BREAKING NEWS: Oregon to “Pause” Acceptance of Marijuana Applications

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

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

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

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

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

How long is the pause?

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

Can the pause go on indefinitely?

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

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

It seems likely, yes.

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

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

Is there any chance OLCC will extend this abrupt deadline?

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

Why are they really doing this?

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

What do we do next?

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

source https://www.cannalawblog.com/breaking-news-oregon-to-pause-acceptance-of-marijuana-applications/

California State and Local Cannabis Updates: Temporary Events and Sonoma County

The movement to legalize cannabis in the United States has come a long way since Californians started it all with the Compassionate Use of Act of 1996 (“Prop 215”). For many years after Prop 215, the pace of change was glacial. In California, it wasn’t until 2004 (8 years after Prop 215) that the California State Legislature passed Senate Bill (“SB 420”). SB 420 recognized the rights of qualified patients and their caregivers to collectively or cooperatively cultivate medical cannabis. Then it took an additional four years until the California Attorney General (who at the time was Jerry Brown, the state’s current governor) released the state’s guidelines (“Guidelines”) on medical cannabis enforcement in 2008.

The Guidelines created the framework for non-profit mutual benefits corporations, collectives, and cooperatives to provide medical cannabis to their patient members. Although the Guidelines were a step in the right direction, they still left many medical cannabis operators uncertain as to what was allowed. It took another seven years before California substantively addressed the cannabis industry when the State Legislature passed the Medical Cannabis Regulation and Safety Act in 2015 (“MCRSA”). But ever since the passage of the MCRSA and the Adult Use of Marijuana Act in 2016, the pace of change in California’s cannabis regulatory landscape is perhaps best described by a quote from Ernest Hemingway’s “The Sun Also Rises.” One of the characters, when asked how he went bankrupt, replied, “Two ways. Gradually and then suddenly.”

In California, we are firmly entrenched in the “suddenly” camp of cannabis regulations. The main reason cannabis operators are seeing a flurry of laws and regulations is because the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”) allows for both state and local governments to regulate and license cannabis businesses. Keeping up with the state’s dual licensing regime is a never-ending endeavor. As an example, the state licensing agencies – the Department of Food and Agriculture, the Department of Public Health and the Bureau of Cannabis Control – just recently released and published readopted emergency regulations (which we covered, here).

This week we also saw important legislation make progress on the state and local level. They are as follows.

State Level:  AB 2641 and Temporary Retailer Licenses.

On the state level we saw Assembly Bill 2641 make it out of committee. We previously covered AB 2641, here, but a brief recap will be helpful. Under MAUCRSA only a retailer, delivery-only retailer, or microbusiness (“Retailers”) can sell cannabis products to the public. Currently, cannabis cultivators and manufacturers have no way to directly sell their cannabis goods to their consumers – they are completely reliant on Retailers at the point of sale to tell the public about their product and company mission. AB 2641 would allow certain cultivators and manufacturers the ability to obtain temporary retailer licenses. These temporary licenses would authorize cultivators and manufacturers to sell their products directly to their consumers at temporary cannabis events that are authorized by the appropriate local jurisdiction. AB 2641 needs the approval of two thirds of the State Assembly for it to pass. You can find information on how to support AB 2641 through the California Growers Association website.

Local Level: Sonoma County Recommendations.

As previously mentioned, California is a dual licensing state and we cover local changes in our California Cannabis Countdown series. Each California city and county have their own internal processes for passing cannabis ordinances in their jurisdictions. For example: In Sonoma County, the Planning Commission, the Board of Supervisors (and their Ad Hoc Cannabis Committee), the Cannabis Advisory Group, and the public (through hearings and workshops) all play a role in shaping cannabis policy in Sonoma County. Ultimately it comes down to the Board of Supervisors and we covered one its more contentious hearings here. The County’s Permit and Resource Management Department just recently released a staff report (“Report”) with proposed changes to the county’s cannabis ordinance. Here are some of the Report’s recommendation highlights:

• Allow adult-use cannabis operations;
• Extend the life of new cannabis permits from one to two years;
• Allow transferability of permits between operators;
• Add processor, microbusinesses, self-distributor transport-only, and shared-use manufacturing as cannabis license types;
• Amend whether a conditional use permit or zoning permit is needed depending on the zone and parcel size of the property; and
• Create a cannabis inclusion zone for cultivation applicants that do not have eligible zoning, but which have unique characteristics that may make them eligible for a conditional use permit.

You can download the full Report from the County’s cannabis page, here. The Planning Commission will hold a hearing to discuss the Report’s proposals on June 7th at 1:30pm. AB 2641 and Sonoma County’s Report can provide instrumental lifelines to many cannabis businesses, so let’s do what we can to ensure they pass. Keep checking in as we’ll be sure to keep you posted on their developments.

source https://www.cannalawblog.com/california-state-and-local-cannabis-updates-temporary-events-and-sonoma-county/

DEA Confirms It Cannot Regulate All Parts of the Cannabis Plant

On May 22, the federal Drug Enforcement Administration (“DEA”) issued an internal directive (the “Directive”) acknowledging the Agency’s jurisdiction over cannabis has its limits. The directive is in line with a plain reading of the federal Controlled Substance Act (“CSA”), which authorizes the DEA’s enforcement power, but does not regulate the whole cannabis plant.

To conceptualize this, think of the CSA distinguishing the cannabis plant into two parts. The first is “Marihuana” which is “all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin.” The second classification under the CSA is “Exempt Cannabis Plant Material.” As per the CSA definition, we can break Exempt Cannabis Plant Material into four categories:

1. Mature stalks
2. Fiber produced from mature stalks
3. Oil or cake made from seeds
4. Seeds incapable  of germination

Exempt Cannabis Plant Material also includes “any other compound, manufacture, salt, derivative, mixture, or preparation” of the items listed above. However, there is an exception to the exemption as resin derived from mature stalks is considered Marijuana, not Exempt Plant Material. If you are feeling confused at this point, don’t worry: This stuff is not for the faint of heart.

And that is where the Directive comes in. The Directive states that it was issued in order to clarify the ruling in Hemp Industries Ass’n v. DEA, 357 F.3d 1012 (9th Cir. 2004). In this 2004 decision the Court prevented the DEA from enforcing 21 C.F.R. § 1308.11(d)(31), which independently lists THC as a Schedule I substance, with respect to Exempt Plant Material. The Directive also acknowledges that the DEA does not enforce 21 C.F.R. § 1308.35, which was the agency’s attempt to regulate Exempt Plant Material when it was contained in products intended for human consumption. Kyle Jaeger of Marijuana Moment reported that the Directive’s concession was part of a settlement with the Hemp Industries Association (“HIA”).

So why would the DEA is issue a directive based on a case that was 14 years ago? It probably has to do with the HIA’s more recent lawsuit against the DEA over its Marijuana Extract Rule. In that case, the Ninth Circuit declined to review the Marijuana Extract Rule on largely procedural grounds. For those keeping score, HIA has sued the DEA three times, with two wins and a qualified loss.

The “Marijuana Extract Rule” broadly defines a “marijuana extract” as:

“[A]n extract containing one or more cannabinoids that has been derived from any plant of the genus Cannabis, other than the separated resin (whether crude or purified) obtained from the plant.”

Under the plain text, the “hook” for this rule is the presence of any cannabinoid from any part of the cannabis plant. Full stop. It makes no distinction between Exempt Plant Material and Marijuana. This seems to go far beyond the scope of the CSA. However, this directive concedes that the DEA’s power is limited to Marijuana and not Exempt Plant Plant Material:

“Products and materials that are made from the cannabis plant and which fall outside the CSA definition of marijuana (such as sterilized seeds, oil or cake made from the seeds, and mature stalks) are not controlled under the CSA.”

The Directive goes a step further by acknowleding that Exempt Plant Material is outside of the DEA’s jurisdiction despite the presence of a cannabinoid:

“Such products may accordingly be sold and otherwise distributed throughout the United States without restriction under the CSA or its implementing regulations. The mere presence of cannabinoids is not itself dispositive as to whether a substance is within the scope of the CSA; the dispositive question is whether the substance falls within the CSA definition of marijuana.”

The Directive goes on to clarify that Exempt Plant Materials are also legal to import and export in compliance with the Controlled Substances Import and Export Act.

The Directive does not explicitly address Industrial Hemp as defined in 7606 of the 2014 US Farm Bill (the “Farm Bill”). The Farm Bill allows states to grow “Industrial Hemp” defined as having less than 0.3% THC on a dry weight basis in states that have implement agricultural pilot hemp programs. In the Court’s recent decision to deny reviewing the Marijuana Extract Rule, it threw HIA a pretty nice bone:

“[The Farm Bill] contemplates potential conflict between the Controlled Substances Act and preempts it. The Final Rule therefore, does not violate the [Farm Bill].”

Premption means that the Farm Bill overides the CSA, when the two conflict. The DEA cannot use its enforcement authority under the CSA to enforce the Marijuana Extract Rule with regards to extracts derived from bona fide Industrial Hemp. Specifically, the Industrial Hemp must be grown pursuant to a state’s industrial hemp program and contain less than .3% THC. Also, the DEA has stated that the Farm Bill  does not permit the commercial sale of Industrial Hemp or its interstate transfer, although Congress has limited DEA’s ability to use federal funds to prohibit the sale or interstate transfer of Industrial Hemp until September 2018.

So where does that leave us with regards to cannabidiol (“CBD”)? The Marijuana Extract Rule is valid. Obviously, it would cover any product containing CBD if that product were derived from Marijuana. However, based on the Directive and the Ninth Circuit’s decisions, extracts containing CBD derived from Exempt Plant Material or Industrial Hemp would not be within the Marijuana Extract Rule.

There is significant scientific research showing that meaningful levels of CBD cannot be extracted from Exempt Plant Material. The Farm Bill provides protection to all parts of the cannabis plant if the plant is Industrial Hemp, including the flowering tops. CBD could be extracted from Industrial Hemp without necessarily falling under the DEA’s jurisdiction. And can it be sold interstate? Well, given what Congress has done, at least until September.

source https://www.cannalawblog.com/dea-confirms-its-cannot-regulate-all-parts-of-the-cannabis-plant/

Marijuana Banking Fraud: What You Need to Know

Cannabis Intellectual Property Webinar: Follow-Up Questions

What to Look for in an Cannabis Accountant

All cannabis businesses want to build a team of professionals and advisors that they can rely on, and our business lawyers are often asked by clients to recommend an accountant that works with cannabis businesses. Like a good attorney, an accountant is one professional essential to the success of your cannabis business.

Many cannabis investors own other businesses and may already have an accountant that they trust. However, the laws governing the accounting profession do not offer much protection to Certified Public Accountants’ (“CPA”) working in the cannabis industry. Therefore, some very skilled CPA’s choose not to work in the industry; while others do not want to invest the time and effort to develop expertise related to cannabis business accounting.

Anyone evaluating whether an accountant is a good fit, should ensure that the accountant has a strong grasp of IRC 280E and cannabis accounting, and then keep in mind the following three things.

Understand the Types of Accounting Professionals

The accounting profession includes several types of accountants and financial professionals. It is helpful to understand the core skills of three in particular: the CPA, the bookkeeper and the Enrolled Agent.

A CPA is a Certified Public Accountant.  To qualify as a CPA one must take a certain number of accounting related courses, pass a rigorous examination and be licensed in at least one state. Only a CPA may audit, review and give an opinion of a business’s financial statements.  The CPA gives assurances (i.e., “certifies”) that financial statements may be relied upon by third parties such as a bank, or potential investor.

Many CPAs perform bookkeeping services for clients. However, a bookkeeper does not have to be a CPA.  The role of the bookkeeper is to review all transactions and assemble this information into useful financial information. Bookkeepers may also prepare state tax returns and other government filings.

Another category of accounting professional is the Enrolled Agent (“EA”). The EA may prepare tax returns and otherwise represent clients before the Internal Revenue Service. To qualify as an EA, a person must pass a comprehensive IRS exam or have experience working for the IRS.

By understanding an accountants background and professional certifications, a cannabis business will be better informed regarding the type of accountant best for the job.

Look for Honesty and Diligence

Let’s face it, this is the baseline for evaluating all professionals.  Although it seems obvious, some accountants in the cannabis industry fall short. Here are some red flags:

• Your accountant does not respond to you. Skilled accountants are very busy and balance their work so that all clients are treated fairly. It may take a skilled accountant longer to complete a project that you wish. However, an accountant that does not call you back or keep you informed simply cannot help your business.
• Your accountant takes shortcuts. This is often marketed as “creativity”.  The cannabis business is fast-paced, takes guts and is highly regulated. It is understandable that you want to move your business forward as quickly as possible. It is tempting to “fudge” representations. However, making misleading statements on tax returns, books and records, and bank applications or otherwise omitting key information, hurts your business and its owners. A skilled accountant will protect clients from these temptations.  Don’t confuse creativity with lying!
• Your accountant does not understand legal entities. The fundamentals of accounting require reporting financial operations by legal entity, not merely by business group. For example, the same group of investors may own several cannabis dispensaries. If each dispensary operates as a separate legal entity, separate books and records must be kept for each legal entity. This is not only required for tax reporting purposes but is essential to record the necessary information to comply with a state’s licensing requirement.

Furthermore, transactions between commonly owned legal entities should reflect actual business practices and legal agreements, and they should be documented with legitimate contracts. It is the legal agreements and business practices that dictate how a transaction is recorded on the books not the other way around. Recording a transaction as a loan between two legal entities is only proper if supported by a valid loan agreement. Payments between two legal entities for management services must be supported with a management services agreement.

Finally, restructuring legal entities is not a function of accounting entries but a function of state law. For example, the merger of two corporations must be reflected in corporate governance documents such as board of director resolutions and filings with the Secretary of State. Unless such corporate formalities are followed, the merger will not be recognized by state law. Only after the merger is recognized under state law should an accountant record this transaction. Beware of an accountant that records transactions unsupported by legal documentation.

Look for an Accountant with a Professional Network

Skilled professionals know other skilled professionals.  A good accountant will always look out for your interest and easily refer you to another professional when appropriate.  An accountant can help you with budgeting, minimizing costs, evaluating financial opportunities and complying with tax and financial reporting. However, an accountant should not prepare legal documents, or create legal entities. An accountant also should generally avoid taking a financial interest in your company, underwriting insurance policies, and/or acting as your broker.

__

When choosing a financial professional, it is helpful to understand each professional’s training, background and roles. There are many skilled CPAs, Bookkeepers and Enrolled Agents working in the cannabis industry, and it is possible to find one that is right for your business. As you go about the process, though, be sure to manage your expectations. Like other professionals, an accountant can greatly assist you in meeting your goals, but you should never outsource the running of your business. Nothing is more important in running your cannabis business than your own judgment.

source https://www.cannalawblog.com/what-to-look-for-in-an-cannabis-accountant/

California Cannabis: Commercial Leasing Changes in New Emergency Regulations

Intellectual Property in the Cannabis Industry: The Video

In case you missed it or would like to play it again, please find below the recording from last week’s webinar on Intellectual Property in the Cannabis Industry.

We will run another blog post next week, answering audience questions that we were not able to get to in real time on the webinar.

In the meantime, enjoy!

source https://www.cannalawblog.com/intellectual-property-in-the-cannabis-industry-the-video/

As Cannabis Businesses Grow, So Do Applicable Employment Laws: Part 2

Oregon Marijuana, the Feds and the Williams Memo

Breaking News: California Cannabis Emergency Regulations (Part Deux)

Whenever government enacts new regulations there will always be some people and businesses that will be unhappy with the new changes. So, it came as no surprise when California embarked on its mission to create a state licensing regime for cannabis businesses (as well as personal use) that issues would arise. What made enacting cannabis regulations in California so difficult is that ever since Californians voted for the Compassionate Use Act in 1996 (a/k/a Prop 215), cannabis cultivators, manufacturers, and dispensaries were operating without regulations in what everyone conveniently called the legal “grey” area (a Michael Cohen area of practice).

That all changed when the state legislature passed the Medical Cannabis Regulation and Safety Act (MCRSA) in 2015 and a majority of the good people of California voted in favor of the Adult Use of Marijuana Act in 2016 (AUMA). In June of 2017, California Governor Jerry Brown signed into law Senate Bill 94 (a/k/a the Medicinal and Adult-Use Cannabis Regulation and Safety Act a/k/a MAUCRSA).MAUCRSA merged medical and adult-use cannabis activities under one regulatory regime and empowered three state agencies to license and regulate the commercial cannabis industry: The California Department of Food and Agriculture (cultivators, processors, and nurseries); the Department of Public Health (manufacturers); and the Bureau of Cannabis Control (distributors, retailers, delivery-only retailers, microbusinesses, and testing labs). Each state agency released their emergency regulations in November of 2017, which we covered for cultivators, manufacturers, distributors, and retailers.

The emergency regulations were quite the departure from the previously unregulated “grey” market of the previous twenty years. They were however not without some hiccups: Such as the removal of the cultivation acreage cap or the steadfast intransigence of local jurisdictions in licensing commercial cannabis activities.

After the release of the emergency regulations, representatives from the three state cannabis licensing agencies travelled up and down the state to solicit public input on the regulations. The reason the state continued to solicit feedback from the public was due to the fact that the emergency regulations were actually just temporary regulations. All three state agencies were required to release permanent regulations later this year – when exactly the permanent regulations were going to be released was anyone’s guess. While current cannabis businesses and aspiring entrepreneurs have been busy figuring out how to navigate the licensing landscape, the state just went ahead and made changes to the emergency regulations. Just this Friday all three state agencies released new emergency regulations (nothing like a regulation drop on a Friday!). We’ll cover the changes in greater detail in future posts (stay tuned) but here are a couple of highlights:

• Applicants can submit one application (and pay one fee) to obtain both an adult-use and medical cannabis license. Previously you had to submit two applications and pay two separate licensing fees if you wanted to operate in the medicinal and adult-use market. This applies to all three licensing agencies.
• A licensee can now engage in commercial cannabis activities with any licensee, regardless of medical or adult-use designation. This is a permanent extension of the transition period in the emergency regulations that allowed medical cannabis licensees to contract with adult-use licensees and vice versa (the transition period was set to expire on July 01, 2018). This also applies to all three agencies.
• The Bureau of Cannabis Control’s definition of financial interest holder was amended to specifically state that anyone that has an agreement to receive a portion of the profits of a commercial cannabis business will be considered a financial interest holder (there’s an exception for diversified mutual funds, blind trusts, and similar financial instruments).
• The BCC regulations also specify that licensees authorized for retail sales may not sell or deliver cannabis goods through a drive-through window.
• A retailer’s delivery employee can now carry cannabis goods valued up to $10,000 while making deliveries (the cap was previously set at $3,000).
• The Bureau of Cannabis Control reduced the annual license fees for its licensees.
• The Department of Food and Agriculture revised how it will measure canopy for indoor, mixed-light, and outdoor license types.
• The Department of Public Health (DPH) formally incorporated the regulations for shared-use facilities, which we covered here.
• The DPH removed specifically removed tinctures from the definition of a product containing alcohol. However, tinctures shall not be sold in a package larger than two fluid ounces and shall include a calibrated dropper or other measuring device.

The public will now have all of five days to comment on the re-adoption of the emergency regulations. The five day window for public comment will begin once the California Office of Administrative posts the emergency regulations on its website – which it can do earlier than May 25, 2018. When these updated emergency regulations are formally adopted the licensing agencies will have 180 days to develop their final regulations. Be sure to check in as we update you with even more details on these emergency regulations and how they may impact your cannabis business.

source https://www.cannalawblog.com/breaking-news-california-cannabis-emergency-regulations-part-deux/

California Cannabis Countdown: City of San Jose (Hearing Monday!)

As Cannabis Businesses Grow, So Do Applicable Employment Laws: Part 1

California Cannabis: San Luis Obispo Slowly Proceeds Toward Regulation

As of May 1, the City of San Luis Obispo is one step closer to permitting adult-use cannabis retail stores. At its most recent meeting, council members approved the first reading of a draft ordinance intended to regulate marijuana businesses. Currently, Ordinance 1633 which was adopted in March 2017, expressly prohibits all commercial and industrial, medical and recreational cannabis activity within city limits.

Pursuant to Ordinance 1633, the Council directed staff to monitor developments in other jurisdictions, monitor development at the federal level, engage with the community regarding various land use and taxation issues, and return to the City Council with a recommendation. We now have those recommendations, which would establish new Municipal Code provisions that would become effective if a cannabis revenue measure is placed on the November 2018 General Election ballot and approved by voters.

Specifically, staff recommended “repealing the current ban on commercial cannabis business activity and establishing standards to protect public health and safety regulating personal cannabis cultivation, cannabis business operators, and permitted cannabis business activities in the City.” Staff also recommended land use regulations for commercial cannabis activity and personal cultivation and provided for the creation of overlay zones where the proposed regulations would apply.

Before regulations are adopted, though, staff will still need to return to City Council with additional implementing measures, including zoning map amendments for the proposed overlay zones, criteria for ranking permit applications, and a fee schedule for applications and annual licenses.

A summary of the proposed ordinance was provided in the Staff Report as follows:

1. Allows for access to medical and recreational marijuana in the City, with storefront and delivery options (at least one storefront will be reserved for a holder of a medicinal retail license)
2. Prohibits onsite consumption
3. Establishes a two-step process requiring prospective business operators to be certified and ranked prior to applying for a land use permit
4. Includes requirements for energy and water efficiency, and limits total amount of cultivation, to ensure consistency with City climate action goals
5. Limits manufacturing uses to non-volatile extractions only
6. Limits cultivation to indoors only, and total City-wide amount of cultivation allowed to 70,000 square feed of total canopy coverage within indoor areas, cumulatively (includes total canopy of either horizontal or vertical growing situations)
7. Provides for the creation of overlay zones where cannabis business activity may be permitted, and buffers within those overlay zones for cannabis retail stores of 300 feet from residential zones, and 1,000 feet from schools, and parks
8. Requires retail stores to be located at least 1,000 feet apart
9. Only three retail storefronts, which must be on arterial streets, will be allowed within the City

According to the City Council, they intend to adopt regulations by early summer of 2018, but given that the voters must approve a tax revenue measure in November in order for the ordinance to go into effect, we’re still looking at quite some time before the City begins accepting permit applications. We will keep you posted!

source https://www.cannalawblog.com/california-cannabis-san-luis-obispo-slowly-proceeds-toward-regulation/

U.S. Supreme Court Sets a Great Precedent for Cannabis

Free Webinar this Thursday, May 17! Intellectual Property in the Cannabis Industry

We have been counting down the days until this Thursday at 12pm PST, when Harris Bricken will present a free, lunch-hour webinar entitled “Intellectual Property in the Cannabis Industry.” Registrations for this webinar have been impressive to date, and we expect the number to continue to surge in the next 48 hours.

Protecting and monetizing intellectual property (IP) in the cannabis industry is an important but challenging step for most businesses. The market is highly dynamic and competitive, and in addition to state and local rules, federal law creates an unusual environment. Several cannabis businesses have established significant market share through the creation and leveraging of intellectual property. Others have been served demand letters or lawsuits because their branding allegedly infringes upon existing protected IP – whether owned by cannabis businesses or non-cannabis businesses. As a corporate cannabis law firm serving the marijuana industry since 2010, we have seen just about every possible scenario.

This webinar is designed to help you gain a high-level understanding of cannabis IP and how to use it. Vince Sliwoski will moderate a discussion by intellectual property attorneys Alison Malsbury, John Mansfield, and Mike Atkins, who will provide a detailed overview of what you need to know to protect your cannabis brand. The attorneys will cover topics such as the following:

• Categories of goods and services eligible for IP protection
• Federal protections available to cannabis businesses
• The importance of copyrights, trade secrets, patents, and trademarks to your cannabis business
• IP hurdles cannabis business owners frequently encounter
• IP licensing, both within state borders and across state lines
• How to avoid cannabis IP disputes, and what to do in the case of a dispute

Questions will be taken throughout the presentation. To register for this free webinar, please go here. We look forward to this discussion!

In the meantime, feel free to check out some of our other recent webinars, to get a feel for what to expect on Thursday:

• What You Need to Know Now to Get Your California Cannabis License
• Rights, Opportunities, and Responsibilities of Municipalities Regulating Cannabis
• Litigation in the Cannabis Industry

source https://www.cannalawblog.com/free-webinar-this-thursday-may-17-intellectual-property-in-the-cannabis-industry/

California Approves First Commercial Cannabis Landlord Insurance Coverage

Filing a Defensible Cannabis Trademark Application: The Bona Fide Intent Requirement

An issue we’ve seen with increasing frequency among clients and prospective clients alike is a misunderstanding of the basic requirements for obtaining federal trademark protection in the United States. We’ve worked through the issues surrounding federal registration of cannabis and cannabis-goods before, and it is common practice in the cannabis industry to obtain federal trademark protection for ancillary goods and services that do not violate the Controlled Substances Act. But the key to obtaining such trademark protection is that you must either be using the applied-for mark in commerce, or you must have a “bona fide intent” to do so. This post will explore what exactly it means to have a bona fide intent to use a mark in commerce, and what level of proof will be required to substantiate it.

A common scenario is that a cannabis business owner thinks of a name that sounds great–one they would ideally like to use on their cannabis goods and services–but they know they can’t obtain federal trademark protection for anything that is federally illegal. So, they start brainstorming similar goods and services for which they could register, oftentimes looking to large, established companies’ trademark registrations for inspiration. The problem, however, is that the cannabis company often does not have a plan in place for actually selling those goods or services. This can be a big problem.

Recall that there are two bases on which one can file a U.S. federal trademark application: actual use or intent-to-use. An application based on actual use requires proof of that use in the form of photo specimens showing the mark on the goods and a date of first sale. An intent-to-use application, on the other hand, requires “only” that the applicant have a bona fide intent to use the mark in commerce. This is a great tool for start-ups to ensure that their brand is protected while they’re getting their business off the ground. But it also raises the question of what truly constitutes a “bona fide intent” to use a mark?

Section 1(b) of the Trademark Act allows federal trademark applications to be filed based on a “bona fide intent” to use the mark in commerce, and this intent must be stated in the application under penalty of perjury. The Act further states that an intent-to-use trademark filing must be “under circumstances showing good faith.” This language indicates that there must be some objective evidence of good faith, a position that courts have consistently agreed with.

While the USPTO does not require that an applicant submit proof of their bona fide intent at the time of application, an application may be challenged on the basis of lack of bona fide intent at the time the application was filed. This is why it is critical to be able to prove your bona fide intent to use the mark in commerce at the time of filing.

Case law, including Honda Motor Co. v. FriedrichWinkelmann, provides some guidance for applicants who are unsure if they’ve met the threshold of having a bona fide intent to use their mark in commerce, and helps us understand what types of objective evidence of a bona fide intent must be shown. The Honda case involved an opposition by Honda to FriedrichWinkelmann’s application to register VIC for “vehicles for transportation on land, air or water” and related goods. The Trademark Office in this case stated that in order to raise a genuine issue of material fact as to its intent to use on a motion for summary judgment, an applicant must rely on specific facts that establish the “existence of an ability and willingness to use the mark in the United States to identify [the goods in the application] at the time of the filing of the application.”

This case, among others, reaffirms the importance of having documentary evidence to support your bona fide intent to use the mark in commerce at the time of filing. This evidence may consist of business plans, marketing plans, or correspondence with potential manufacturers, distributors or licensees, but there is no bright line test as to how much or what kind of evidence will be sufficient. When filing a U.S. trademark application, it is important to consult with your attorney about the validity of your intent to use your proposed mark. Sometimes, it may make sense to wait to file until you have a business plan in place, or until your intent is easily substantiated.

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If you have any burning questions about this topic, or anything else related to intellectual property protection in the cannabis industry, be sure to tune into our free webinar, “Intellectual Property in the Cannabis Industry” on May 17^th from 12pm – 1:15pm PDT. The webinar will be moderated by Vince Sliwoski, and I’ll be joined by John Mansfield and Mike Atkins to talk about trademarks, copyrights, trade secrets, and patents, all in the context of the cannabis industry. Hope to see you there!

source https://www.cannalawblog.com/filing-a-defensible-cannabis-trademark-application-the-bona-fide-intent-requirement/

The Business of Marijuana in Oregon: Join us June 7th!

On June 7, our own Vince Sliwoski will chair an all-day continuing legal education (CLE) event called The Business of Marijuana in Oregon, along with Jesse Sweet, a lawyer and senior policy analyst at the Oregon Liquor Control Commission (OLCC). This will be Vince’s fourth year presenting at the event and his third year as chair. The roster of speakers lined up for this CLE is better than any year to date, and everyone, including non-lawyers, would be well served to attend. For a full event description, including topics, speakers and registration links, click here.

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

Sometimes, it is said that pioneers get slaughtered and settlers get rich. Now that the Oregon regulatory groundwork has stabilized, we have begun to see a second wave of entrepreneurs and investors move in on the local industry. Many of these new entrants bring skills, capital and experience from other regulated markets, while others are new to the space. Over the next year or so, we expect to see a fair amount of market consolidation throughout the Oregon cannabis industry. (See our most recent observations on the “state of the State” here).

Oregon attorneys and business owners alike need to be familiar with the unique regulatory concepts and industry dynamics that will be discussed on June 7, in order to best serve the Oregon cannabis industry. These concepts include state laws and administrative rules, developments in the highly dynamic federal sphere, and practical approaches to working with and in the cannabis industry. Attendees will hear from regulators, bankers, CPAs, and, of course, lawyers aplenty.

We hope you will join us on June 7 for an eight-hour survey of Oregon cannabis that is both broad and deep. And if you are a Harris Bricken client or a friend of the firm, please click here to request a promotional discount code, which can be applied to either the webcast, or to in-person attendance.

See you soon.

source https://www.cannalawblog.com/the-business-of-marijuana-in-oregon-join-us-june-7th/

California Cannabis Legislative Update: So Many Bills

Ever since the passage of the Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), the California legislature has been busy debating and amending a wide variety of laws related to cannabis. We have been tracking these developments so you don’t have to. Below is an update on pending California cannabis legislation.

AB 2914 loosens the protections on alcohol and tobacco retailers and no longer prohibits those retailers from being able to apply for and obtain a commercial cannabis license. However, AB 2914 will continue to prohibit the infusion of cannabis and alcohol products. This bill was introduced on February 16, 2018 and was amended in assembly on May 1, 2018.

AB 2255 prohibits a law enforcement officer from being able to seize cannabis and cannabis products from licensed distributors who are in violation of MAUCRSA. If a licensed distributor is transporting cannabis in excess of what is stated on its shipping manifest, they will be issued a fine depending on whether this is a first, second, or additional violation. However, a law enforcement officer may still seize cannabis or cannabis products if the law enforcement officer has probable cause to believe a criminal violation has occurred. The bill clarifies that if a shipping manifest has been counterfeited, this would amount to a criminal violation. This bill was introduced on February 13, 2018 and was last amended in assembly on April 26, 2018. It was referred to committee on April 30, 2018.

AB 2641 places a restrictions on non-retailer cannabis businesses from holding temporary event licenses. If this bill were to pass, non-retailers would only be able to secure a maximum of 4 temporary event licenses within a calendar year. This prevents manufacturers, distributors, and cultivators from engaging in constant retails sale without a retail license. This bill was introduced on February 15, 2018 and was last amended in assembly on April 19, 2018. It was referred to committee on April 23, 2018.

SB 930 would provide for the licensure and regulation of cannabis limited charter banks and credit unions whose sole purpose would be to provide banking services to the cannabis industry. For more information about this, see our related post here. This bill was introduced on January 25, 2018 and was last amended in assembly on April 9, 2018. On May 1, 2018, committee recommended its passage and the bill is now awaiting the Governor’s signature.

AB 2555 makes a slight amendment to the unique identifier requirement under the state’s track and trace program. Instead of requiring cultivators to issue a unique identifier for all cannabis plants, the state would only require a unique identifier to be issued to mature cannabis plants. This bill was introduced on February 15, 2018 and was last amended in assembly on April 4, 2018. On April 25, 2018, committee recommended its passage and the bill is now awaiting the Governor’s signature.

AB 2215 allows medical and adult-use retailers to sell cannabis products to adults who intend to use the products for animals. This bill was introduced on February 12, 2018 and  was last amended in assembly on April 24, 2018. It was referred to committee on April 25, 2018.

SB 1409 allows individual cities or counties to prohibit the cultivation of industrial hemp regardless of whether the grower meets the requirements for the cultivation of industrial hemp. For more information on industrial hemp nationwide, see our related post here. This bill was introduced on February 16, 2018 and was last amended in assembly on May 1, 2018.  On May 1, 2018, committee recommended its passage and the bill is now awaiting the Governor’s signature.

The bottom line? We can expect some significant technical changes to California’s cannabis laws and regulations in the near future, so keep checking in, and prepare your marijuana business accordingly.

source https://www.cannalawblog.com/california-cannabis-legislative-update-so-many-bills/

Cannabis Taxation: Does IRC Section 280E Apply to Industrial Hemp?

On the Fringe of California Cannabis Investing: Avoiding “Ownership” and “Financial Interests”

Passage of California’s Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA“) has opened the doors to institutional investing in California cannabis companies. California’s lack of a residency requirement for investors and its relatively limited investor disclosure and background requirements have made it popular for institutional investors looking to invest in cannabis. In that sense, California is building out its program to mirror wide-open states like Oregon, and not protective states like Washington.

There are two main types of California cannabis applicants: owners and financial interest holders. To be legally considered an “owner” under California’s cannabis regulations, one does not actually need equity in the applicant’s cannabis business. “Owner” means any of the following:

1. A person with an aggregate ownership interest of 20 percent or more in the person applying for a license or a licensee, unless the interest is solely a security, lien, encumbrance;
2. the chief executive officer of a nonprofit or other entity;
3. a member of the board of directors of a nonprofit; and
4. and any individual who will be participating in the direction, control, or management of the person applying for a license.

An individual who directs, controls, or manages the business includes any of the following: a partner of a commercial cannabis business that is organized as a partnership; a member of a limited liability company of a commercial cannabis business that is organized as a limited liability company; and an officer or director of a commercial cannabis business that is organized as a corporation. These are all fairly standard definitions, as far as cannabis regulation goes.

Even if someone is not an “owner,” however, that person or company may still be deemed a financial interest holder (“FIH”). “Financial interest” is broadly defined to mean “an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other ‘equity interest’ in a commercial cannabis business.” California cannabis regulators consider the term “equity interest” to include less than a 20% ownership in the cannabis applicant and pretty much any profit-sharing arrangement or entitlement to profits from cannabis licensee, including IP licensing royalties and percentage rent arrangements. The following are not considered FIHs: banks and financial institutions; diversified mutual funds, blind trusts or similar instruments; holders of security interests, liens, or encumbrances on property that will be used by the commercial cannabis business; and individuals holding less than 5 percent of the total shares in a publicly traded company.

California requires FIHs be disclosed to and vetted by the state upon application for annual cannabis licenses. The license applicant must provide a complete list of all financing it receives. Specifically, the license application mandates that applicants include the name, birthdate, and government-issued identification type and number (i.e., driver’s license) for any individual with a financial interest in a commercial cannabis business. FIHs are not required to submit to criminal background checks but they will still undergo some vetting by state regulators.

Even with these new rules, most institutional investment in the cannabis space is still concentrated in “ancillary services“, i.e. services that support cannabis businesses but do not “touch the plant.” Examples include turnkey real estate, equipment and materials leasing and sales, intellectual property licensing, consulting services, and tech platforms. Many institutional investors still want to stay one or two steps removed from touch-the-plant cannabis businesses and do not like the idea of being listed in a state database as being an owner or FIH. However, given California’s wide-reaching definition of owner and FIH, even these companies and their investors can be deemed by the state to have a direct cannabis business interest. To avoid being considered owners or FIHs in California, ancillary service providers will need to avoid directly providing financing, using profit-sharing or similar performance-based payment schemes with cannabis businesses. They will also need to avoid managing, directing, or controlling the licensed entity.

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

source https://www.cannalawblog.com/on-the-fringe-of-california-cannabis-investing-avoiding-ownership-and-financial-interests/