Data from recent polling conducted by George Washington University shows that a majority of Americans favor legalizing marijuana. Specifically, 73% of those polled favor medical marijuana legalization and 53% favor decriminalization. The poll did not ask the respondents about legalization of recreational cannabis, which is unfortunate as that would have made for another interesting data point.

Interestingly, 68% of the respondents stated that they would be more likely to go to the polls if a marijuana legalization measure were to be on the ballot. The passion that legalized cannabis brings out in the voting populace has the potential to be a driving force in upcoming state elections. NORML’s executive director Allen St. Pierre told Bloomberg that ballot measures on marijuana legalization are set for Alaska’s primary this August and will probably appear in Oregon this November. We have little doubt that marijuana legalization will pass in both states but it will also be interesting to see how those measures’ presence on the ballot impacts voter turnout and voter choice on the other items on the ballots.

Weed 2: Cannabis Madness: Dr. Sanjay Gupta Reports, an hour-long special on CNN last week did a fine job at showing us the human side of marijuana. Weed 2 does a great job showing how people/families are benefitting from cannabis. It also did a nice job discussing the science behind medical marijuana and the complexity and the variety of medical marijuana in various states.

Weed 2 showed us the family of a young child with epilepsy who struggle to find in New Jersey the medical marijuana their child needs. At one point in the show, Gupta proclaims “nothing in New Jersey seems to work for them.” The family is eventually forced to move to Colorado to get their child the strain of marijuana she needs becuase existing laws forbid transporting marijuana cultivated in Colorado outside Colorado.

Those forced to move to a new state to receive the medical marijuana they need are becoming known as “medical marijuana refugees.” There will be medical marijuana refugees until medical marijuana is legal in all states and the federal government allows transporting marijuana between states.

What a shame.

In my home state of Iowa, voices of medical cannabis advocates have grown in recent months from mere whispers to outspoken support. In December, the Quad City Times ran a piece on the Faces of Medical Marijuana in Iowa, which received a lot of interest. A bill introduced in the Iowa Senate was killed the same day it was introduced back in February, but efforts have continued this week to educate lawmakers and to create awareness about the benefits of MMJ for the seriously ill. On Wednesday, the Iowa Senate’s Commerce and Ways and Means Committees heard from patients and their families (as well as from a neurosurgeon and a pharmacist), on the ways in which MMJ can give them a better life. Still, there is little promise that anything will come of these hearings in the current legislative session, the Iowa City Press-Citizen reports. Instead, the legislature is occupying itself with legislation on fireworks and ATVs. Way to go, guys.

As far back as 2010, 64% of Iowans supported legalizing marijuana for medical purposes, according to the Press-Citizen. But the balance of power in Des Moines (Democratic Senate, Republican House and Governor) could continue to be a significant roadblock to legalization proponents. Law enforcement’s stance is unknown, but horror stories of prosecuting patients (like this one) still occur. Governor Terry Branstad’s stance against legalization is no secret (read also here). Though Branstad’s office purports to be putting out the truth about legalization, it is worth noting that many of his stated health concerns have to do with smoking marijuana, as opposed to other forms of use. Branstad also frames many of his objections around chronic use by minors, which, with exceptions for the chronically ill, no one is advocating for. Particularly insulting are the Governor’s assertions that the legalization movement resembles Big Tobacco, and that outdoor grows will create environmental hazards (as many Iowans know, Branstad has never been particularly concerned about the environment).

If the tide is going to turn in Iowa, voters, patients, and doctors will need to speak louder and increase the pressure on their legislators. The Republican advantage in the House is narrow, and many editorial boards are getting behind legalization (read here, here, and here). The Des Moines Register reports today that this week’s hearings have really piqued interest among lawmakers, and may be finally opening some minds, if even just a crack.

As long as marijuana remains illegal under the Controlled Substances Act, there will be those uncomfortable with marijuana businesses, no matter how professional or (state) law-abiding they may be. This stigma is unfortunate, since it may be deterring serious, experienced entrepreneurs from getting into the game. This may be particularly true downstate, which has a deserved reputation for its conservatism.

A number of people I’ve spoken with in the six months since HB0001 was signed have expressed their real concerns that their family, friends, or business associates from their other “legitimate” business endeavors would not condone their participating in a marijuana business, medical or otherwise.

So the question arises — can you be a silent parter in a marijuana business? In Illinois at least, the answer is probably not.

Or at least not without running afoul of the proposed regulations from the Department of Agriculture (governing cultivation centers) and Department of Financial and Professional Regulation (governing dispensaries). Both agencies require disclosure of the ownership structure, breakdowns of ownership percentage, and information on profit/loss sharing and other forms of compensation or return on investment. Both agencies require full disclosure of any direct or indirect “backer.”

The Department of Financial and Professional Regulations broadly defines a “backer” as follows:

“Dispensing organization backer” means any person or entity with a direct or indirect financial interest in the dispensing organization, but does not include a person or entity who holds an interest that does not exceed one per cent of the total ownership or interest rights in the dispensing organization and the person does not participate directly or indirectly in the control, management or operation of the dispensing organization.

Even the smallest financial interest must be disclosed:

“Financial interest” means any actual or future right to ownership, investment or compensation arrangement with another person, either directly or indirectly, through business, investment, or spouse, parent or child in the dispensing organization. Financial ownership does not include ownership of investment securities in a publicly-held corporation that is traded on a national exchange or over-the-counter market, provided the investment securities held by the person, the person’s spouse, parent or child, in the aggregate, do not exceed one per cent ownership in the dispensing organization.

The Department of Agriculture did not provide its own definition of financial interest, but based on the way Ag and DFPR’s rules on financial disclosure mirror one another, it’s a safe bet that Ag views “financial interest” similarly. Although the proposed regulations do not expressly require applicants disclose the individual members or shareholders of an entity backer, I’m willing to bet that information will be required.

Still, it is important to remember that (as far as we know right now) the public will not be privy to the entire contents of an application to obtain a cultivator’s permit or dispensary registration. Certainly the application will be shared among the state agencies dealing with MMJ businesses (including the Department of Revenue, and maybe even the Secretary of State, to the extent any involved entities must be checked up on). But if you are content on trying to make it a little harder for a member of the public to trace your involvement, that might be accomplished through multiple layers of incorporation. Remember — the principles of a corporation or LLC are listed on the SOS’s website, but ownership structure is not disclosed. So, if you buy into an entity (without becoming the president or the secretary, who are listed on the SOS website) that then backs a medical cannabis business, you could fly under the public’s radar.

Based on the broad definitions of “backer” and “financial interest” though, this won’t work with the state.

 

 

A recent Boston Globe article raises interesting questions about how medical cannabis licensing could shake out here in Illinois. Three weeks ago the Massachusetts Department of Public Health issued 20 of the 35 allotted licenses for medical marijuana dispensaries in that state. Now, according to Adrian Walker of the Globe, doubts are emerging about the integrity of the licensing process.

As Walker reports, applicants were encouraged to gather the support of local officials and make note of such support in their application materials. But now some officials are claiming their support was exaggerated or even that they were mislead. Walker also points out that former US Representative turned cannabis lobbyist William Delahunt has a too close for comfort relationship with the state’s health commissioner, Cheryl Bartlett. Bartlett’s department is the one responsible for evaluating and awarding dispensary licenses.

Dispensary applications in Illinois will be subject to many of the same criteria used by Massachusetts. Business and security plans will be evaluated, a facility’s efforts to meet community concerns will be considered, and the proposed site’s ability to provide consistent, quality care to patients will be an absolute must. But like the Massachusetts dispensary applicants, applicants in Illinois will also run into opposition (or at least reluctance) from local officials and lawmakers. Illinois is no stranger to political corruption, so it stands to reason that conflicts of interest and political deal-making might surface here too.

In Massachusetts, the Department of Public Health is largely responsible for implementing the state’s Act for the Humanitarian Medical Use of Marijuana, but the Illinois regime is governed by three state agencies, the departments of Public Health, Financial and Professional Regulation, and Agriculture. This division of power could be a deterrent to corruption or an opportunity to grease more palms. No matter which way you view it, you want both the relevant state agency and the local officials in the city your facility is located in to be comfortable with you and with your proposed cannabis business. Let Massachusetts be a lesson that your ties to local pols and the state should be real.

Over the past six months we have fielded dozens of calls (and emails) from people looking to get into Illinois’ MMJ scene, ranging from the mildly curious to the serious, well-heeled entrepreneur complete with an incorporated entity and investors in hand. But no matter who is on the other end of the line, certain questions always seem to come up, to which our reply has been: “We should get answers from the state during rule-making.” Now that the departments of Agriculture and Financial and Professional Regulation have released their draft rules, we finally have some clarity on many of these issues and the below is what we now know:

  • Vertical integration: We’ve always read HB0001 to not expressly prohibit anyone from owning both a dispensary and a cultivation center. Of course, that is not the same thing as saying it is actually allowed, but we can safely say now that Illinois has given vertical integration the green light. Section 1290.100(i) of DFPR’s draft rules states that a dispensing organization in good standing “is not prohibited from applying for a cultivation center registration in conformance with the Department of Agriculture’s rules.” Unfortunately, there does not seem to be a parallel rule among the Department of Ag’s guidelines, so we are still left wondering whether a business looking to vertically integrate has to first obtain a dispensary registration. Also worth noting is that your vertically integrated businesses must still be physically distinct because the Ag rules require cultivation centers be at least 1000 feet from other cultivation centers or dispensaries. Finally, you won’t be able to integrate testing into your dispensary or cultivation center since laboratories must be completely independent from MMJ businesses.
  • Residency: Many were concerned Illinois would impose a strict residency requirement, in keeping with the state’s mission to institute the nation’s most hard-nosed MMJ regime. Instead, there are subtle nods to the fact that a non-Illinois business can get in the game. Out-of-state applicants may apply but must show proof of good standing and authority to transact business in Illinois. Also, extra points will be awarded to applicants based in Illinois providing jobs to Illinoisans. These provisions are applicable to both cultivator and dispenser applicants.
  • Multiple licenses: A single entity may hold up to three cultivation center permits. Dispensers may be awarded up to five registrations. Same rules apply for individual officers, directors, shareholders, etc.
  • Fees: Rumors had been swirling that application fees would be between $50,000 and $100,000. In the end, these numbers were not too far off, but a two-step application process has been proposed for both cultivators and dispensers, so it won’t be so costly just to throw your hat in the ring. The initial (non-refundable) application fee to obtain a cultivation center permit is $25,000, $5,000 for a dispensary authorization. If you are the lucky winner and your application is approved, you will pay an additional $200,000 for a cultivator’s permit and $30,000 to register your dispensary.
  • Form of entity: Other states have mandated that medical marijuana enterprises operate as a non-profit (or, in Washington, the confusing “collective garden”) and many thought Illinois would require the same, especially since a non-profit entity requirement was part of draft versions of HB0001. But the legislature did not impose such a requirement in the end. HB0001 was not very explicit, but the proposed regs from Ag and DFPR clearly contemplate corporations, LLCs, partnerships and sole proprietorships participating in the IL MMJ market.
  • Transferability: Before even entering the market, some wanted to know how easy it will be to get out. The short answer is, not very. Mechanisms have been set up to transfer a cultivation center or dispensary to a new location, and to get state approval for selling stock in your MMJ business, but cultivation center permits and dispensary registrations are explicitly deemed non-transferable and non-assignable. The sole exception is transferring an ownership interest in a cultivation center permit to a surviving spouse upon the death of the permit holder.

Stay tuned for upcoming posts on the particulars of Illinois MMJ applications and what it will take to be an owner of a medical cannabis business here (spoiler: telling the state a LOT about yourself).

 

As cannabis business lawyers, it is our job to be very precise. As such, there are two issues about which we frequently find ourselves having to correct our clients. In many different states.

The first is when our clients in states or counties or cities where marijuana has been decriminalized tell us that marijuana is legal there. It isn’t.

You can be fined for parking in a no parking zone but you cannot be jailed for that. The same is true for decriminalized marijuana.

The other big difference between decriminalized marijuana and legalized marijuana is that when marijuana is legalized, it can and is regulated and taxed–there’s a legal chain of distribution. Decriminalization typically means that it is not regulated and many normal taxation rules do not apply.

The second is when our clients just assume that because marijuana is legal in their state that it is also legal wherever they may be in the state. Unfortunately, that is not always true.

Let’s look at four states by way of example:

Washington. Recreational marijuana is legal in Washington State for both licensed entrepreneurs and adults 21 and over, but there are a number of cities and counties that have prohibited selling marijuana within their city limits. This prohibition is of questionable legality, but unless and until someone prevails on a lawsuit against one of these cities, the prohibition is there. It bears noting that a bill is currently pending in the state legislature to prohibit cities and counties from banning marijuana.

California. California obviously doesn’t have recreational marijuana as they’re still operating under a medical marijuana system. Sales of marijuana are prohibited and the usual business model is a non-profit based on donations. Nonetheless, each city literally has a different ordinance or ban in play (Los Angeles seems to constantly ban and repeal its local marijuana laws). Moreover, California’s State supreme court last year ruled that cities could freely ban marijuana commercial activity because the law never said they couldn’t.

Illinois. Illinois is moving forward with legalizing medical cannabis, but there is already talk by a number of cities and counties of banning medical cannabis locally or looking to aggressively zone it into near non-existent areas. We urge cannabis stakeholders in Illinois to contact their state lawmakers and suggest that they follow the lead of the politicians in Washington and seek to enact a state law prohibiting the balkanization of medical cannabis laws within the state. If the locals don’t participate, the industry will never successfully get off the ground.

Nevada. Nevada is also in the throes of revising its medical marijuana program to allow for licensed dispensaries. Though the state has finally clarified that a licensed chain of distribution will take place, we recently blogged about the Las Vegas City Attorney’s absolute refusal to move forward with implementation in Sin City. Even though what happens in Vegas stays in Vegas, the authorities there have cold feet over marijuana.

Oregon. Oregon, like Nevada, has revised its dispensary laws to provide for a licensed State system. Nonetheless, cities are still continuing to ban marijuana commercial activity, characteristically hanging their hats on waiting until the legislature and regulatory agencies make their decisions. This is a mistake for cities if a State law has passed and the regulatory agencies are promulgating rules. It’s incumbent upon all industry players to get a seat at the table with their city councils to ensure that their voice is heard. Education and participation, people. That’s the way to prevent one of these draconian bans.

The bottom line? Marijuana regulation is a moving target on the local level. Even though state legislatures may be enlightened enough to listen to their constituents to pass these laws, that in no way means that all cities and counties within the state are on the same page. What that means for you is that you must stay educated on the laws and politics in your area because it could be the difference between commerce and crime.

Legalized cannabis has so far been confined only to certain states and cannabis remains illegal under federal law. If you have a marijuana business in a state where marijuana is legal, you need to ensure your contracts take into account this state/federal dichotomy. If you don’t, you may find yourself unable to enforce your contract.

Let me explain.

In states where marijuana (be it recreational or medical) is now legal, your marijuana business is now legal. With this legitimacy comes the expectation that you will operate like a legal business. For us cannabis business lawyers, this means that we are constantly drafting all types of contracts for our cannabis business clients. We draft leases. We draft employment contracts. We draft distribution agreements. We draft licensing agreements. We draft purchase and sale agreements for all sorts of items that go with operating a legal cannabis business, including contracts to buy and sell cannabis trademarks and copyrights.

We draft our cannabis contracts to require resolution of disputes in the state in which the medical cannabis business operates, to ensure that the contract will be enforceable. Because of federal prohibition, the federal courts are not likely to enforce most contracts entered into by cannabis businesses, and they certainly will not enforce a contract to buy or sell cannabis. In other words, if you should find your cannabis business in a federal court, (be it a district or bankruptcy court), or in a state court where marijuana is still illegal, there is a good chance the court will deem your contract void and will not enforce it. The same goes for states that have not legalized cannabis.

In real world business terms this means that if your cannabis business is going to use contracts to protect its business interests, (which it should), and you want to be able to enforce those contracts, (which of course you do), you are going to want to avoid the state and federal jurisdictions where marijuana remains illegal. In other words, you need to ensure your dispute will stay in your “home” court. Such forum selection clauses have the added benefit of minimizing the risk that the counter-party on your contract can remove your case to federal court after you sue in state court.

Therefore, you must be certain that any contract you sign on behalf of your cannabis business contains a provision making clear that all claims must be resolved in the state courts of the state in which you operate. Be sure the contract also provides that the contracting parties waive any right they might have had to pursue claims in or remove claims to a federal court.

Bottom LIne: The patchwork of legalization on the state and federal levels creates obstacles for cannabis business at nearly every turn, but finely tuned contracts provide one opportunity to put some predictability into your business relations.

 

Nothing much really new in this Fox News article, Colorado’s pot tax revenues could go up in smoke, says lawmaker, but it does a really nice job in laying out the banking issues legal cannabis businesses are facing.  The article explains why the lack of banking for marijuana businesses is causing problems for both the businesses themselves and the states that would like to collect taxes on marijuana revenues. It also provides a concise update on where the federal government (as relayed by Eric Holder) stands on all this.

Holder admits to the problems that will be incurred if banking does not become easier and more prevalent for legal marijuana businesses (be prevalent engaged in recreational or medical cannabis sales) and he seems to ensure that the federal government will be issuing new banking regulations “to deal with that issue [banking for marijuana businesses].”

That would be good for just everybody, so let’s hope so.

We have seen this before and we expect to see it again. And again.

First a state legalizes medical cannabis, then as the realities of that start to sink in, there is a push for legalization of recreational cannabis as well, usually with an emphasis on the benefits of capturing tax dollars. The shift from medical cannabis to recreational marijuana used to be counted in more like half-decades, but with the acceleration of legalization nationwide, we anticipate these timelines accelerating.

That appears to be what is happening in Nevada, where before the ink on its legalizing of medical cannabis (SB374) has even dried, there has been a strong and viable push for recreational marijuana. A Las Vegas Sun story, Nevada’s marijuana advocates are hoping for full legalization next year, sets out the path towards full legalization in Nevada. Advocates for marijuana legalization in Nevada must first secure 102,000 signatures to “setting the stage for a vote in the state Legislature in 2015. If the measure fails to win the support of two-thirds of the lawmakers, the question would go to voters in 2016.” Joe Brezny, executive director of the Nevada Cannabis Industry Association and officer with the Campaign to Regulate Marijuana, is leading the charge.

We call it progress.

Get out the vote Nevada….