battle your way through months or even years of motion practice, counterclaims, appeals, etc., the likelihood of success may not be great. Which brings us to Colorado.

Colorado

Earlier this week, we had what may have been the first jury verdict in a cannabis RICO case, and it came down in favor of the cannabis grower defendant. The plaintiffs were represented by a Washington, D.C. law firm with ties to Jeff Sessions, and apparently backed by a national anti-cannabis group known as Safe Streets Alliance. For all of that firepower, however, the plaintiffs could not prove their property value had been damaged by the cannabis grow they despised. The jury believed the defendants’ real estate expert, and reached a verdict relatively quickly in favor of the cannabis business. This case had been going for three years or so, and the plaintiffs had previously had the larger portion of their lawsuit—which sought to invalidate Colorado’s marijuana program entirely—thrown out.

The “no damages” finding by this jury is an extraordinary end to a protracted piece of litigation. When my law firm has potential clients come to us who are interested in filing litigation, we always look at a couple of things right away in addition to whether the claims seem viable. One of those is whether the potential plaintiff has been damaged. If the answer is “yes” (and the possibility of collection seems reasonable) we can usually proceed. But if the answer is “no”, bringing a lawsuit is probably a bad idea, regardless of whether the other side has breached a contract, done something “illegal”, etc.

If juries in cannabis RICO cases are going to find that cannabis production does not diminish the value of nearby properties, and that grower activity does not damage neighbor plaintiffs, these wasteful lawsuits may finally disappear altogether.

For more on RICO marijuana litigation, check out the following posts in our series: