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Today, Oregon Governor Kate Brown signed SB 56 into law. This law is effective immediately and contains several anticipated fixes to the current cannabis regulatory scheme.

On May 30, 2017, SB 1057 was signed into law by the Governor and became effective immediately.  SB 1057 made significant changes to the Oregon Medical Marijuana Program (OMMP), including limiting the number of plants to six mature plants and twelve or fewer immature plants per patient.  Previous plant limits were six mature plants per patient and an unlimited number of immature plants. The timing of SB 1057 created a significant timing issue for medical growers, particularly outdoor growers, currently operating under the OMMP and in the process of applying for recreational production licenses with the Oregon Liquor Control Commission (OLCC). Among other things, SB 56 provides relief from the newly implemented immature plant limits under SB 1057 for medical growers who have applied for their OLCC producer license.  Specifically the bill expressly states that the new plant limits do not apply, except as provided by OLCC rule, to a premises for which an OLCC application has been made on or before the effective date of SB 56, June 23, 2017.

We previously summarized this and some of the other key changes made by SB 56 in our post from June 21, 2017.

If you have any questions regarding SB 56 or any other compliance issue, don’t hesitate to contact one of our compliance attorneys and remember to stay tuned to our blog updates for more up-to-date information on changes to Oregon cannabis laws!

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Today, the Oregon legislature passed Senate Bill (SB) 56, which contains several of the anticipated “fixes” to the cannabis regulatory scheme currently in place.

SB 56, carried by Representative Fahey (D – District 14 – West Eugene and Junction City), includes the “Dash 39” amendments adopted by the Joint Committee on Marijuana Regulation which provides, among other things, relief from the newly implemented immature plant limits for those who submit a producer license application to the OLCC on or before the effective date.

Although SB 56 currently awaits the governor’s signature to take effect, here are some of the key changes you can expect to occur:

Immature marijuana plant limits. The bill exempts OMMP growers who submit their OLCC producer applications on or before the measure’s effective date from OMMP immature plant limits. Current law sets OMMP immature plant limits at twelve (12) plants. This is an important fix for growers intending to transfer their medical plants into the OLCC program.

Immediate suspension of license for suspected diversion. OLCC may restrict, suspend, or refuse to renew a license if the OLCC has probable cause to conclude the licensee has sold, stored, or transferred marijuana in a manner not permitted by its license.

Processing by small producers. OLCC-licensed Micro Tier I and Micro Tier II recreational marijuana producers may process marijuana into cannabinoid concentrates using two specified methods: (1) a mechanical process (i.e., keif sieves, silk screens, etc.) and (2) an extraction process using water as the solvent (i.e., ice water hash, bubble bags, etc.).

Transfer of product between retail locations. SB 56 allows a licensed marijuana retailer to transfer product from one retail location to another if the destination retail location is “owned by the same or substantially the same persons.” Although “substantially the same” is not defined in the bill, we expect the OLCC will provide further guidance on the matter.  Note: these transfers are subject to OLCC rules governing transportation of marijuana items.

Verification of lawful activity hotline. Until now, it was difficult for government officials to determine whether a farm was a registered marijuana grow site or OLCC licensed producer premises. This provision requires that the OLCC and OHA create a telephone hotline to inform inquiring city, county, and Water Resources Department representatives, or a district water-master, as to whether a farm is a registered medical grow site, an OLCC licensed producer premises, or a site for which a registration or license has been applied for.

Exclusively medical licensees. Previous legislation enacted this session (SB 1057) created an “exclusively medical” license designation for OLCC applicants. Under SB 56, city and county governments that currently allow or prohibit OHA processing sites or dispensaries may unilaterally prohibit or allow exclusively medical licensees. This would empower local municipalities to refine the cannabis regulatory structure within their limited jurisdictions as their constituents prefer.

Restricted licenses. At its discretion, the OLCC may issue a restricted license to an applicant if the OLCC makes a finding that the applicant meets the denial criteria found in OAR 845-025-1115 (2). This fix allows an applicants to obtain restricted licenses when they otherwise may have been simply denied.

Remember to always stay tuned to our blog updates for more information on changes to Oregon cannabis laws!

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Effective July 1, 2017, Oregon’s minimum wage increases across the State. As you may recall, in 2016, Oregon adopted a three-tiered minimum wage: the Portland Metro rate, the Standard rate and the Nonurban Counties rate. Here’s how the rate is changing for each area:

Area Current Minimum Wage July 1, 2017 Minimum Wage
Portland Metro $9.75 $11.25
Standard $9.75 $10.25
Nonurban Counties $9.50 $10.00

Of course, with an increase in the minimum wage comes a corresponding increase in the overtime rate, which is one-and-a-half times the minimum wage, so $16.88 for the Portland Metro area, $15.38 for the Standard area and $15.00 for the Nonurban Counties.

The Portland Metro area consists of all areas within the Portland metropolitan area urban growth boundary. The Nonurban Counties are Baker, Coos, Crook, Curry, Douglas, Gilliam, Grant, Harney, Jefferson, Klamath, Lake, Malheur, Morrow, Sherman, Umatilla, Union, Wallowa and Wheeler Counties. The Standard rate applies to the remainder of the State. This Bureau of Labor and industries’ map illustrates the three-tiered minimum wage:

The rate changes apply to any work performed on or after July 1, 2017. This means the change may come in the middle of a pay period for some employees. An employer cannot delay the increase until the employee’s next pay period.

Employers should take whatever steps are necessary to prepare their payroll system for the minimum wage increase. Employers should also update the minimum wage poster that every employer must post in an area accessible to all employees. For employers using the all-in-one federal and state employment law poster, you can replace your current poster or simply change the minimum wage on that section of your current poster.

The new $11.25 Portland Metro minimum wage is one of the highest minimum wages in the country, but still well below Seattle’s $13.50 minimum wage for large employers. Oregon employers can rest easy after the July 1, 2017 increase. The next scheduled increase doesn’t come until July 1, 2018.

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Yesterday, the California legislature passed Senate Bill 94, known as the “2017-18 Budget Trailer Bill” (BTB). The BTB reconciles the Medical Cannabis Regulation and Safety Act (MCRSA), which regulates medical cannabis, with the Control, Regulate and Tax Adult Use of Marijuana Act (AUMA), which legalizes and regulates adult-use (a.k.a. “recreational”) cannabis. Although MRCSA largely supplied the framework for AUMA, the laws contain significant differences that many anticipated would cause complications in the licensing and regulatory process, both for industry and state regulators.

BTB repeals the bulk of MCRSA, though certain provisions survive in the resultant combined medical (now termed “medicinal”) and adult-use regulatory scheme – the cumbersomely named Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA). Through this reconciliation, the laws governing adult-use cannabis also received a slight makeover.

Here are some of the key changes the BTB will make once it takes effect:

No Residency.  There will no longer be a residency requirement to own or operate an adult-use cannabis business. AUMA had required that adult-use license-holders and owners demonstrate continuous California residency since January 1, 2015. BTB lifted this restriction, meaning that out-of-staters will now be able to participate in both the medicinal and adult-use markets.

Vertical Integration.  “Vertical integration” will be permitted, except for testing laboratories and, to a narrower extent, for large cultivators. Thus, both medicinal and adult-use licensees will be able to hold multiple license types. Licenses for large cultivation operations (larger than ½ acre indoors or 1 acre outdoors) will still be unavailable until 2023.

License Types. License types will be the same for medicinal and adult-use cannabis. The BTB eliminates the “producing dispensary” (MCRSA Type 10A) and transporter (MCRSA Type 12, AUMA Type 11) license categories but retains all others, including specialty cottage cultivation and microbusinesses (small retailers with farms not exceeding 10,000 sq. ft.).

ID Card Program Eliminated.   The statewide voluntary identification card program for medical patients is eliminated. The Medical Marijuana ID Card Program, established by Senate Bill 420 (2004), required counties to provide ID cards to patients who voluntarily requested them. Although counties can still choose to provide ID cards pursuant to local law, the state no longer mandates this service. The arrest protections previously provided to ID card holders are now extended to all qualified patients and primary caregivers with a valid physician’s recommendation that contains certain specified information.

Separation of Medicinal and Adult-Use.  Medicinal and adult-use cannabis activity must be separate. With some exceptions, including for testing labs, medicinal and adult-use cannabis businesses may not operate on the same premises.

Advertising Rules.  The advertising, marketing, adulteration, and misbranding restrictions and prohibitions from MCRSA and AUMA will apply to both medicinal and adult-use activity.

Industrial Hemp.  Industrial hemp will be regulated solely by the Department of Food and Agriculture, per the California Industrial Hemp Farming Act. This regulatory authority was formerly shared with the Bureau of Cannabis Control under the AUMA.

The BTB currently awaits the governor’s signature to take effect. Although the state is still taking public comment on the draft regulations implementing MCRSA, these regulations will likely be substantially rewritten to incorporate the BTB’s changes.  Stay tuned to our blog for more information on changes to California marijuana laws.

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I’m just an old corporate attorney. At the large firm I worked at for nearly 20 years, “dabbling” into practice areas in which you were not an expert was frowned upon. Become an expert in one or two areas of the law, stick with them, and let the other attorneys at the firm handle the stuff that they know better than you. That was the mantra, and I have found it a convenient philosophy to maintain. And so, for the past few years, I have done everything humanly possible to avoid learning and keeping up with the voluminous and ever-changing marijuana rules and regulations of the Oregon Health Authority and the Oregon Liquor Control Commission. That’s what my (younger) colleagues are for.

However, there are a few OLCC rules that a business attorney practicing in the marijuana industry simply cannot avoid, including the rules governing:

• Who is an “applicant” for purposes of an OLCC application;
• Who has a “financial interest” in a licensed business; and
• What happens if any of these things change.

Business transactions appear to be happening more than ever in the industry, and two of the most common questions we get are:

• Who, exactly, has to be on (or added to) the OLCC application?
• Is this going to slow up the deal?

The OLCC published new rules effective January 1, 2017, which included some changes to the definitions of “applicant” and “financial interest.” The rules cleared up some issues nicely. However, the rules do not provide an obvious answer to every business scenario. For some scenarios, it is necessary to determine the OLCC’s interpretation or policy with respect to a particular rule.

I and others at our firm have had a series of recent discussions with the OLCC on these rules to make sure that our firm’s advice to our clients is consistent with the OLCC’s interpretations and policies.

The following is a summary of the current rules, based on both the text of the rules and the OLCC’s current interpretations and policies of the same.

Applicant

The rules concerning applicants are relatively clear, and can be found at OAR 845-025-1030(3-4) and OAR 845-025-1045.

The following persons are applicants:

1. An individual or legal entity who holds or controls an interest of 10% or more in the licensed business;
2. An individual or legal entity (other than an employee acting under the direction of the owner) that: (i) exercises or is entitled to exercise control over the licensed business; (ii) incurs or is entitled to incur debt or similar obligations on behalf of the licensed business; or (iii) enters into or is entitled to enter into a contract or similar obligations on behalf of the business; and
3. An individual or legal entity identified as the lessee of the licensed premises.
Additionally, if a legal entity is an applicant, the following individuals within the legal entity are also applicants:
4. For a limited partnership, each general partner;
5. For an LLC, each member whose investment commitment or membership interest is 10% or more; and
6. For a corporation: (i) each director who owns or controls 3% or more of the voting stock; (ii) each principal officer; and (iii) each shareholder who owns or controls 10% or more of the voting stock.

Categories 1, 4, 5, and 6 have to do with ownership and the executive management team. These categories are always relevant and we focus on them all of the time.

There are definitely some logical inconsistencies with Categories 4 through 6, and there are a number of instances where different results would occur based solely on the form of the legal entity, even though there would appear to be no substantive differences between certain scenarios. For example, a 15% passive nonvoting member of a parent company LLC would be an applicant, whereas a 15% passive nonvoting shareholder of a parent company corporation would not be an applicant. These inconsistencies rarely “wag the dog” when organizing an entity structure, but they could.

The items in Category 2 do not frequently come into play, but they should never be overlooked. One not-uncommon scenario we have seen is when a licensed business hires a third-party management company that has the authority to enter into certain purchasing or other contracts on behalf of the business. In that case, the management company (and some or all of its owners, depending on the entity type of the management company) would be considered applicants of the licensed business.

Category 3 ideally should never arise because the legal entity that owns the licensed business should always be the lessee or sublessee on the lease. However, again, this item should not be overlooked.

Financial Interest
Here’s where it gets more interesting (which is an attorney’s way of saying less clear).

The term “financial interest” is defined in OAR 845-025-1015(20). The general definition states: “Financial interest” means having an interest in the business such that the performance of the business causes, or is capable of causing, an individual, or a legal entity with which the individual is affiliated, to benefit or suffer financially. The definition then provides a short non-exclusive list of scenarios that constitute a financial interest.

The definition does not specifically address many common business scenarios that we have encountered. And so, rather than take a guess at things, we felt the best move was to contact the OLCC to determine their current interpretations and policies regarding those scenarios.

We have learned that the following persons have a financial interest in a licensed business:

A. A direct or indirect equity owner of the licensed business (with one exception specified below);
B. An employee or agent who receives out-of-the-ordinary compensation;
C. A lender who lends money or property to an applicant or the licensed business for use in the business at a commercially unreasonable rate;
D. A person who gifts money or property to an applicant or the licensed business for use in the business;
E. The spouse of an applicant;
F. A person who receives out-of-the-ordinary consideration as a result of any commercial transaction;
G. A person who is entitled to receive any payment based on a percentage of profits, sales, or other performance metric of the licensed business;
H. The holder of an option or warrant to purchase a direct or indirect equity interest;
I. An employee or other service provider who is granted an option to acquire a direct or indirect equity interest;
J. The holder of a convertible promissory note;
K. A person who is granted a security interest in the assets or a direct or indirect equity interest; and
L. A person who has any right or potential right (based on any potential future contingencies) to acquire the assets or a direct or indirect equity interest.

Overall, this is a rather broad interpretation of the rule. Categories A through F are clear from (or are clearly implied by) the text of OAR 845-025-1015(20). For Category G, receiving a percentage of profits from a licensed business is also clearly implied by the text of the rule. However, receiving a percentage of sales or other performance metric is not. Likewise, the OLCC easily could have interpreted OAR 845-025-1015(20) differently with respect to Categories H through L. Still, this is the OLCC’s current interpretation.

And so what scenarios are we left with that do not constitute a financial interest?

In short: (a) ordinary and fair market value compensation and consideration; (b) unsecured loans at a commercially reasonable fixed interest rate; (c) fixed dollar payments (rather than percentages); (d) the absence of collateral having anything to do with the business; and (e) the absence of contingencies that could result in a person acquiring the assets or any direct or indirect equity interest in the business.

Additionally, the rules expressly provide for one specific exception to the general rule that every direct or indirect equity owner of a licensed business holds a financial interest. OAR 845-025-1015(20)(b) provides that a financial interest does not include any investment that the investor does not control in nature, amount or timing. While this language is not absolutely clear on its face, the OLCC’s interpretation is that this exempts persons who have invested in a company or financial fund that, in turn, invests in a specific licensed business (assuming that the exempt person is passive in nature and would not otherwise be considered an applicant). For example, if an individual buys shares in a public company and the public company, in turn, invests or has invested in one or more licensed businesses, then the individual investor would not be deemed to have a financial interest in the licensed businesses.

Of course, no list of all conceivable scenarios could ever be complete, and there are certainly scenarios that will arise that do not fit neatly into the text of the rules or the OLCC’s interpretations or policies regarding the same. Similarly, the OLCC could change its interpretations and policies at any time.

Consequently, before applying for or renewing any OLCC license, and before entering into any new business transaction that could potentially affect who may have a financial interest in a licensed business, it is always advisable to speak with an attorney (or, at a minimum, with the OLCC itself).

Distinction #1 – Criminal Background Checks

Based on the text of the rules, there is only one distinction between an applicant and the holder of a financial interest. The OLCC is required by statute to conduct a criminal background check on each applicant who is an individual. Applicants must submit fingerprints and other information to the OLCC. See OAR 845-025-1030(6)(a) and OAR 845-025-1080. The OLCC may require each individual who holds a financial interest to submit the information necessary for a criminal background check, but they are not required to do so by statute. See OAR 845-025-1030(7).

Distinction #2 – Changes

There is one other significant distinction between an applicant and the holder of a financial interest that is not in the text of the rules, but is instead based on the OLCC’s current policy position. OAR 845-025-1160(4) provides that a licensed business must obtain the OLCC’s preapproval before changing who has a financial interest in the business. Here is a link to the form that must be submitted to the OLCC if there is a change in financial interest or business structure: http://www.oregon.gov/olcc/marijuana/Documents/Licensing_Forms/mj_change_financial_fillable.pdf.

Although OAR 845-025-1160(4) and the OLCC’s change form apply to all financial interests, the OLCC’s current policy is that only the addition of a new applicant requires the preapproval of the OLCC. If a licensed business is adding a person that merely holds a financial interest (and who is not an applicant), then the licensed business can finalize the transaction first, and then notify the OLCC after the fact.

This is a significant benefit for businesses who are adding only financial interest holders and who do not want to delay the closing of the transaction.

Conclusion

The OLCC’s rules governing applicants, financial interest holders, and changes to the same are a bit complicated and are not always clear from the text of the rules themselves. Compliance is always important naturally, but these days perhaps it is more important than ever.

Before applying for or renewing any OLCC marijuana license, and before entering into any new business transaction that could potentially affect who may have a financial interest in a licensed business, it is advisable to speak with an attorney.

Finally, if you currently have an OLCC license and are uncertain whether you have disclosed to the OLCC all applicants and financial interest holders, you also should speak with an attorney. The OLCC considers violations of the applicant and financial interest rules to be serious Category I or Category II violations, depending on intent. Correcting an omission is certainly possible, but it should be undertaken with legal advice.

If you have any questions or issues, please contact any of our business attorneys or compliance and licensing attorneys.

We will update this blog if and when we become aware of any change in the OLCC’s interpretations or policies on this issue.

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Bad dreamer, what’s your name?
Looks like we’re riding on the same train
Looks as though there’ll be more pain
There’s gonna be a showdown

I have always thought that the August 29, 2013 “Cole Memo” is an amazing legal document. In case you’ve never read it, or in case you haven’t read it in a while, here’s a link: https://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf

The Cole Memo was released by the U.S. Department of Justice (the “US DOJ”) in response to the fine people of Colorado and Washington passing ballot measures in November 2012 that legalized the commercial production and sale of marijuana for all persons 21 years of age and older. The Cole Memo summarizes the enforcement policies of the US DOJ concerning marijuana, and somehow concludes that federal US attorneys should just sit back and let commercial marijuana businesses sell marijuana to non-patient consumers right out in the open. On Main Street. In the middle of town. Smack dab in front of everyone driving down the road or walking down the sidewalk. When it’s clear as a crystal that every single person involved is violating federal law all day long.

How could this happen? Is the Cole Memo an enlightened piece of political pragmatism? A bold action by the Executive Branch in response to inaction by the Legislative Branch and a realization that the War on Drugs was a complete failure? A lazy cop-out by the Executive Branch because it didn’t have the stomach to either enforce or change the law? A nonsensical mish-mash of pretzel logic by the liberal elites in the Obama Administration? The Cole Memo is probably all of these things, and that’s what makes it so great. And without it, thousands of marijuana businesses and probably millions of marijuana consumers across the country would not be doing what they are doing today.

Under a different U.S. President and a different U.S. Attorney General, there might have been an entirely opposite version of the Cole Memo, which could have resulted in SWAT teams descending on medical marijuana businesses and in the federal government threatening state employees with imprisonment should they dare to implement the ballot measures. If that had happened back in 2013, I am quite certain that Oregon Ballot Measure 91 would not have passed in 2014, at least not in the form it took.

But I digress. What is President-elect Trump going to do once he affirms to the TV cameras that he will preserve, protect and defend the Constitution of the United States? I have read many articles discussing the possibilities, and most everyone’s conclusion, including mine, can be boiled down to: “Who the hell knows?” Things could get worse, for sure. On the other hand, maybe things get better and then it’s truly game over for federal prohibition in Oregon and other States that have legalized marijuana. Either way though, I suspect that the Cole Memo won’t survive the first six months of calendar year 2017.

From a business perspective, what is one to do with such uncertainty? Keep on keepin’ on seems like a logical choice at the moment. The industry was never for the faint-hearted, and there are enough other real day-to-day problems to deal with. So what’s the point of getting bogged down thinking about an unanswerable question when we’ll all know the answer soon enough. But what about those tip-toeing around the industry at the moment, like . . . uh . . . investors? If they’re not already in the game, they don’t need to do anything. They can sit on the sidelines and wait for more certainty. Or maybe they see an advantage in the uncertainty, and think they should move in now. Market inefficiencies lead to opportunities and all of that.

In any event, here’s why I’m writing this. If you are a client who engaged our firm to assist you in raising money at any time during the past few years, or if you are an investor who has invested in one of our clients, you have probably seen the following securities law risk factor in one of the investment documents:

Our business is illegal under federal law. Producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is a federal crime. Under the Federal Controlled Substances Act of 1970 (the “Federal CSA”), marijuana is classified as a Schedule I drug, which is defined as having a high potential for abuse and no currently accepted medical use. Your investment in the Company may: (a) expose you personally to criminal liability under federal law, resulting in monetary fines and jail time; and (b) expose any real and personal property used in connection with our business to seizure and forfeiture to the federal government. We encourage you to carefully review the U.S. Department of Justice Memorandum for All United States Attorneys dated August 29, 2013 from James M. Cole (the “Cole Memo”), which summarizes the current enforcement policies of the U.S. Department of Justice (the “US DOJ”) concerning marijuana.

Now, I’ve been a securities law attorney for over 20 years and I can tell you that this is one of the craziest risk factors that’s ever been written in the history of securities laws. “Invest in our company and you can go to jail.”

Despite that doomsday scenario, I’ve had the feeling for some time now that nobody’s given it two seconds’ worth of thought. “Yeah yeah yeah, it’s against federal law. Thanks for the news flash. Now where do I sign?” Why did everyone just start blowing through this risk factor like they couldn’t care less? The answer I’m guessing is a mixture of: (i) the Cole Memo, and the fact that federal US attorneys have actually adhered to it for years; and (ii) the fact that so many people are involved in the industry now that there’s a feeling of safety in sheer numbers. “What are they going to do? Arrest everyone?”

Probably not. But a big chill could set in for a while if Trump’s Attorney General nominee Jeff Sessions says or does one thing rather than another. And so for now, I am unveiling a new securities law risk factor, which will appear, along with the original, in our documents for clients who are seeking to raise money from investors. To be sure, this one won’t last as long as the original Cole Memo risk factor. And as mentioned, I am guessing that both of these risk factors will be relegated to the dustbin in the near future, almost certainly to be replaced by a new one (hopefully better, but perhaps worse). For now however, behold the following, and keep on keepin’ on:

The federal government’s enforcement policies with respect to marijuana may change. Since the release of the Cole Memo, federal United States Attorneys having jurisdiction over Oregon have not attempted to prosecute any person whose commercial marijuana operation is in compliance with Oregon law. As a result of the United States presidential election held on November 8, 2016, Donald Trump is expected to become the next United States president on January 20, 2017. Mr. Trump has announced that he intends to nominate Jeff Sessions for Attorney General of the United States. If confirmed by the United States Senate, Mr. Sessions will head the US DOJ and dictate the US DOJ’s enforcement policies concerning marijuana. Mr. Sessions has previously stated his opposition to the legalization of marijuana, and may adopt US DOJ enforcement policies consistent with his position, including but not limited to a revocation of the Cole Memo. Any change in the US DOJ’s enforcement policies likely will have a material adverse effect on us.

Tonight, the longest night

Take it away Mr. Lynne: https://www.youtube.com/watch?v=m0cuCLTnkMM

Showdown lyrics © Sony/ATV Music Publishing LLC, Warner/Chappell Music, Inc.

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Major changes to the minimum salary requirements for exempt employees originally scheduled to take effect on December 1, 2016, are now on hold as the result of a ruling by a U.S. District Court judge in Texas.

As discussed in our November 7, 2016 blog post, the new rules would significantly increase the minimum salary requirements for the executive, professional and administrative employee exemptions (from $455/week to $913/week) and the minimum compensation for the highly compensated employee exemption (from $100,000/year to $134,004/year).

Twenty states joined together to challenge the new rules. On November 22, 2016, Judge Amos L. Mazzant III of the Eastern District of Texas issued a preliminary injunction blocking the new rules from taking effect. Since it is only a preliminary injunction, the judge can change his ruling after further proceedings, but that is seen as unlikely. The Obama Administration can appeal the ruling to the Fifth Circuit Court of Appeals, if it chooses to do so, but no decision has been announced.

The ruling means employers do not have to make any changes to current salary levels, at least until the courts make a final decision. Most employers already planned for the new rules, so it will be interesting to see how employees react when employers rescind their announced changes. We also don’t know the Trump Administration’s position on the proposed changes, so stay tuned.

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Yesterday’s election was historic in many ways.  The imminent change in federal administration may have repercussions for state-run legal marijuana regimes.  Until now, states with legal marijuana regimes have been functioning under the protection of what’s called the “Cole Memo” – a document issued by the US Department of Justice, which directs federal prosecutors to use discretion in prosecuting marijuana-related crimes per eight enforcement priorities.  While many believe that Hillary Clinton would have most likely maintained the status quo regarding the Cole Memo, President-Elect Donald Trump’s position is less clear.  Look for future blog posts for more comprehensive analyses on this issue.

Yesterday’s election was a watershed moment for marijuana legalization among the states.  Please see our summary of the results of marijuana initiatives.

Adult-Use Marijuana

Four states have legalized marijuana for adult-use, joining Alaska, Colorado, Oregon and Washington.

  • Arizona (Failed) – The state electorate defeated Proposition 205 with a 52.1 percent “no” vote.  It would have allowed adults to carry up to one ounce, grow up to six plants (12 total per household), and consume marijuana in private spaces.  Retail marijuana sales were set to have a 15 percent tax imposed.  Some Arizona residents expressed concern that decriminalization would not keep up with the new law.  They pointed out that any possession of plants in excess of the limit could still have been charged as a felony.
  • California (Passed) – Proposition 64 makes recreational marijuana legal all along the West Coast and many people argue will mark a path to federal legalization.  Also known as the Adult Use of Marijuana Act, the law allows for adults to possess up to an ounce of cannabis and purchase dried flower and cannabis products from licensed retailers as well as grow six plants for personal use.  Initial taxes imposed include a 15 percent excise tax on retail sales plus a cultivation tax per volume.  Proponents estimate that the Act could result in $1 billion annually in state tax revenue.  One major concern, however, is that large, well-funded investors will swallow up smaller family farmers formerly engaged in the state’s medical marijuana program.  One LA-based private equity fund plans to deploy $75 -$100 million over the next few years to acquire property and build out cultivation centers and dispensaries in Southern California.
  • Massachusetts (Passed) – Question 4 provides for adults to possess up to one ounce of marijuana, keep up to 10 ounces at home, and grow up to six plants.  Marijuana sold by licensed retailers is subject to an excise tax of 3.75 percent in addition to the state’s 6.25 percent state sales tax.  Some concern exists regarding the timetable to get the legal regime up and running.  It took about 3 years for the first medical marijuana dispensary to open after passage of Massachusetts’ medical marijuana law.  Some have also expressed worries that the 3.75 percent tax will fall short of the funds necessary to launch the state’s regulatory scheme which includes the creation of a cannabis control commission.
  • Maine (Passed) –  Question 1 allows people 21 years of age and older to use marijuana recreationally.  The measure would permit each adult to grow up to six plants for personal use and would levy a 10 percent sales tax on retail marijuana and marijuana products while restricting use to private residences.  Under the measure, municipalities could regulate the number of retail stores or ban them entirely.  One concern voiced by legalization proponents is the state-wide cap on canopy space and language which designates 60 percent of licenses for large growers and only 40 percent for small growers.
  • Nevada (Passed) – Question 2, also known as The Regulation and Taxation of Marijuana Act, expands moves already made by some Nevada counties to adopt medical marijuana regulations.  The Act makes it legal for adults age 21 and over to purchase marijuana for recreational use, possess up to an ounce of marijuana, and grow up to six plants at home (if that residence is more than 25 miles from a licensed dispensary).  Wholesale marijuana is subject to a 15 percent excise tax.  Unlike Oregon, the Act limits the number of retail licenses by each county’s population.  Counties with fewer than 55,000 residents could only have 2 retail establishments.

Medical Marijuana

Four states have joined the ranks of 25 states and the District of Columbia in passing or expanding some form of medical marijuana law (not including CBD-only laws):

  • Arkansas  (Passed)  – Issue 6, also known as the Arkansas Medical Marijuana Amendment, is a constitutional amendment that allows an independent commission to grant licenses for up to eight grow facilities and 40 for-profit dispensaries statewide.  It does not provide for home growing.  A second measure, Issue 7, was disqualified by the Arkansas Supreme Court due to lack of compliance with registration and reporting laws for paid canvassers.  This measure would have allowed for some home growing for patients who live more than 20 miles from a cannabis care center.
  • Florida  (Passed) – Amendment 2 provides for the state Department of Health to register and regulate dispensaries and issue ID cards to marijuana patients and caregivers.  Individuals with medical conditions such as HIV/AIDS, epilepsy, multiple sclerosis, PTSD, and Crohn’s disease would be eligible for a card with approval from a licensed Florida physician.  Because Florida’s demographics include 20 million residents, many of whom are seniors, baby boomers, and veterans, many see the passage of Amendment 2 as a lucrative business opportunity.  One newly-formed venture capital firm is currently raising $15 million to fund various medical marijuana-related ventures.
  •  Montana  (Passed) – Ballot Issue 14, also known as I-182, expands legal access to medical marijuana.  It repeals the three-patient limit and other requirements like unannounced inspections and review for physicians who provide certifications.  Newly added qualifying conditions include chronic pain and PTSD.  The implementation of the law could be delayed for months because of an error written into the measure.  The initiative aims to immediately repeal the three-patient limit, but the measure’s language indicates that the limit would not be lifted until June 30, 2017.
  • North Dakota  (Passed) – Initiated Statutory Measure No. 5 or The North Dakota Compassionate Care Act allows for the possession of up to 3 ounces of marijuana for conditions such as HIV/AIDS, cancer, epilepsy, and glaucoma.  It also provides for patients who live more than 40 miles from a licensed dispensary to grow up to eight plants.  The most vocal opponent to this measure was the North Dakota Medical Association.  It claimed that the petition “would be very difficult to implement in a safe and cost-effective manner.”

While these results undeniably illustrate a broad movement by states across the nation to legalize marijuana use in some form, our experience in watching what it takes for an initiative to go from “passed” to fully-implemented suggests that there is a lot that can happen, and there may be more uncertainty regarding what will be required of the industry in each of the states (at least in the short term).  We look forward to assisting our existing clients (as well as new ones) as they navigate the waters in these new markets.

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payday

On December 1, 2016, big changes are coming to the minimum salary requirements for exempt employees.  The U.S. Department of Labor is significantly raising the minimum salary that an employee must receive to qualify as exempt from overtime.

Employees who qualify for the professional, executive or administrative exemption will see their minimum salary rise from its current level of $455/week ($23,660/year) to $913/week ($47,476/year).  Employees who qualify for the highly compensated exemption will see their minimum compensation rise from its current level of $100,000/year to $134,004/year.

There is no phase in or grace period for the increased salary requirements.  The changes take effect immediately on December 1, so employers must be certain their salaries comply with the new rules on that date.  The consequences for not complying can be severe.  Not only will the employee be entitled to overtime for all hours worked beyond forty hours in a workweek, but the exemption may be permanently lost.

Keep in mind that in addition to the salary test, an employee must also satisfy the “duties test” to qualify as exempt from overtime.  In general terms, the employee must spend the majority of his or her time performing nonmanual, higher level duties of a professional, executive or administrative nature.  The Department is not changing the requirements of the duties test, but it makes sense for employers to take this opportunity to review the duties of employees who might qualify, to assure they satisfy the duties test.

Determining whether an employee qualifies as exempt can be very challenging.  You cannot rely on job titles or job descriptions, but must analyze the circumstances of each employee’s work.  It is not unusual to have two employees with the same job title and job description, but only one who qualifies as exempt because of differences in what they actually do on the job every day.

The penalties for misclassifying an employee as exempt and failing to pay overtime are harsh.  Of course, the employee will be entitled to back pay for the unpaid overtime.  In addition, under federal law the employee is entitled to penalty wages of double the amount of unpaid overtime and up to 30 days’ additional wages under Oregon law, plus interest in both cases.  State and federal regulators may also impose stiff civil fines for each violation.

Give us a call if you have any questions or concerns and we will work with you to assure you are in compliance.

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On September 30, we blogged about the OLCC and OHA’s emergency rulemaking in the face of the October 1 labeling, packaging, and testing deadline. One of the rule changes reduced the OLCC’s requirement for pesticide testing for usable marijuana.  The new rule calls for OLCC staff to assess pesticide testing capacity for the limited number of licensed labs approved for such testing.  After making the assessment, the rule requires the OLCC to issue an order dictating the percentage of usable marijuana a producer must test for pesticides.  Last week, the OLCC issued its first order.  The order states that each producer must submit 33% of its harvest lot batches to pesticide testing.  The entire text of the order can be found here.

The OLCC will most likely issue future orders which increase the percentage of pesticide testing required. We will post future blog entries as each order is published.

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