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On June 29, 2017, Governor Brown signed a bill impacting Oregon’s hemp industry into law.  SB 1015, which goes into effect the first week of October 2017, amends Oregon’s industrial hemp statute and significantly increases the industry’s access to the commercial market.

Industrial Hemp

In 2009, the Legislature gave the Oregon Department of Agriculture (ODA) the authority to license industrial hemp growers and handlers.  Since ODA issued the first hemp licenses in 2015, hundreds of growers and handlers have entered this new potentially lucrative market. Industrial hemp is a cannabis plant that contains less than 0.3 percent tetrahyrdrocannabinol (THC).  Traditionally used to create fiber, fuel, and fabric, contemporary research reveals that hemp also contains cannabidiol (CBD), a non-psychoactive cannabinoid compound linked to several medical benefits (e.g. Charlotte’s Web, anti-inflammatory, epilepsy treatment, etc.).

Oregon Revised Statutes (ORS) 571.305, makes industrial hemp production, possession, and commercial activities legal in the state of Oregon.  Current state law categorizes industrial hemp as an “agricultural product” subject to regulation by ODA.  A “grower” produces and cultivates industrial hemp, while a “handler” receives industrial hemp for processing into commodities or products. All growers and handlers must have an ODA-issued industrial hemp license.

Formerly, Chapter 571 did not provide a way for licensed industrial hemp growers and handlers to transfer their hemp products to OLCC processors.  SB 1015, now specifically allows these transfers.

The bill’s major provisions include:

Industrial Hemp Concentrates and Extracts Defined

SB 1015’s definitions of “industrial hemp concentrate” and “industrial hemp extract” mirror those of cannabis concentrates and extracts found in the rules governing medical and recreational cannabis (OAR 845-025-1015).

Delivery of Industrial Hemp Products to OLCC Processors

SB 1015 allows an ODA-licensed industrial hemp grower to deliver industrial hemp to an OLCC-licensed processor.  Also, the measure allows a state-registered industrial hemp handler to deliver industrial hemp concentrates and extracts to an OLCC-licensed processor.  The following restrictions apply:

  • Industrial hemp growers, handlers, and marijuana processors seeking to engage in processing industrial hemp into CBD concentrates and extracts must be registered with OLCC for that express purpose.
  • Growers and handlers must provide recipient cannabis processors with all results of any required tests conducted on the industrial hemp and the processor must retain those test results.
  • Growers, handlers, and cannabis processors must track industrial hemp products using the same CTS tracking system (i.e. Metrc) currently in place for all cannabis businesses in the state.
  • Deliveries must be conducted in a manner that satisfies the delivery requirements currently in place for all cannabis businesses in the state.

Processing of Industrial Hemp Products

Upon receiving industrial hemp products, a cannabis processor may process the hemp into industrial hemp concentrates and extracts (like CBD oil).  The processor may also use the industrial hemp products to supplement their own marijuana products, but only if that product meets existing processing requirements.  This would allow processors to infuse purely hemp-derived CBD into their extracts and concentrates, opening new opportunities for innovation and product development.

Retail Sale of Industrial Hemp Products by Individuals

Any person may make retail sales of industrial hemp products and commodities if the processing method used complies with Oregon law.  This levels the playing field for in-state industrial hemp manufacturers and businesses competing with out-of-state importers.

Please keep in mind that the federal government’s position is constantly evolving in addition to our state regulatory structure.  If you have any questions regarding SB 1015 or any other hemp-related issue, please don’t hesitate to contact one of our compliance attorneys and keep an eye out for more of our blog updates on our website!

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Just days before the end of the 2017 session, the Oregon legislature passed a major cannabis-related bill.  Surviving a relatively close Senate vote last Thursday, HB 2198 now awaits the Governor’s signature.

Please see the bill’s key provisions below:

Oregon Cannabis Commission

The Oregon Cannabis Commission (OCC) within the Oregon Health Authority (OHA), will consist of a Public Health Officer and eight other commissioners appointed by the Governor.  The OCC will provide guidance and oversight on a broad range of issues impacting the medical marijuana industry, including recommending a governance framework for the future of the Oregon Medical Marijuana Program (OMMP).  Additionally, the Commission will develop a long-term strategic plan to maintain the medical marijuana program’s viability as more medical growers move into the recreational system.

Limited Transfer of Medical Marijuana into OLCC System

A medical marijuana grow site with more than twelve plants may transfer up to twenty pounds of marijuana a year to licensed recreational marijuana processors and wholesalers.  However, the medical grower must have registered their grow site with OHA prior to the date the Governor signs the bill into law.  These transfers must be tracked in OLCC’s tracking system.  The OLCC will also assess whether the amount of marijuana transferred from medical grow sites to wholesalers and processors per year can be increased without adversely affecting the market.

If the OLCC determines that the supply of marijuana exceeds consumer demand, it may issue a temporary order to limit the sale of marijuana items into the recreational system. These temporary orders may only be issued if the OLCC determines that the saturation of the market will not self-correct.

Mature Plant Limits

The mature plant limits previously in place under SB 1057 have been slightly increased. Now, the maximum amount of mature plants allowed at a property not registered as a marijuana grow site (such as private residences where patients are growing their own marijuana) is twelve plants.  These are limited to up to six plants per patient.

Also, if there is only one patient and at least one more person above the age of twenty-one living at the address, the mature plant limit for the entire household is ten plants.  That cap is based on a patient’s six plant limit under the OMMP program, in addition to up to four plants permitted for a non-patient adult living at the household. This provision clarifies questions related to “stacking” both medical and personal-use recreational marijuana plants at the same residence.

Immature Plant Limits

The new bill also replaced SB 1057’s immature plant restrictions for medical grow sites.  A medical grow site may now have an unlimited number of immature plants under twenty-four inches.  Two immature plants taller than twenty-four inches will be allowed for every mature marijuana plant on the grow site.  For example, if a grow site has twelve mature plants, up to twenty-four (24) immature plants over twenty-four (24) inches would be permitted.

Caregiver Privileges

Designated primary caregivers are now clearly allowed to help patients with all things related to medical-use, including the production and processing of marijuana into concentrates or products (but not extracts).  This clarifies the legal relationship between cardholders and their designated primary caregivers and will hopefully allow for patients less familiar with production and processing to fully benefit from their caregiver’s skills and knowledge.

Security System Exemption

OHA and OLCC may not require a medical marijuana grow site to use a security system, video surveillance, alarms, and sensors or physical barriers. This should ease concerns that medical patients and their caregivers might be forced to bear the high cost of installing the types of security systems required of recreational licensees.  However, anyone growing marijuana plants at home must still keep all plants out of the public’s view.

OHA Grow Site Registration

For the purposes of verifying the address of a marijuana grow site, OHA shall accept tax lot numbers, assessor’s maps, or exact locations using latitude/longitude coordinates, GPS, or township coordinates.  This gives patients and caregivers more options with respect to the documents they can provide to satisfy grow site verification requirements and will hopefully simplify the process of grow site registration.

Distance to Schools

If the OLCC determines there is a physical or geographic barrier preventing children from traveling to a marijuana retail location, a marijuana retailer premises may be located within 500-1000 feet of a school.  Until now, local governments decided whether to grant exceptions to the distance requirement.  HB 2198 delegates that authority to the OLCC exclusively.

Because this bill contains an emergency clause, it will take effect on the date the governor signs it. Absent a veto, this will likely be early next week.  If you have any questions about the changes included in this bill or any other compliance-related issues, please contact one of our compliance attorneys.

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The Oregon Legislative Assembly adjourned on Friday, July 7, 2017.   As the dust from this session settles, the State of Oregon will begin implementing several substantial changes to its marijuana regulations.  SB 1057, SB 56, HB 2198 and SB 1015 are the main bills passed during the legislative session.  We will be posting a three-part series this week summarizing the bills.

SB 1057, is the most comprehensive measure the legislature enacted related to cannabis.  Among other things, this measure expands the Oregon Liquor Control Commission’s (“OLCC”) authority to regulate parts of the Oregon Medical Marijuana Program (“OMMP”), creates marijuana promotional events, and revamps the existing “bump-up” canopy option for recreational producers who elect to serve medical patients.

Please see a summary of the key provisions below:

Tracking Requirements for OMMP Patients

The new law requires certain OMMP registrants to track the production, transfer, and processing of medical marijuana with OLCC’s existing tracking system.  Registered grow sites with more than twelve plants, processing sites, and dispensaries (“Registrants”) must use the tracking system. To cover extra costs incurred by the tracking system, the Oregon Health Authority (“OHA”) will impose an additional fee on Registrants.  OHA must deposit the money collected from the fees into the Marijuana Control and Regulation Fund.

Registrants will have the option to choose to remain OHA Registrants subject to tracking or to convert to OLCC (recreational) licensees.  Each Registrant must notify OHA whether they are electing to apply for OLCC licensure or remain under the medical system by December 1, 2017.  If the Registrant elects to apply for OLCC licensure, they must do so on or before January 1, 2018, or it will not be able to renew its OHA registration.

If the Registrant elects to remain within the medical system, the law requires them to submit to the OLCC tracking system on or before July 1, 2018.  Failure to comply with the tracking requirements by this deadline will bar OHA registration renewal.

Immature Plant Limits

SB 1057 provides that medical cardholders and designated primary caregivers may jointly possess up to twelve immature plants and up to six mature plants at a residence.  The law also allows for two immature plants for every one mature plant allowed at a designated marijuana grow site.  If a designated medical grow site is located within the city limits of an area zoned for residential use, the law allows growing up to twelve mature plants and twenty-four immature plants.  However, HB 2198, currently awaiting the Governor’s signature alters these limits.

*Note: Under subsequently passed SB 56, if a designated medical grower submitted an OLCC producer application on or before June 24, 2017, they will not be subjected to the immature plant limits established under SB 1057.

Exclusively Medical Licenses

In response to indications that potential changes in federal marijuana policy are less likely to affect medical marijuana programs, SB 1057 allows the OLCC to designate licensees as “exclusively medical licensees.”  Licensees may register with the OLCC as exclusively medical licensees if certain conditions are met, such as attesting to transfer products only between other licensees with “medical purpose” registrations.

Bump-Up Canopies

This provision modifies the OLCC’s current bump-up canopy program (which allows OLCC-licensed producers to enter into agreements with patients to provide them medical marijuana from separately designated medical canopy space).  Under the new provision, OLCC-licensed marijuana producers may apply to designate up to an additional 10 percent of the total size of their medical and recreational canopy square footage to produce marijuana for medical patients. Marijuana producers who elect this option must provide seventy-five percent of the marijuana produced from the additional canopy space to OHA-registered patients for free.  Also, the OLCC will no longer require patient/producer agreements. As an incentive to add medical canopy, the OLCC will allow producers to sell the remaining twenty-five percent to other licensees.  As the recreational system continues to attract medical growers, this option is designed to ensure that medical patients continue to receive medication free of charge.

Marijuana Promotional Events

Under certain conditions, SB 1057 allows OLCC licensees to exhibit marijuana items at trade shows (such as the Oregon State Fair and similar events).  Although live immature plants were already displayed at the 2016 Oregon State Fair, this provision allows participating licensees to exhibit all types of marijuana items.

The OLCC has already adopted a temporary rule implementing this provision.  The rule, effective until at least December 27, 2017, dictates the specific conditions under which organizers may conduct these events.  These conditions include the following:

  • The designation of an “event organizer,” who is responsible for ensuring that all licensee participants adhere to OLCC’s rules and restrictions regarding the event.
  • Promotional event applications must be submitted by event organizers in writing at least twenty-eight days before the event date.
  • All the marijuana items transported and displayed must be tracked in OLCC’s cannabis tracking system (“CTS”) and immediately returned to the licensed premises following the event.
  • Each marijuana item is required to have the item’s associated Universal Identification (“UID”) tag affixed to the item or its package.
  • Participants and organizers must prevent minors from accessing the marijuana items during these events.
  • Events may not be held at a licensed premises or in a city/county that has prohibited recreational marijuana businesses.

*Note: Industrial hemp products may not be displayed at these events.

Increased Authority for OLCC Regulatory Specialists

In addition to OLCC personnel’s existing right to conduct inspections and investigations, the law grants OLCC regulatory specialists additional powers to make seizures and aid in the criminal prosecution of licensees. This broader authority is intended to prevent marijuana diversion into the black market. The OLCC may also proceed with investigations or disciplinary actions against licensees regardless of whether their licenses have lapsed, been revoked, or suspended.  Applicants who withdraw their application or renewals may also be subjected to these disciplinary actions.

There are limitations to OLCC’s authority, however. OLCC may not inspect/investigate medical cardholders, primary caregivers, or the residences and locations where cardholders and their caregivers produce marijuana.  The law prohibits OLCC regulatory specialists from acting in the capacity of a federal official, carrying a gun, and from conducting inspections of unlicensed primary residences.  These provisions bring the state regulatory program further in line with the Cole Memo’s federal enforcement priorities.

Financial Disclosure

OLCC may now require persons with a “financial interest” in a licensed recreational marijuana business to submit sworn statements to the OLCC that show the person’s name and address, as well as the nature and extent of their financial interest.  OLCC has already released application forms that require persons with a financial interest to disclose their home addresses. We previously discussed the nuances of this requirement and how it affects applicants and licensees in our April 4, 2017 blog post found here.

Labeling Duties Transferred to OLCC

On January 1, 2018, OLCC will assume responsibility for adopting and enforcing labeling requirements formerly under OHA’s purview.  Until OLCC creates new rules, the labeling and packaging requirements remain as is under OAR 845-025-7000 to 845-025-7060 and OAR 333-007-0010 to 333-007-0100.

OHA Database

SB 1057 requires OHA to establish, maintain, and operate an electronic database for storing certain patient and marijuana grow site registry information to increase efficiency between agencies responsible for administering the OMMP. While OLCC and the Department of Revenue will be allowed to access the database, the stored information is confidential and may not be publicly disclosed.  The law does not require OHA to store information related to patients’ debilitating conditions.  Patients’ and Registrants’ contact information will also be confidential unless the information is related to a designated grow site’s location.

We are carefully monitoring developments as the OLCC implements these changes.  In the meantime, remember to always stay tuned to our Facebook and blog updates!

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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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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) license categories but retains all others, including specialty cottage cultivation and microbusinesses (small retailers with farms not exceeding 10,000 sq. ft.).

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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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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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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Many people have been asking about what to do if their container is too small to fit all of the required label information. Think tinctures, single-serving shots, or small edibles. Fortunately, the OLCC and OHA heard these concerns and created special rules for small containers. If your container is too small to include all required label information, you may now use additional packaging for display purposes to include this required information.

Minimum Information on Small Container

The container actually holding the marijuana item must contain:

  • Information in a minimum 8-point font, Arial, Helvetica, or Times New Roman;
  • A principal display panel containing required information (product identity, universal symbol, net weight) if required for the type of marijuana item;
  • Business or trade name and licensee or registrant number;
  • For OLCC licensees, package unique identification number;
  • For OHA registrants, batch or process lot number;
  • Concentration of THC and CBD; and
  • Required warnings.

Additional Information

All other required information must be included on:

  • a leaflet or hangtag that will accompany the marijuana item; or
  • an outer package.

If an outer package is used, all required information must be listed on the outer packaging, even if some of it has been included on the inner container.  In other words, outer packaging must have a full label.

Check back next week for more updates, including details on the registration procedure for OHA processors, what to do with unsold dispensary inventory on October 1st, and more!

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