California Cannabis Zoning: Update on the County of San Mateo Case and CEQA

California Cannabis Delivery: Not So Fast and Furiously Difficult

California Cannabis Taxes and IRC Section 280E

Want to Know More About California Cannabis Laws and Rules? Join Us Tomorrow in Santa Monica!

Tomorrow and Friday, at the DoubleTree Suites by Hilton Hotel in Santa Monica, Hilary Bricken will be chairing a CLE on California Cannabis Laws and Rules, with a specific focus on SoCal’s cannabis business and regulatory scene. The event will be produced by The Seminar Group. You can see a copy of the agenda here.

In addition to our own Jim Hunt, Julie Hamill, and Alison Malsbury, some of the featured speakers include:

Lori Ajax, Chief of the Bureau of Cannabis Control, was appointed by Governor Brown in February 2016. Prior to her appointment, she served as Chief Deputy Director at the Department of Alcoholic Beverage Control where she spent 22 years working her way up the ranks, starting at the investigator trainee level.

Fiona Ma, CPA, Board Member, California State Board of Equalization (BOE), District 2, represents 23 counties and nearly ten million Californians in her District. As one of the few Certified Public Accountants to serve on the BOE, she is a strong voice for businesses and taxpayers – taking the lead in clearing the haze around the cannabis industry by holding informative stakeholder meetings discussing key issues.

Cat Packer was appointed by City of Los Angeles Mayor, Eric Garcetti, in August 2017 as the first Executive Director of the Los Angeles Department of Cannabis Regulation. The Department of Cannabis Regulation is a newly-established city entity tasked with cannabis policy implementation and licensing commercial cannabis activity within the City.

Avis Bulbulyan is the CEO of SIVA Enterprises, a full-service cannabis business development and consulting firm that provides state licensing, management, venture opportunities, product and brand development, and insurance to entrepreneurs across the United States. He oversees corporate direction, business development and strategy, facilitating company activity in consulting, alliances and channels, marketing, investments and operations.

This seminar will cover topics directly relevant to California’s medical and recreational cannabis laws and regulations under the Medicinal and Adult-Use Cannabis Regulation and Safety Act and California cannabis businesses, including state and local licensing and approval structures, various local laws and land use issues and concerns, including in the City of Los Angeles, cannabis investment in California, intellectual property and patent registration and policing, a banking update, California hemp laws and regulation, emerging areas in cannabis commercial litigation, various real estate issues around commercial leases and property purchases for cannabis uses, taxes and the treatment of cannabis income under IRC 280E, California cannabis water rights and licensing requirements, and a boots on the ground perspective from actual cannabis operators in the State of California.

For a $100 discounted entry into this two-day seminar, call The Seminar Group at 800-574-4852 and specify code FAC100 – or register online here and enter that code where specified.

Hope to see you there!

source https://www.cannalawblog.com/want-to-know-more-about-california-cannabis-laws-and-rules-join-us-tomorrow-in-santa-monica/

California Commercial Cannabis Update: Good News for Small Manufacturers

How Canadian Public Companies Invest in U.S. Cannabis

Congress Speaks: State Medical Marijuana Laws are Safe Until September 30

Cannabis, Commercial Real Estate and Bankruptcy: A Case Study in Competing Priorities

Oregon Cannabis: OLCC Systems Audit Gets Mixed Results, Part 2

BREAKING: California Releases Emergency Regulations for Manufacturing Cannabis in Shared-Use Facilities

Today, the California Department of Public Health (CDPH) released its proposed emergency regulations governing cannabis manufacturing in shared-use facilities. We’ve written previously about CDPH’s statement that it was developing an additional license type, Type S, which would allow businesses to share facility space, and we’re pleased to see such quick progress in rules development. We see this license type as benefiting small business owners who may not otherwise be able to afford buildout of their own manufacturing facility.

According to the CDPH, the proposed emergency regulations will be filed with the Office of Administrative Law (OAL) on April 3, 2018, and will then undergo a five-day public comment period until April 8^th. The stated goal of these new regulations is to “provide opportunities for small manufacturing businesses,” and is “in response to demand from cities and counties wishing to implement equity programs.” The regulations should be important to an often neglected segment of industry players.

Under the current rules, each manufacturing licensee must occupy its own separate and distinct premises, with the exception being that a licensee may hold both an M- and an A- license of the same type on one premises. But under the proposed rules, Type 6, 7 or N licensees would be able to register their location as a shared-use facility. After approval by the CDPH, other cannabis manufacturers wishing to utilize that shared-use facility would apply for a Type-S license.

This new license structure would “allow for operations similar to a commercial kitchen or agreements in which larger manufacturers offer space and use of equipment to smaller ones.” This license type will open the door to many small manufacturers who have been unable to secure their own real estate in a highly competitive market, or do not possess the requisite capital for building out their own facility. In that sense, we are pleased to report today’s development.

Some important things to note about these new regulations:

• A licensed premises still cannot be used to manufacture any non-cannabis products, and each manufacturer on the premises must be licensed by the state.
• Type-S licensees may only conduct the following cannabis manufacturing activities:
  • Infusions;
  • Packaging and labeling;
  • Extractions with butter or food-grade oils (the extract or concentrate produced can only be used in the Type S licensee’s infused products).
• The shared-use facility must include storage for the Type-S licensee’s cannabis and cannabis products.
• The primary licensee/owner of the shared-use premises must assign a designated area to be used as a shared space. They must post an occupancy schedule, outlining the days and/or times that the space will be used by Type-S licensees, and only one licensee can utilize the space at a time.
• There is no limit to the number of Type-S licensees that can operate within a registered shared-use facility, but again, only one licensee can utilize the shared space at a time.
• The primary licensee is responsible for ensuring that the entire facility meets the conditions for cannabis manufacturing under state and local law and the cannabis manufacturing regulations. This includes providing security, waste management and contamination controls and providing secured storage for Type S licensees to hold their cannabis and cannabis products.

Also important to note is that all Type-S license applicants will need to submit a copy of a valid license, permit or other authorization issued by the local jurisdiction that enables the applicant to conduct commercial cannabis activity. This authorization will be required of both the primary licensee (showing that the local jurisdiction approves of a shared-use space) and all Type-S licensees utilizing the shared space. Most local jurisdictions have not explicitly addressed the issue of licensees sharing space, so it will be critical to communicate with your local government if you intend to apply for a shared-use facility designation or a Type-S license to determine what the licensing and permitting requirements will be.

source https://www.cannalawblog.com/breaking-california-releases-emergency-regulations-for-manufacturing-in-shared-use-facilities/

Washington’s New Equal Pay Law and Cannabis Employees

Cannabis Company Compliance: The Essentials

Washington Cannabis: Court Rules that Counties Can Prohibit Recreational Sales

An appeals court in Washington ruled last week that Clark County has the authority to ban the retail sale of recreational marijuana, settling any remaining dispute as to whether local governments in Washington can ban marijuana activities. The ruling was a long time coming, and not unexpected.

Washington law and rules promulgated by the Liquor and Cannabis Board (LCB or the Board) give local authorities the option to object to whether the LCB will grant a license. However, the LCB gets to make the final decision. In 2014, Attorney General Bob Ferguson issued a General Opinion that opined that state law had not preempted local jurisdictions from banning marijuana. Shortly after the Attorney General’s opinion, Clark County passed its prohibition ordinance.

The dispute in Emerald Enterprises LLC v. Clark County stems from Clark County’s ordinance prohibiting the retail sale of recreational marijuana in unincorporated Clark County. In spite of the ordinance, Emerald Enterprises applied for a retail marijuana license at a location in Clark County. The Board granted the license but Clark County revoked Emerald’s business permit for violating the ordinance by selling recreational cannabis.

Emerald challenged the ordinance in court, claiming that state law preempted Clark County’s ordinance and the County could not ban all retail sales. The trial court ruled in favor of the County and Emerald appealed, arguing that state law preempts local law with respect to permitted sales of cannabis.

“Preemption” occurs in situations when a higher authority takes precedence over a law passed by a lower authority. This comes up when state and federal law conflict but also applies to state and local law. Preemption is limited to laws that are actually in conflict. The Court of Appeals summarized when preemption occurs under Washington law:

A local law must yield to a state statute on the same subject matter if a conflict exists such that the two cannot be harmonized. The focus of the inquiry is on the substantive conduct proscribed by the two laws. For example, . .  an ordinance may punish littering more harshly than state law because both prohibit the same underlying conduct. No conflict exists if the provisions can be harmonized.  Here,the County’s local ban on retail marijuana stores can be harmonized with state law.

(Citations and quotations omitted.)

According to the Court, nothing in Washington law either expressly or implicitly preempted Clark County from passing its ordinance. Initiative 502 (I-502) and related statutes grant the LCB the authority to issue marijuana retail licenses but do not grant an affirmative right to sell cannabis. In other words, the law does not require the Board to issue licenses. The court stated that the fact that an activity can be licensed does not mean that the activity must be allowed under local law.  The Court also ruled that Clark County’s ban did not thwart the intent of I-502 because the purpose of legalization was to regulate and tax marijuana, not encourage the sale of cannabis.

Additionally, the Court determined that the State legislature considered the possibility that local governments would prohibit marijuana sales because it created a system where local governments that allow the sale of marijuana could share in the tax revenue derived from cannabis sales and cities and counties that prohibit retail sales can not. In 2015, when the state legislature created this tax program, we wrote that this settled the question of whether or not local authorities could prohibit marijuana activity.

Shortly after the Court of Appeals published its opinion, the Washington Attorney General issued a press release reiterating the fact that Bob Ferguson has long held the opinion that local governments have the authority to prohibit marijuana businesses and highlighting that his office intervened in the case. The press release also argued that allowing local governments to prohibit cannabis could help keep marijuana legal in Washington despite a hostile federal administration:

Local governments like Clark County that have banned marijuana businesses have indicated that if I-502 requires them to allow marijuana businesses, then they will challenge I-502 and argue that it is preempted by federal law. If courts agree with this argument, it could potentially threaten I-502 and Washington’s regulated marijuana system. But if courts continue to agree with the AGO opinion that Washington’s marijuana law does not require local governments to allow marijuana businesses, this threat will be avoided, because courts will not need to rule on the question of federal preemption. This allows legalized marijuana to continue in Washington, in accordance with voters’ wishes.

This result is not surprising and for the most part, marijuana businesses are not trying to operate in areas where cities or counties have banned marijuana activity. Cannabis businesses in Washington need to be aware of local rules and regulations in addition to the state’s robust regulations. For individuals living in Clark County (or any other jurisdiction that bans retail sales) who don’t like this result, this decision makes it clear that you’ll need to take it up with the County Commissioner, not the courts.

source https://www.cannalawblog.com/washington-cannabis-appeals-court-rules-that-counties-can-prohibit-recreational-sales/

California Cannabis: Oakland Regulates Against Industry-Fueled Displacement

Oakland’s City Council recently passed what is, to our knowledge, a first-of-its-kind ordinance intended to protect residential tenants in the city’s “Green Zone” from being evicted by cannabis businesses (as a resident of Oakland’s “Green Zone,” this is an issue of both personal and professional importance to me). The ordinance passed on its first reading last week, and the second reading will happen today.

The issue of cannabis-fueled residential displacement in Oakland seems to have come to everyone’s attention a few months ago, when a Denver-based cannabis company called Green Sage bought The Oakland Cannery, a community of live-work lofts that house more than 30 artists and makers. The tenants learned from representatives of the company that their intention was to convert the building to commercial use space, and to use it as a cannabis cultivation facility. Residents were told they would not be allowed to stay.

While many within the industry are quick to tout the economic benefits brought about by cannabis legalization (which are undeniable), Oakland is one of the first cities to grapple with the potential negative downstream effects on communities that are suddenly flooded with cannabis business dollars. The City recognizes the Bay Area’s affordability crisis in terms of housing, as well as the importance of “affordable housing and space for artistic and creative enterprises and small economic enterprises and businesses.” The City of Oakland Planning Code allows for a variety of live/work uses in its industrial and commercial zones, which provides important affordable housing and space for these creative and small economic enterprises.

The live/work spaces that the City is seeking to protect are located within the City’s “Green Zone,” which was established in May 2016. Since Spring of 2017, when the City began receiving applications for cannabis businesses, they have received more than eight hundred such applications. In its report, the City identified at least twenty-five permitted live/work properties in the “Green Zone” where cannabis businesses are allowed to situate. The City recognized that these properties, which are located in traditionally industrial areas, tend to be “both more affordable for residents and more conducive to businesses that support artists, makers, and other workers in creative sectors than in other areas of the City that allow more traditional housing and commercial uses.”

As anyone with any experience in vying for a properly-zoned space for their cannabis business in California knows, these spaces are hard to come by, and competition is fierce. The fact that an out-of-state cannabis company purchased The Oakland Cannery does not surprise us, and without intervention by the City, it’s likely that other owners of these live/work buildings would be tempted by the soaring purchase prices commanded by buildings that are zoned for commercial cannabis uses. Buildings in areas of Oakland that were for many years completely undesirable are now quite valuable, if those buildings can be put to use for cannabis cultivation or manufacturing.

In passing this ordinance, the stated purpose of the City Council is to “restrict and prohibit the issuance of cannabis approvals and permits in properties utilized for Work/Live or residential purposes [that existed as of March 6, 2018] to preserve the public peace, health, safety, and general welfare of the citizens and residents of the City of Oakland.” As we stated above, this is the first ordinance we’ve seen that intentionally carves out a cannabis zoning exception for live/work spaces, and given the character of the communities in Oakland that are encompassed by the “Green Zone,” I think this ordinance makes sense. It certainly shows that the City of Oakland continues to regulate cannabis in a way that is both progressive and beneficial to its communities and residents.

source https://www.cannalawblog.com/california-cannabis-oakland-regulates-against-industry-fueled-displacement/

Cannabis Entity Selection: Corporation, LLC or Something Else?

It’s a good time to revisit the very basics of cannabis company structuring, particularly in light of two new developments in 2018: tax reform and California state-wide legalization. Thus, this three part series “Reviewing Corporate Law Basics” will address:

• Part 1: Cannabis Entity Selection: Corporation, LLC or Something Else?
• Part 2: Equity Incentives for Your Startup: Restricted Stock, Stock Options, or Something Else?
• Part 3: Canna Exits in 2018: Sale, Merger, or Something Else?

Cannabis Entity Selection: Corporation, LLC or Something Else?

Prior to California’s Prop 64 taking effect on January 2018, entity selection for “direct operator” marijuana companies was relatively straightforward. State law required companies to operate on a not-for-profit basis, and non-profit mutual benefit corporations became pervasive, with a smattering of other non-profit entity types. In 2018, these not-for-profit entities are converting en masse to for-profit entities.

Transitioning companies, as well as new operators (both direct operators and ancillary companies), are asking the ever-popular early-stage question: should we be a corporation, an LLC, or an *insert creative choice*? Luckily, for most companies the decision becomes clear based on a few key factors. And for the remaining companies, the founders can make a decision based on their assumptions. Changing corporate forms is an option if necessary.

The tax analysis also should be considered, in conjunction with an expert in cannabis company taxation. A detailed analysis of your business’ goals and growth path are needed to do this analysis fully–and you should always consult your trusted corporate attorney–but this article may help you to consider the advantages and disadvantages of your options.

Note that we assume all companies will incorporate in California, which is the default recommendation for businesses in the cannabis space operating in California. However, even for an ancillary company that may choose to incorporate in Delaware, or the newest favorite – Nevada – the state-to-state analysis is not fundamentally different.

C Corporation

General Background.

Are you planning to raise funds through successive equity financings? Are you planning to raise funds from Institutional investors? If the answer to either of these questions is yes, then there’s a 90% chance that a C Corporation is right for you. If both answers are yes, then you’re certainly going to go with a C Corporation.

Simply put, a C Corporation is the overwhelming choice for companies that will raise funds, because of its ability to issue stock to investors, and create classes of preferred stock for equity investment rounds. Further, corporations have better options when it comes to issuing equity incentives to employees. While it’s true that an LLC can mimic a corporation in many respects, and can issue classes of “units” similar to stock – this non-standard structure offers no advantages for financing through equity investments, and it will severely limit the types of investors the business can approach. For a business seeking to get the best terms for an equity financing, immediately cutting out the majority of potentially interested investors makes little sense.

Further, even though an LLC can mimic a corporation in many respects, the differences in tax treatment of a C Corporation versus an LLC must be considered carefully.

Tax Considerations.

Previously we wrote about the tax consequences of entity selection. We also covered the fact that you can make a “tax election” to have your business be taxed as a C Corporation.

Before the Tax Cuts and Jobs Act (“TCJA”) the C corporation was not the first choice of closely-held businesses. The first drawback was that C corporations had a relatively high tax rate of 35%. Under the TCJA, that corporate rate was reduced to a flat 21%.

The second drawback, was the issue of “double taxation”. A corporation is subject to income tax at the entity level. In addition, dividend distributions are taxable to shareholders. Because of the historically high corporate tax rate, this double taxation generally discouraged companies from operating as C corporations.

Under the TCJA, a corporation and its shareholders are still subject to double taxation; however, the corporate tax rate has been lowered such that double taxation may still result in the most favorable tax outcome.

For example, a C corporation that earns $100,000 will pay tax of $21,000 ($100,000 *21%). If that same corporation dividends 100% of its earnings to shareholders, the maximum tax at the individual level is $23,800 ($100,000*23.8%). So the combined amount of tax is $44,800 ($21,000 + $23,800).  In comparison, a partnership (or S corporation) results in less overall tax to the owners $37,000 ($100,000 *37%).

However, a C corporation is the preferred structure if the plan is to limit the amount of dividends paid to shareholders. For example the total tax hit to a C corporation and its shareholders that paid out dividends of $50,000 is: $32,900 [$21,000+ $11,900($50,000 * 23.8%)]. In this case, a C Corporation saves $4,100 of taxes compared to operating as a partnership. The C Corporation has the additional benefit of insulating shareholders/owners from personal liability for federal income tax.

These parameters are why we recommend that our clients use their current business plan and think about how much cash they wish to distribute each year. From there they can use some real data to make a much better decision regarding entity formation,  We have run numbers for other clients to determine what entity structure best fits within their goals.  At the end of the day, a client that manages its cash distributions can operate as a C corporation and usually achieve a better tax result than being structured as a flow-through entity.

LLCs

General Background

If you answered “no” to the questions posed up top, and you can answer “yes” to any of the questions posed below, then an LLC may be right for your business.

Are you planning to keep the number of owners small? Do you anticipate the business will not require significant funding, or do you intend for the principals of the business to self-fund the company’s growth? Will you have a small number of capital partners, that you know are already comfortable with an LLC?

If so, an LLC could suit your business. The primary LLC advantages are:

• Ease of establishment and maintenance
• Ease of amendment
• Highly customizable

LLCs are set up by and managed through an Operating Agreement, which is essentially a contract between the LLC Members governing the management and structure of the business. As such, the Operating Agreement can be modified a myriad of ways, allowing the business to have fewer moving parts that require meetings and maintenance (such as shareholders and directors). LLCs are pass-through entities, meaning profits and losses pass through directly to the members. For a business with a few principals, this may keep it simple and straightforward. But for outside investors, the LLC may generate “unrelated business taxable income.”

Tax Considerations

Even if the company’s future fundraising plans are not determinative, sending you down the C Corporation path, founders should also undertake a detailed tax analysis before making their choice. Our firm has developed a model for determining whether a cannabis LLC should be treated as a partnership/flow-through entity or as a C Corporation for federal income tax purposes. Generally, taxation as a partnership/flow-through entity will be more favorable under the following circumstances:

• The individual tax brackets of the LLC members are below 37%;
• The individual member/partners qualify for the favorable 20% deduction for flow-through income under IRC section 199A;
• The business plan emphasizes distributing cash to investors over reinvesting cash into the business (growth).

Anecdotally, roughly ninety percent of our clients that go through the exercise of comparing LLCs and C Corps, end up choosing a C Corp. That said, a fair number are more comfortable with LLCs through their experience in real estate investing, private equity, or other business experience, and go with the LLC without much additional thought. By and large, these are businesses where the principals anticipate contributing their own capital to fund the company’s growth, or possibly reaching out to a small pool of capital partners or other financing.

Something Else

Cannabis investors and operators should also consider whether a hybrid structure would be advantageous. Real estate investors, for example, should consider the application of the Real Estate Investment Trust (“REIT”). The REIT is a legal entity not subject to federal income tax. Instead, a REIT may deduct dividends it distributes to investors, essentially acting as a conduit. REITs must have at least 100 shareholders and are suitable only for large scale investments.

Likewise, certain corporations may be treated as cooperatives under federal income tax law. Cooperatives may or may not be taxable entities under the federal income tax law. An organization that is considered a cooperative under state law does not mean that the organization is a cooperative (or tax-exempt) under federal income tax law. One possible advantage to operating as a federal cooperative is that certain patronage dividends are deductible by the co-op and taxable to the recipient. Cooperatives may avoid double taxation; however, the operating requirements are highly technical and strictly enforced.

There are a few other “hybrid” corporate forms that we regularly see proposed—the California Benefit Corporation and the Social Purpose Corporation. In essence, these entities require that corporate leadership consider factors in all business decisions: a Benefit Corporation must advance “general public benefit” and consider not only profit, but also how its business decisions affect its community, society, and the environment.

While these are commendable goals, B-corps can be problematic: any shareholder can bring a derivative lawsuit against the corporation alleging that its leadership, in any business decision, did not consider all of the required factors. Growth stage startups need to be able to make decisions quickly and confidently—and not under the constant threat of a suit. Also, from an investor point of view, B-Corps and Social Purpose Corporations often carry too many unknowns. Therefore, founders moving from a C-Corp to B-Corp may find their investors moving from a “Y” to “N.”

Stay tuned for parts 2 and 3 of this series, on equity incentives and company exits.

source https://www.cannalawblog.com/cannabis-entity-selection-llc-corporation-or-something-else/

International Cannabis Spotlight: Ireland

Washington Bans the Box: Hiring Cannabis Employees Just Got Trickier

The Feds and California: Immigration Today, Cannabis Tomorrow?

BREAKING: Growers in Oregon’s Josephine County Beat Back a Ban

California Cannabis: Industrial Hemp Bill Moves Ahead

On Thursday, SB 1409, which proposes changes to California’s industrial hemp laws, was referred to committee. This piece of legislation proposes some much-needed updates to California’s industrial hemp laws. In our experience, states with adult use marijuana regulations, like California, tend to move more slowly building out their industrial hemp programs, which often come in as an afterthought. In that respect, SB 1409 is a welcome effort.

Currently, California law regulates the cultivation of industrial hemp, and specifies certain procedures and requirements on cultivators, not including an established agricultural research institution. Existing law defines “industrial hemp,” via the California Uniform Controlled Substances Act, as a fiber or oilseed crop, or both, that is limited to the non-psychoactive types of the plant Cannabis sativa L. and the seed produced from that plant.

Existing California law also 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.

SB 1409 proposes to delete the exclusionary requirement that industrial hemp seed cultivars be certified on or before January 1, 2013. Additionally, “industrial hemp” would no longer be defined restrictively in the California Uniform Controlled Substances Act as a fiber or oilseed crop, and the bill would delete the requirement that industrial hemp be grown as a fiber or oilseed crop, or both. Presumably, this will allow cultivators to harvest hemp for CBD derivation, and related use.

SB 1409 would also authorize the state Department of Food and Agriculture to carry out, pursuant to the federal Agricultural Act of 2014, an agricultural pilot program for industrial hemp. Twinning a state-sanctioned pilot program with licensed, private cultivation is a model that has worked well in other states, like Colorado and Oregon. SB 1409 seems to have been well-researched in that sense.

To read more about the current state of industrial hemp under federal law, as well as what other states have done to regulate it, take a look at these posts:

• Is CBD Legal: Hemp Industry Case Ruling Due Soon
• Cannabis Industry Group Challenges DEA Rule on Hemp and CBD Businesses
• Target Sold CBD Online: Was it Legal?
• New Oregon Cannabis Rules: Part 4 – Industrial Hemp
• Oregon’s New 2018 Cannabis Laws
• Oregon Cannabis: Hemp is Happening (Again)
• CBD Beauty and Skincare Products in California’s Shifting Regulatory Landscape
• Washington Hemp, Hemp, Hooray!
• Industrial Hemp: And Kentucky Shall Lead Us

We look forward to seeing whether California will take the lead, or at least take serious steps, toward regulating industrial hemp in a progressive way. SB 1409 was introduced only last month and seems to be moving along nicely. We will keep an eye on this bill, and keep you updated on any developments.

source https://www.cannalawblog.com/california-cannabis-industrial-hemp-bill-moves-ahead/

International Cannabis Spotlight: Spain

Our Barcelona office continues to keep tabs on Spain’s vibrant cannabis industry, which is different than anything going on in the United States, or anywhere else in the world for that matter. Last week, the 15th annual Spannabis conference showed that the country’s enthusiasm for marijuana has not diminished in the least, and that Spaniards continue to adapt and push forward within a unique state environment.

Spain’s lack of regulations for cannabis use, its criminal laws against cannabis, and the country’s failure to enforce those criminal laws, presents a unique view of use, possession, and cultivation of cannabis. Unlike the United States, Spain’s laws do not distinguish between medical and recreational cannabis use and/or possession. The Spanish Justice refers to substances listed in the 1961 Single Convention on Narcotic Drugs (the “Narcotics List”) as either banned or controlled. The Narcotics List contains most illegal drugs, including cannabis. According to the Spanish Criminal Code, it is considered a criminal offense to develop, produce, or sell any of the substances on the Narcotics List, or engage in any activity designed to encourage their consumption. A distinction is made between substances that cause serious damage to health and other substances that the law considers less harmful.

In Spain, it is illegal to sell cannabis; however, the government does not prosecute the personal and private consumption of cannabis. Case law has developed several factors to determine what quantity of cannabis amounts to personal use and therefore is not a crime. These factors include the quantity of the drug, whether the person is a regular consumer, the amount of cannabis the person has been consuming, previous criminal records of trafficking, etc. The consumption of cannabis in public places or public buildings is always considered illegal and those activities can elicit fines from 100 € to 600,000 € depending on the specific case.

The “public place” embargo has resulted in the creation of private cannabis social clubs, which are non-commercial entities that provide “members” with cannabis to meet their personal needs. Membership to these social clubs is gained either: (1) through invitation by two or more members or (2) by showing a medical report that states the person has an illness for which cannabis is recommended. Consumption in these social clubs is tolerated because this is considered consumption in a private setting.

At present, social clubs will not see interference from police or other government enforcement bodies as long as consumption remains in the private, closed setting, there is restricted access, and consumption is not visible for the general public. Social clubs have been raided in the past, but largely because they did not strictly follow those previously stated consumption guidelines. In that sense, compliance is not difficult.

Cannabis social clubs are allowed to possess cannabis because they are possessing what is considered necessary for personal consumption of their members. Social clubs are permitted to hold the amount of cannabis to supply their members’ demand and consumption. The social clubs must keep meticulous records, which are accessible and able to be produced upon government inspection. Clubs are subject to criminal penalties for failing to provide the necessary records.

Making things even more interesting, Spain is comprised of autonomous regions that may create separate regulations to govern their individual region. Recently, the region of Catalonia (in which the city of Barcelona is located) has been at the center of the cannabis market in Spain. In July 2017, the Catalonian government enacted a statute regulating cannabis social clubs, including: their form of entity, membership rights and obligations, self-sustainability, production and transport, publicity, zoning and building requirements, and special treatment of medical users. The statute was a large step towards legalizing and regulating the cultivation, consumption, and distribution of cannabis; however, the Spanish central government suspended the passage of the statue, claiming it was unconstitutional and the Catalonian Parliament lacked the authority to enact it.

It is an interesting time for cannabis in Spain, to say the least. We will continue to update periodically as things unfold.

source https://www.cannalawblog.com/international-cannabis-spotlight-spain/

California (FINALLY) Begins Crackdown on Gray Market Marijuana

Oregon’s New 2018 Cannabis Laws

The Oregon legislature concluded the 2018 session last weekend. As we wrote last month, because 2018 is an even-numbered year, this was a short session lasting just 35 days. We predicted that not all four proposed cannabis bills would pass and that is exactly what happened: the proposed legislation on “special events” for marijuana licensees quickly fell by the wayside. You can be sure someone will push that one again in 2019.

Still, three bills made it through, two of which will impact the Oregon marijuana and hemp industries considerably. These “enrolled” bills have been approved by both legislative houses, and will become law as soon as Governor Brown signs– or within 30 days of passage if she does not. Because these bills passed through two Democrat-controlled chambers, and because Governor Brown is also a Democrat who has never vetoed a cannabis bill, you can be 99.99% sure these bills will soon become law.

Each bill is linked to and summarized below. If you click through, remember that text in bold typeface is proposed new language, and text in [italicized and bracketed] typeface is language that will be removed from existing statutes.

Senate Bill 1544  (Marijuana)

This was the gut-and-stuff bill we discussed last month, which ended up covering a range of issues related to medical and non-medical marijuana, and industrial hemp. Below are the highlights. Note that references to the Oregon Liquor Control Commission (OLCC) concern the adult use program, which nowadays allows recreational operators to serve the medical market. The Oregon Health Authority (OHA) references relate strictly to the medical marijuana program.

Unlike most cannabis legislation passed in Oregon over the past few years, SB 1544 does not carry an “emergency” designation. This means that its provisions are not effective on passage. Instead, the effective date of this bill is June 1, 2018, with some of its provisions operative at designated intervals thereafter.

Below, we have emphasized the big moves in bold and added brief commentary.

• Allows OLCC producer licensees who are registered to grow medical canopies to provide immature plants to OHA program participants.
• Exempts OLCC processors from labeling and packaging requirements and standard when those processors are dealing direct with medical marijuana patients and their caregivers.
• Requires OHA grow sites to include a U.S. Postal Service address in their application, if they have one. If not, the grow site has to cough up an assessor’s map showing the exact location of the grow site, or a tax lot number.
• Caps the amount of immature plants that a person responsible for an OHA grow site (PRMG) can grow, at 12 immature plants that are 24 or more inches high. Requires also that OHA cap the number of immature plants that are less than 24 inches high. This is an effort to curb black market activity.
• Reduces the amount of both mature and immature plants that can exist at an OHA site if a PMRG’s authority is revoked or suspended by OHA.
• Exempts small OHA grow sites with two or fewer cardholders, from tracking and reporting requirements. This is to give the little guy a break.
• Re-jiggers the Department of Revenue distribution protocol for taxes collected from marijuana.
• Clarifies that although OHA grow sites may be subject to certain tracking requirements, they are not “commercial operations” for the purposes of state law.
• Pushes out dates for Oregon Cannabis Commission reporting obligations.
• Grandfathers OLCC and OHA retailers from the school proximity standard, if they were established prior to August 1, 2017 under a city or county ordinance.
• Establishes a tough-sounding “Illegal Marijuana Market Enforcement Grant Program” administered by the Oregon Criminal Justice Commission, and earmarks about $1.25 million in grants to “address and prosecute unlawful marijuana cultivation or distribution operations.” This may be more symbolic than anything: $1.25 million is not a lot of money as far as the state budget goes.
• Requires industrial hemp products sold by OLCC retailers to contain labels that clearly identify whether the products are derived from hemp or marijuana. Think, hemp-derived CBD products.

Senate Bill 1555  (Marijuana)

This simple bill temporarily enables OHA to distribute a portion of marijuana tax revenues to community mental health. This is an emergency bill, effective on passage. It also sunsets on July 1, 2019, at which point things revert to the current scheme.

House Bill 4089  (Industrial Hemp)

House Bill 4089 is a multifaceted bill that was brought by the Oregon Hemp Farers Association. When we first saw this bill last month, we noted that although it was comprehensive in scope, it did not include a provision limiting the ability of hemp growers to sell high THC products, or tracking provisions related to the movement of hemp into OLCC channels. Maybe Salem was listening, because the legislature fixed both issues.

Below is everything of note in HB 4089, with comments on the big moves in bold.

• Names the hemp research program operated by the Oregon Department of Agriculture (ODA) the Oregon Industrial Hemp Agricultural Pilot Program.
• Clarifies ODA’s authority to administer the program. Specifies that agricultural hemp seed is agricultural or flower seed for the purposes of statutes regulating labeling, testing, or certifying seeds.
• Directs the Director of Agriculture and Dean of College of Agricultural Sciences of Oregon State University to establish a program for labeling and certifying agricultural hemp seed.
• Provides that an accredited independent testing laboratory that has been approved by OHA or ODA may test industrial hemp and industrial hemp commodities and products produced or processed by a grower, handler, or agricultural hemp seed producer.
• Transfers responsibility from the testing laboratory to the registered grower, handler, or processor, for entering hemp, commodity, or product into the tracking system before the hemp, commodity, or product is transferred to a laboratory for testing.
• Requires the OLCC to track the hemp, commodity, or product when it is transferred, sold, or transported to a licensed premises, or area under the control of the premises licensee. This is an expansion of OLCC’s current obligation to track all cannabis in the state, with the exception of home grow and limited medical grow.
• Specifies that industrial hemp products that contain more than 0.3 percent tetrahydrocannabinol may not be sold to a consumer by a person other than a retailer, and requires that the OLCC adopt rules to ensure compliance. This shores up a huge gap: until now, ODA growers could theoretically sell these products without oversight.
• Authorizes OLCC actions regarding industrial hemp to enforce and ensure compliance with marijuana laws and provisions of industrial hemp laws that incorporate requirements, restrictions, or other provisions of marijuana laws. More oversight for OLCC.
• Specifies that a person may not produce, process, or store homemade industrial hemp extracts. This further curtails ODA growers’ options, which were nearly limitless under state law.
• Changes the description of the limit on production and storage of homegrown cannabis plants.
• Allows ODA to adopt rules establishing a higher average tetrahydrocannabinol concentration limit for industrial hemp if a higher average concentration limit is established by federal law.
• Revises language regarding grower retention of agricultural hemp seed for producing industrial hemp.
• Establishes the Industrial Hemp Fund and appropriates moneys to ODA to implement, administer, and enforce industrial hemp statutes.

Like SB 1555, the hemp bill is “emergency” legislation that is effective on passage. When coupled with the new OLCC rules around industrial hemp passed a few months back, it’s safe to say that the Oregon hemp program is fully formed at last. Like the marijuana programs, Oregon hemp has come a long way.

source https://www.cannalawblog.com/oregons-new-2018-cannabis-laws/

How is Your State on Cannabis? We Asked and You Answered

Crafting laws and regulations is more art than a science. The authors of initiatives, legislators, and administrative agencies who create and implement rules to legalize medical and recreational marijuana are bound to get some things wrong. This may be due to political pressures, competing interests, and the simple fact that marijuana is prohibited under federal law.

Now that so many states have legalized, we figured a good way to determine what was working and what was not, would be to ask individuals those living in those states. So we did just that on our lively Facebook page by asking for our readers’ feedback. The responses were interesting and all over the board.

Many of our readers expressed a concern that California has been over-regulating cannabis since voters approved legalizing recreational marijuana in 2016. (We wrote about this issue recently here.) Complaints were focused on the increased price of cannabis products since legalization went into effect on January 1. There were also complaints about how medical patients no longer had access to products that were available prior to the state’s new and expansive cannabis regulations.

In a similar fashion, many commentators claimed that Washington‘s regulatory framework was overly burdensome, though there were not nearly as many complaints about the price of cannabis which has dropped significantly since Washington retail stores first opened in 2014.  Washingtonians did take issue with the state being the only state that legalized recreational cannabis without allowing for home cultivation. Washington regulators have also faced criticism for the slow implementation of the state’s new traceability system.

Generally, people commented positively on Colorado and Oregon, citing the ability to home grow and good access to dispensaries. Some commentators complained about inconsistent enforcement in certain counties, claiming that police in some areas seemed to continually take issue with marijuana despite legalization. Hopefully, this issue subsides.

We did not get much feedback on other adult use states. One Facebook user was happy with Nevada but hoped that the state would have more options with regards to available strains. Alaska‘s program was criticized for problems with lab testing and the unfulfilled expectation that Alaskans would have social use cannabis clubs. One user from Massachusettes complained that legalization was progressing too slowly. And we did not receive any feedback on Maine or Washington D.C., unfortunately.

Some common complaints regarding states that only permitted medical marijuana were that it was too expensive to obtain an authorization card, and that the state burdened patients by the ways which patients could consume cannabis products. For example, New York allows medical cannabis but does not allow for smokeable forms of cannabis. Others argued that the cost of medical marijuana was too high or that states did not have enough products to satisfy the needs of patients.

Finally, in states that have either no legal marijuana program or medical programs that are limited only to CBD, the criticism was fairly straightforward: prohibition is not working! However, many commentators were hopeful that their state would legalize in the near future or that federal cannabis prohibition would end soon. Here’s hoping.

source https://www.cannalawblog.com/how-is-your-state-on-legal-cannabis-we-asked-and-you-answered/

Is CBD Legal? Hemp Industry Case Ruling Due Soon

As noted before in this blog, Hemp Industries Assoc. v. DEA, pending in the U.S. Court of Appeals for the Ninth Circuit, appeals the DEA’s final administrative rule creating a new drug code number for “marihuana [sic] extract,” defined as “containing one or more cannabinoids that has been derived from any plant of the genus Cannabis.”  Petitioners, a cannabis industry trade group and other industry participants, argue that DEA’s rule effectively reschedules CBD as a Schedule 1 drug under the Controlled Substance Act (CSA), in violation of the Farm Act of 2014, which allows the states to set up pilot hemp programs. The DEA counters that this rule does not restrict substances that were not previously controlled, but simply adjusts DEA’s methods for tracking substances that Congress put in Schedule 1.

On February 15, 2018, a Ninth Circuit panel of three judges heard oral argument. You can watch the argument here. Because federal appellate courts never issue decisions at oral argument, we won’t know how the court decides for several months. But watching the argument gives some clues to how the judges are thinking about this case.

Before you watch, consider first that this case is a challenge to a rule made by the DEA, a federal administrative agency exercising rule-making power expressly delegated to it by Congress. Under established law, the court must defer to the DEA’s exercise of this power. The court may set aside DEA’s rule only if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.” The court’s review is narrow: it must simply determine whether the DEA articulated a rational connection between the facts found and the choice made. As long as the DEA’s decision was “based on a consideration of relevant factors and there is no clear error of judgment,” the agency’s action is not arbitrary and capricious.

Second, consider that there are many administrative procedures that must be followed before a petitioner can even ask for review of an agency rule. All rulemaking is open to public comment by any interested party. If you fail to weigh in at the rulemaking procedure, you may not get to complain in court. Also, the petitioner has to show particular identified harm that it will suffer because of the rule.

Third, keep in mind that lower appellate courts such as the Ninth Circuit will often (though not always) try to decide a case on the narrowest grounds possible. This means that these judges may choose to decide on a technicality or procedural issue, rather than reaching the merits of the claim. That could very well happen here.

Keeping these points in mind, observe that the judges ask the lawyers: isn’t this rule just a change in the numbering system used by DEA made in order to facilitate record-keeping and reporting activities? Of course, the DEA lawyer agrees, while the cannabis industry lawyer strongly disagrees. Also notice that the judges continue to press the cannabis lawyer about whether evidence supporting harm claimed to be suffered is found “in the record.” This is an important point, because courts of appeal are not allowed to refer to facts that were not brought up in the original proceeding– in this case, the rulemaking process. Finally, there is no discussion about whether de-scheduling CBDs is a good or a bad policy. That is not an issue raised by this case, and the panel will almost certainly not address this in its opinion.

It is also worth reading a brief filed not by the parties to this case, but by several members of Congress who are appearing as amici, that is, friends of the court, Their brief supports the cannabis industry group, broadly arguing that DEA had no authority to issue its rule. The amicus brief also broadly urges that the Farm Act of 2014 allows states to effectively legalize CBD sales. Although many of the amici were among those who voted for the Farm Act, this brief is unlikely to sway the judges, who will likely say nothing about what the Farm Act does or doesn’t cover.

Check back in a few months, when we will discuss the opinion of the panel. My guess is that the opinion will narrowly decide the case, perhaps on procedural grounds, but that there will be no controlling ruling on scheduling of CBDs, keeping this area of law as confusing as ever. Stay tuned.

source https://www.cannalawblog.com/are-cbds-legal-hemp-industry-case-ruling-due-soon/

Oregon Cannabis: Josephine County Growers Get Their Day in Court

Spot Zoning Initiatives, or, How Not to Structure a Local Cannabis Ordinance

California Cannabis Countdown: Cotati

A Big Win for the LGBT Community and Why it Matters to Cannabis Companies

The Trump administration is known for its hostility to marijuana. It’s also known for its hostility to the LGBT community. In a huge blow to the Trump administration, the Second Circuit Court of Appeals ruled last Monday that employers cannot discriminate against employees based on sexual orientation.  Many states, including Oregon, Washington, and California have statutes explicitly prohibiting employers from discriminating against employees based on sexual orientation. The Federal Civil Rights Act (“the Act”) does not explicitly protect employees based on sexual orientation: instead, it only protects employees based on sex. Circuit courts across the country are taking up the issue of whether employees should be protected based on sexual orientation, and reaching different conclusions.

In 2010, Donald Zarda sued his employer, Altitude Express, Inc. alleging they had terminated him because he was gay. The federal district court ruled in favor of the employer, holding the Act did not protect employees based on sexual orientation. The case pitted the federal Equal Employment Opportunity Commission (EEOC) against the federal department of justice. The EEOC submitted a brief in support of Mr. Zarda, arguing the Act protects employees based on sexual orientation. The Federal Department of Justice (headed by our good friend, Mr. Sessions) submitted a brief supporting the employer, and arguing the Act did not extend to sexual orientation.

The Second Circuit overruled the lower court. Siding with Mr. Zarda in a lengthy, 69-page opinion, with multiple concurrences and 80 pages of dissents, it ultimately held that “sexual orientation is doubly delineated by sex because it is a function of both a person’s sex and the sex of those to whom he or she is attracted. Logically because sexual orientation is a function of sex and sex is a protected characteristic under [the Act] it follows that sexual orientation is also protected.” Makes sense to us.

Two other federal appeals courts recently have heard similar cases. The Seventh circuit determined discrimination based on sexual orientation was discrimination based on sex under the Act, while the Eleventh Circuit held the Act’s reference to sex did not encompass discrimination based on sexual orientation. The Supreme Court declined to hear the Seventh Circuit’s case, but now, with multiple circuits offering opinions on the issue, the Supreme Court may be persuaded to hear the Second Circuit’s case. If they do, let’s hope they get it right.

So why does this matter to cannabis businesses? Cannabis businesses are subject to both state and federal employment laws. If a cannabis business discriminates against an employee because of sexual orientation, the business could be in violation of both state and federal law. As we all know, Attorney General Sessions ripped up the Cole memorandum earlier this year. Without the memorandum, there is little guidance about when and where federal district attorneys will choose to enforce the Controlled Substance Act (CSA) against cannabis companies. Thus, compliance with state and federal regulations is more important than ever during this time. It is best to stay under the radar rather than drawing federal attention to your business by arguably violating federal laws—other than the CSA that is.

If you ever have questions about terminating an employee it is always best to consult an employment law expert first to ensure all basis are covered and no violations arise from the termination. If your company is not terminating an employee on the basis of sexual orientation, but you believe that the employee could make such a claim, it is crucial to consider and attempt to mitigate possible claims. Both state and federal laws tend to be very detailed when it comes to protection of employees. In unsettled areas of law, such as the employees and sexual orientation, prudence is advised.

source https://www.cannalawblog.com/a-big-win-for-the-lgbt-community-and-why-it-matters-to-cannabis-companies/