Oregon Cannabis and Liquor: Why is OLCC Harder on Marijuana Licensees?

Why is the OLCC throwing the book at me? This is a question we hear a lot these days from our Oregon cannabis clients in reference to the OLCC’s recent more aggressive approach to enforcement. As we’ve explained, the OLCC has tightened the reins on marijuana applications and rule violations. This has made the prospects of a favorable settlement seem increasingly out of reach for Oregon cannabis businesses that find themselves the subject of an OLCC investigation or receive a proposed notice of cancellation.

Although the OLCC Commissioners have said they are looking for partners in the cannabis industry, it doesn’t always seem that way. This is particularly true when a cannabis business takes reasonable and necessary steps to ensure compliance with the rules only to have an employee violate a rule, whether purposefully or inadvertently. Without fail (in our experience), the OLCC imputes liability for the employee’s actions to the business and the entity finds its license – and its entire business – at risk. Compounding this problem is that for many of regulations, neither the intent of the employee nor the licensee much matter.

The OLCC does not seem to go after holders of liquor licenses with such force.  Here are a just a few such matters that the OLCC has settled in the past few months, on the liquor side:

• Failing to verify the age of a minor – $1,485 civil penalty or a nine-day suspension
• Licensee permitted employees to sell alcoholic beverages for off-premises consumption without providing proper training – $1,815 civil penalty or a ten-day suspension
• Licensee permitted employee to serve alcohol without a valid service permit – $1,485 civil penalty or a nine-day suspension
• Licensee permitted unlawful activity by employees including the sale or distribution of controlled substances – $1,485 civil penalty or nine-day suspension
• 41 documented incidents in 29 months described as “serious and persistent” – surrender of license

It is hard to imagine an entity with a recreational marijuana permit settling similar violations in a similar manner (e.g. failing to verify the age of a minor is a Category I violation) much less that the OLCC would tolerate 41 serious incidents over 29 months, or a licensee distributing controlled substances on premises.

So what gives? Although we understand the OLCC’s desire to maintain the integrity of Oregon’s recreational marijuana industry, we believe that as the industry matures the OLCC should treat violations of the rules governing recreational marijuana more like alcohol, not less. This kind of change likely needs to come from the OLCC or the Oregon Legislature.

The State of Washington is contemplating a wholesale revision of its rules governing the enforcement of the recreational marijuana rules because some of the issues described here. Look for a comprehensive post on this blog tomorrow.

As for businesses caught in the OLCC’s web, you can get some idea of what you’re in for here and here. And you should attend the free webinar Cannabis Agency Litigation Next Tuesday, April 23^rd that you can register for here.

source https://www.cannalawblog.com/why-is-olcc-harder-on-marijuana-licensees/

Industrial Hemp and USDA Organic Certification

We’ve written previously about the inability of cannabis companies to receive United States Department of Agriculture (USDA) organic certification for their products (although there are alternative state-level and private certifications available to fill this gap), but what some of our clients are unaware of is that the USDA will provide organic certification for qualified industrial hemp producers.

The USDA provided clarifying instructions in its September 2018 Instruction on Organic Certification of Industrial Hemp Production for the UDSA’s policy regarding the organic certification of industrial hemp production by certifying agents accredited by the USDA National Organic Program (NOP). The UDSA first noted that Section 7606 of the Agricultural Act of 2014 (the Farm Bill) authorized institutions of higher education and state departments of agriculture to establish industrial hemp research pilot programs in states where the production of industrial hemp is legal and subject to certain other conditions.

The USDA’s official policy is that “[f]or hemp produced in the United States, only industrial hemp, produced in accordance with the 2014 Farm Bill, as articulated in the Statement of Principles on Industrial Hemp issued on August 12, 2016 by USDA, may be certified as organic, if produced in accordance with the USDA organic regulations.”

For industrial hemp producers operating in accordance with their state’s industrial hemp program, becoming a certified organic operation will be no different than for companies in any other industry. The USDA lays out five basic steps to attaining organic certification:

1. The farm or business adopts organic practices, selects a USDA-accredited certifying agent, and submits an application and fees to the certifying agent.
2. The certifying agent reviews the application to verify that practices comply with USDA organic regulations.
3. An inspector conducts an on-site inspection of the applicant’s operation.
4. The certifying agent reviews the application and the inspector’s report to determine if the applicant complies with the USDA organic regulations.
5. The certifying agent issues organic certificate.

All certified organic farms and businesses must also undergo an annual review and inspection process.

It is important to remember that touting your hemp (or cannabis) as certified organic when it is not is illegal under federal law. As mentioned above, for cannabis businesses there are alternative certifications available via some states or via private third-party certification companies.

In California, for example, SB 94 mandated that the California Department of Food and Agriculture (CDFA) create an organic cannabis program by 2021. In 2018, the CDFA formed the “OCal” project, which is a four-person team within CalCannabis dedicated to establishing that organic cannabis program. The program will be similar to the National Organic Program (NOP). OCal is currently in the information-gathering stage and is set to begin soliciting input from stakeholders this month.

In short, it’s clear that both hemp and cannabis companies value organic principles and are seeking certification. The path to such certification is clear for qualifying industrial hemp companies, but for other cannabis companies, the options are much more limited.

source https://www.cannalawblog.com/industrial-hemp-and-usda-organic-certification/

Cannabis Agency Litigation: Free Webinar Next Tuesday, April 23rd

Our California, Oregon and Washington cannabis lawyers often receive calls from panicked license holders facing violations from cannabis agencies.

These violations have included monetary penalties, notices of non-renewal or straight up cancellation. If you’re a cannabis licensee, you know that the license is your most valuable asset. Without it, your business would no longer be able to operate in the cannabis space, and licenses are challenging and competitive to come by in the first place.

To learn more about how to prevent cannabis agency litigation from happening to you, and how to proceed if it does, please join us on April 23rd at 12pm PST for a free webinar featuring cannabis attorneys Griffen Thorne (California), Jihee Ahn (Oregon), and Daniel Shortt (Washington). Drawing from their extensive experience keeping cannabis businesses compliant and going to bat against cannabis agencies when needed, these cannabis litigation attorneys will discuss the following:

• An overview of agency enforcement and litigation in California, Oregon and Washington
• State enforcement priorities and communicating with state authorities in the event of a violation
• Enforcement actions and notices of violation against licensed operators and unlicensed companies
• Inter-agency appeals
• Administrative litigation and state Administrative Procedure Acts
• State court litigation against agencies

With moderator Vince Sliwoski, the panelists will answer audience questions throughout the presentation. To register for the webinar, please go here.

source https://www.cannalawblog.com/cannabis-agency-litigation-free-webinar-next-tuesday-april-23rd/

Did the 2018 Farm Bill Open the Door to Importing Hemp?

We get a ton of questions about whether it’s legal to import hemp into the U.S. It’s a complicated question without a clear answer. We do know that the Drug Enforcement Administration has confirmed that the importation of cannabis plant material that falls outside of the Controlled Substance Act’s definition of “marihuana” (e.g., the mature stalks and seeds incapable of germination) is not in violation of the CSA or related laws and regulations specific to importing goods. That limited exception doesn’t cover other parts of the cannabis plant, including hemp flower. The 2014 Farm Bill allows for the limited cultivation of industrial hemp, but that bill requires that hemp be grown pursuant to an agricultural pilot program in compliance with state law. Hemp grown in another country can’t meet those inherently domestic requirements. The 2014 Farm Bill is still in effect as the U.S. Department of Agriculture (“USDA”) is preparing to regulate the commercial cultivation under the 2018 Farm Bill. However, the 2018 Farm Bill has already altered the CSA’s definition of marijuana to exclude hemp and that provision is not dependent on USDA regulation.

The complicated question was addressed in part in by a federal court in California. In November 2015, Innovative Nutraceuticals, LLC placed an order for hemp from Spain to L&M Natural Hemp. L&M shipped the Spanish-grown hemp along with documentation showing that the material contained in each package was cultivated from seeds certified from hemp in Spain and test results showing that the plant material contained 0.2% THC. On December 6, 2015, the Department of Homeland Security (“DHS”) seized the hemp shipment at the Los Angeles International Airport. The U.S. Customs and Border Protection (“CBP”) tested the shipment and found that it contained CBD.

Innovative Nutraceuticals filed a petition with CBP, seeking administrative review of the seizure. CBP denied the petition because CBD is a compound that naturally occurs in marijuana and therefore the shipment met the definition of marijuana in the Controlled Substances Act (“CSA”). CBP also stated that “hemp flowers” are not excluded from the CSA definition.

Despite this, Innovative Nutraceuticals continued to import hemp from Spain and CBP seized shipments in January and November of 2017. On March 14, 2018, CBP again seized an Innovative Nutraceuticals hemp shipment, this time at the Louisville, Kentucky airport. However, CBP informed Innovative Nutraceuticals that the shipment may be released if the company executed a “Hold Harmless Agreement” agreeing not to sue CBP for damages related to the seizure and requiring Innovative Nutraceuticals to pay costs for delivery or retrieval.

On July 2, 2018, Innovative Nutraceuticals filed a complaint against the United States of America in the U.S. District Court for the Central District of California, seeking the following claims for relief:

(1) an injunction and/or declaratory relief ordering the United States government [(the “Defendant”)] not to detain, seize, summarily forfeit, or destroy any future shipments of hemp plant materials containing [CBD] and/or 0.3% or less of [THC];

(2) an injunction and/or declaratory relief ordering Defendant to provide timely notice and a hearing to owners and shippers of detained or seized hemp materials;

(3) declaratory and injunctive relief ordering Defendant not to destroy and to return all seized hemp materials; and

(4) monetary reimbursement for all hemp materials seized and destroyed by Defendant.

In response, the government filed a motion to dismiss all of Innovative Nutraceuticals’ claims.

On March 28, 2019, the Court issued an order (available here, courtesy of Hemp Industry Daily) granting the government’s motion to dismiss Innovative Nutraceuticals’ first and second claim for mootness and granting dismissal of the fourth claim due to Innovative Nutraceuticals failure to identify the government’s waiver of sovereign immunity. Sovereign immunity is a legal doctrine saying you can’t sue the government for damages unless the government says you can.

In denying Innovative Nutraceuticals’ first and second claims, the Court determined the issue was moot. Under Article III of the U.S. Constitution, federal courts can only rule on actual, ongoing cases or controversies. The parties have to have some skin in the game in order for a federal court to have jurisdiction. Mootness occurs when one or more circumstances change making the controversy moot. This can happen due to a change in law, which is exactly why the Court denied Innovative Nutraceuticals first and second claims:

Section 12619 of the 2018 Farm Bill amended the CSA definition of marijuana so that it now includes an exemption for hemp, defined as “any part” of the Cannabis sativa L. plant “with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” Id. Under this new exemption, any future shipments of industrial hemp product containing less than 0.3% THC by dry weight will clearly fall outside the CSA definition of marijuana and will not be subject to seizure.

[. . .]

Any uncertainty as to the legal status of Plaintiff’s shipments under the pre-2018 Farm Bill regime has since been eliminated by the Bill’s amendment of the CSA’s definition of marijuana.

The Court seems to indicate that future importers of hemp will no longer face the seizures that plagued Innovative Nutraceuticals. While makes sense given that hemp is excluded from the CSA’s definition of marijuana, it does not mean that CBP’s days of seizing hemp are over. The difference between hemp and marijuana is not obvious. It is determined based on the presence of a certain compound, THC. Hemp shipments may contain documentation showing that a product is hemp and not marijuana, but that doesn’t mean that the inquiry stops there. CBP will need a way to determine the difference between marijuana and hemp. This could be a problem in practice because hemp, especially in raw form, has a limited shelf life.

The takeaway from the Innovative Nutraceuticals order seems to be that because hemp is no longer a controlled substance under the CSA, that importing hemp does not violate the CSA. In practice, importing hemp still presents significant risk because CBP may still seize hemp on suspicion of it being marijuana. Anyone looking to import hemp into this country should plan accordingly.

source https://www.cannalawblog.com/did-the-2018-farm-bill-open-the-door-to-importing-hemp/

Another Round of Rally Cries for the SAFE Banking Act

The SAFE Banking Act just got a new, prominent supporter – on April 9, 2019, Treasury Secretary Steven Mnuchin pledged to take a look at the legislation that would allow financial institutions to service cannabis businesses. While the Treasury Secretary admitted he’s not familiar with the Act, he acknowledged that the current conflict between federal and state law is a “significant issue.” He similarly echoed the recurring voiced concern with leaving so many marijuana companies operating on a cash-only basis, specially noting that the Internal Revenue Service (IRS) had to build “cash rooms” for taxes paid by marijuana companies.

During a House Appropriations Subcommittee hearing, Rep. Brad Sherman (D-CA) asked the Treasury Secretary to review the SAFE Banking Act and consider endorsing it within two weeks. Mnuchin advised he’d be “happy to review it and [have his] staff [] follow up.” The Treasury Secretary was also asked for potential solutions to provide state-legal cannabis businesses with access to financial institutions, to which he took a strong and defensive position:

Let me just say, I hope this is something that this committee can on a bipartisan basis work with since there are people on both sides of the aisle that share these concerns. … I will just say I don’t believe this is a failure of the regulators. I want to defend the regulators on this issue. There is not a Treasury solution to this. There is not a regulator solution to this. This is something where there is a conflict between federal and state law that we and the regulators have no way of dealing with. If this is something that Congress wants to look at on a bipartisan basis, I’d encourage you to do this.”

As we’ve previously written about, there have been several calls for clarity on this banking issue. Most recently, during a panel at the American Bankers Association’s 2019 Washington Summit, the Presidents of three Federal Reserve Banks expressed their own concerns and reiterated requests to Washington for guidance to all financial regulators on servicing state-legal cannabis businesses. Raphael Bostic (Federal Reserve Bank of Atlanta), Tom Barkin (Federal Reserve Bank of Richmond), and Esther George (Federal Reserve Bank of Kansas City) all stressed how the chasm between a growing number of state and federal marijuana laws has created difficulties for both sides (bankers and cannabis businesses, that is).

For better or for worse, we’re responsible to follow federal law, and so we would very much like to have clarification on this – whatever legislative answer gets us to clarity would be our preferred outcome,” Mr. Barkin said.

Ms. George added, “the reality on the ground is there are businesses that are considered state-legal around this substance, and the money that is generated from that again, is a challenge for the banks” because choosing to service a marijuana business is “not an easy judgement for the banks to make.” “This is a case where you have to know your customer and you have to weigh the risk of what you’re worried about could happen around this.” Mr. Bostic characterized the situation as “impossible” because federal regulators don’t actually have a vote but are asked to navigate in a strange middle space. “There’s not really a clear thing for us to say—we can’t give anyone 100 percent certainty in terms of how this is going to turn out,” he said. “I do hope that we get some legislative clarity sooner rather than later. I would love some resolution, one way or the other, as soon as we possibly can because this is only become more prominent.”

The Presidents echoed what other top federal financial officials have said in recent months. The ABA also previously expressed its support in a letter to members of the House for the SAFE Banking Act earlier in March.

source https://www.cannalawblog.com/another-round-of-rally-cries-for-the-safe-banking-act/

FDA Issues Warning Letters to CBD Manufacturers Making “Over-The-Line” Health Claims

Last week, the departing Food and Drug Administration (“FDA”) Commissioner, Scott Gottlieb, released a statement in which he announced that the agency, in collaboration with the Federal Trade Commission (“FTC”), had issued warning letters to three CBD manufacturers: Advanced Spine and Pain LLC (d/b/a Relievus), Nutra Pure LLC and PotNetwork Holdings Inc.. The letters were sent “in response to their making unsubstantiated claims related to more than a dozen different products and spanning multiple product webpages, online stores and social media websites.” According to Gottlieb’s statement, the companies used these online platforms to make:

…unfounded, egregious claims about their products’ ability to limit, treat or cure cancer, neurodegenerative conditions, autoimmune diseases, opioid use disorder, and other serious diseases, without sufficient evidence and the legally required FDA approval.”

The warning letters were released just a few days following Gottlieb’s testimony to a Senate subcommittee, in which he announced that his agency would use enforcement discretion against CBD product manufacturers who are making “over-the-line claims.”

Due to its limited resources, the FDA has chosen to focus enforcement actions against manufacturers who sell and advertise CBD products with unsubstantiated therapeutic claims that may put consumers at risk. Specifically, the agency fears that

These products have not been shown to be safe or effective, and deceptive marketing of unproven treatments may keep some patients from accessing appropriate, recognized therapies to treat serious and even fatal diseases.”

Although the warning letters set forth specific examples of claims made by the targeted companies, questions remain regarding what amounts to “unauthorized claims” that would put CBD companies at risk of enforcement actions. These questions will most certainly be addressed during the FDA’s upcoming public hearing on CBD scheduled for May 31. The public hearing will provide stakeholders an opportunity to share their thoughts on potential pathways by which CBD products may be legally sold and marketed. The FDA has expressed an interest in collecting comments, data and information on the following topics:

1. Health and safety risks: Based on what is known about the safety of products containing cannabis and cannabis-derived compounds, are there particular safety concerns that FDA should consider regarding its regulatory oversight and monitoring of these products?
2. Manufacturing and product quality: Are there particular standards or processes needed to ensure manufacturing quality and consistency of products containing cannabis or cannabis-derived compounds, including standards applied to evaluate product quality?
3. Marketing, labeling and sales: How should consumers be informed about the risks associated with such products (e.g., directions for use, warnings)? What specific risks should consumers be informed about? Are there any subpopulations for which additional warnings or restrictions are appropriate?
   For a complete list of questions and topics identified by the FDA, see here.

The agency hopes that the comments received during the public hearing will assist the recently formed “high-level internal agency working group” in exploring potential pathways for dietary supplements and/or conventional foods infused with CBD to be lawfully marketed. Although the FDA recognizes that it will take time to fully resolved this complex issue, the agency is hopeful that the working group will begin sharing its findings with the public as early as this summer.

Until then, CBD companies should refrain from making any health claims that highlight the therapeutic value of their products. For more information on ways to mitigate the risk of FDA and FTC enforcement actions, contact our team of regulatory attorneys.

source https://www.cannalawblog.com/fda-issues-warning-letters-to-cbd-manufacturers-making-over-the-line-health-claims/

Oregon Wine and Cannabis Litigation: Why Can’t RICO Be Friends?

The Oregon wine and cannabis industries can’t seem to get along. Where some see a natural synergy, others see undesirable competition. And as a RICO case filed in the Oregon federal court last week makes clear, Momtazi Family, LLC v. Yamhill Naturals, LLC, et al., No. 3-19-cv-00476-BR, some see only a criminal enterprise.

At first blush this looks like a run-of-the-mine RICO cannabis case. The people behind the plaintiff Momtazi Family, LLC (“Momtazi”) are well known. They own a 532-acre property near McMinnville and in August 2018, began leasing the property to Maysara Winery, which now operates the Momtazi Vineyard. The defendants (Steven, Richard, and Mary Wagner) own adjacent property, which they purchased to produce and process marijuana through Richard’s company Yamhill Naturals. The complaint includes the usual RICO allegations that the odor from the nearby marijuana farm is a nuisance along with the somewhat striking allegation that the defendants trespassed onto Momtazi’s property and deliberately killed one its cows.

The question – as it often is in these RICO cases – is whether the plaintiff has alleged damages sufficient to withstand a motion to dismiss. Momtazi alleged diminution-in-value, which has proved problematic for many putative RICO plaintiffs. But Momtazi also alleged that this harm was reflected in the reduced rental value of the property when it leased the property to Maysara in 2018. Momtazi further alleged that one of its repeat customers canceled a six-ton order for grapes and, of course, there is always the cow. Whether these allegations suffice to plead a RICO claim that may entitle Momtazi to recover treble damages and attorneys’ fees remains to be seen.

What’s interesting about this lawsuit is its connection to an Oregon state-court lawsuit scheduled for trial in late May 2019. That lawsuit – between Maysara Winery and Yamhill Naturals was written up in 2017 in what Buzzfeed termed “Pinot v. Pot” and described by the New York Times as a clash between longtime residents and the new cannabis farmer next door. Even the Oregonian got in on the action. Some two years later that case looks like it is going to trial. (Note: Email me if you’d like a copy of the parties’ trial briefs).

This all gives Yamhill Naturals much to do in the coming weeks. One wonders if the timing of the RICO lawsuit is more than coincidental. Though a conflict between the facts described to the two courts gives me pause from making that conclusion. Specifically, Momtazi’s federal complaint alleges that from January 2017 to the present, the defendants have produced and processed marijuana on their property and distributed it for sale. But the parties in the state-court action seem to agree that, as the Wagners put it in their trial brief, they have “never grown, produced, or processed marijuana commercially” on the property. Both of these things can’t be true. I guess the lawyers will have to figure it out.

For more on wine and weed, Hilary Bricken has spoken about it here and here is a story about what California may do.

For more on RICO and cannabis, see:

• Much Ado about RICO
• Much Ado About RICO and Cannabis, Part 2
• Much Ado About RICO and Cannabis, Part 3
• Much Ado About RICO and Cannabis, Part 4
• Much Ado About Rico and Cannabis, Part 5: Multi-State Update
• The Neighborhood “Gangbusters”: Avoiding RICO Cannabis Lawsuits
• Cannabis RICO Lawsuits Are Failing: Oregon and Colorado Updates
• Federal Court Dismisses RICO Suit Against Sonoma County Cannabis Cultivator
• Cannabis Litigation: Another Federal Court RICO Case Dismissal

source https://www.cannalawblog.com/oregon-wine-and-cannabis-litigation-why-cant-rico-be-friends/