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As we creep towards the finish line of the Oregon legislative session, the issues seem to be winding down. The Committee has finalized a deal on the medical piece of legislation and is working on the final issues around Ballot Measure 91. Here is a brief timeline of what to expect next:

July 1st: Possession limits go into effect. Everyone can possess and cultivate up to 4 plants per household. People may share with each other but can not distribute for consideration.

July 11th: The Legislature absolutely has to be done by this date. It doesn’t matter if nothing gets done, this is the end. That means we will know the statutory guideposts for implementation by this date.

Now- October: Between now and October the various rules committees start to work. Each doing their part to help craft the draft rules that already exist out there. These are important meetings to keep track of mostly because of the snippets of information they may provide about what the final rules will look like. This is a good opportunity for the industry people on those committees to give some solid, practical input.

October- December: In our office we view this as a mad scramble to get licenses (specifically producer licenses) ready for submission. How much scrambling will depend on how in-depth the OLCC wants to go in approving licenses. If the rules mirror HB 3460 (which I think is nearly impossible) then this process will be relatively painless. If OLCC want to do a deep dive into any piece of the applicants history- taxes, finances, requiring certain types of land use work to have been done- then prepare for crazy.

***Some of this you can start now. You can make sure your corporate structure is sound, your building or facility is permitted, that you are caught up on your taxes and that the people who own the entity are likely to pass muster. Because we anticipate that come October everyone is going to kick into high gear getting ready, doing some work ahead of time might make the difference between getting an application done on time and not being ready to submit.

January 2016: The OLCC issues the first licenses which will most certainly be cultivator licenses. This will be it’s own kind of crazy. For outdoor cultivators this means a sense of security and an understanding of how big they can go next year. For indoor we don’t know what it means. Maybe stockpiling for adult use? Continuing to oversupply the medical market until adult use hits? Needing more capitol to make it until retail licenses are issued?

Sometime between January and Fall: Processing licensing are issued. Same issue as above. Does this mean stockpiling product? Sitting on product for a long time? A lot of how this rolls out will depend, I think, on the fundamental understanding of how processing works, how much material it takes and whether or not people are going to be able to continue to supply the medical market.

***As a side note, sitting on product can be dangerous- whether it is flower or concentrate. How each person in this industry deals with that issue will be extremely important. We do not want people hurt. Please make sure you have proper security in place and policies concerning break-ins, locking up and emergency situations.

Sometime between January and Fall: There will be two or more scrambles for licenses. Processing, retail, wholesale, maybe a nursery license and a lab license. Each of these may be completely crazy or relatively painless. I’m veering towards completely crazy.

Fall: Retail licenses will be issued and we hit the go button.

Here are a few more issues to consider:

1. Land use and how that will interface with applications.

2. What will happen with banking before we hit go.

3. What will local governments do with opting out, regulating time place and manner, etc. This is the biggest hurdle, on a state level, that the industry faces.

4. Where will people who are not patients get their cannabis until fall of 2016. That question might be rhetorical.

5. How big will OLCC let people go? We understand that it will be similar canopy size for indoor, outdoor and greenhouse but where that number lands (I predict 10k of flowering canopy) is yet to be announced.

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The questions I get most frequently (other than local government questions) are whether early sales to the adult use market through dispensaries will happen and whether a dispensary will be able to serve both markets. The Oregonian discusses both issues  in an article today.

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Early Sales: It is hard to tell whether this is a real possibility. Common sense and reason would dictate that dispensaries should be able to serve adult use consumers as early as possible. This issue has come up because, on July 1, 2015, the Ballot Measure 91 possession limits go into effect but people have no retail location to get cannabis. One of two things will happen. First, a robust, low level blackmarket will emerge to supply the needs of non-patients. Or, people will create an amazing sharing economy where they give away cannabis to anyone who wants it. You pick which seems most likely.

There are a few issues the Legislature (and/or OHA) will need to tackle to make this viable including production levels, making sure there is enough medicine for medical patients and whether taxes will be immediately imposed or not. These are certainly not insurmountable problems and could be solved by allowing growers to produce more than their cards allow, creating tracking systems through the already existing POS systems to ensure product never gets below a certain level and make a choice on taxes (there is no “right” decision here) placing the burden on the dispensary to collect. The additional benefit for early production and sales is that it will likely bring more producers into the legal market under less threatening and burdensome conditions than the OLCC will impose. Consider it an intermediate ground for transitioning to a recreational license.

You can find the language for early sales here and click on the -3 amendments.

Medical and Recreation Dispensary: That a dispensary licensed by OLCC will be able to serve both markets seems extremely likely. This is not where the question lies. The real question is which producers, OLCC or designated medical growers, will be able to serve OLCC dispensaries and will they have different licensing requirements.

This article makes it sound a little different than it actually is. OLCC has been very clear that you will need to have an OLCC license to grow for an OLCC store. This blended dispensary model does not change that. What OLCC is suggesting might happen is that a person will not be restricted from maintaining their medical cards while holding an OLCC producers license. When I have explained this to clients, each and every one of them, has wondered why they would go through the duplicative process of paying for cards and paying for an OLCC license just to distribute to the same store. Although many people have discussed maintaining a separate medical garden aside from their OLCC licensed one. That, of course, will be a personal and business decision. But, it is important to remember that nothing in the new laws limit a producer’s ability to donate or give cannabis to another person whether you have a medical card or not. That means a grower would still be able to give medicine to patients with or without a medical card. Finally, much of how this blended OLCC store will function is based on whether or not the Legislature moves the tax from the producer level to the retail level.

 

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Last night the Joint Committee for the Implementation of Ballot Measure 91 locked down. After working for almost the entire session on just medical marijuana regulations for Oregon, and not even getting to 91, they hit a wall. They did not lock down on plant numbers or tracking or any of the most controversial pieces. Instead, they simply could not reach a compromise on how a local jurisdiction could opt out of the program (this just would have applied to dispensaries and processors both options had grandfathering language).

Watching it play out last night was intense. Just like watching anything else when two parties are so close to each other, and they really, really were, the fact that there was not a middle ground was striking. In a perfect world we could create a system where local governments are compelled to participate in providing access to cannabis. In a perfect world there would be rolling ganja fields outside my door right now with no concern over police involvement or federal preemption. However we are very far away from that and legislators needed to make a decision on this issue for 844 to move.

Where are we now? Is this a good or bad outcome? It depends on who you are. These are the potential permutations of how this plays out:

– Between now and Wednesday they pull it together and come up with a compromise. Bill moves, Committee moves on to 91.

– Committee dissolves or is suspended. Instead of there being a Joint Committee there will be a Senate and House committee. Senate committee likely made up of same legislators, who passed 844 -24s unanimously, votes and the Senate votes in favor on the floor. Bill goes to Ways and Means where Rep. Buckley is the chair (who voted no last night along with other House dems) and 844 dies there.

– Same as above except that 844 does not die in Ways and Means and gets moved in some form or another. This would require serious involvement from Leadership.

– 844 gets tabled for now and the Committee starts working on 91. Seems very unlikely at this point but who knows.

– Nothing happens. Legislature can not agree on anything to do with cannabis. Nothing happens with medical. Nothing happens on 91.

Let’s explore this for a second- here’s what that might look like. OHA and Governor’s office steps in and regulates medical program. OHA has asked for 10.6 million dollars already to do this. OHA is free to do whatever they want with regulation that does not violate existing statutory language. This may mean seed to sale tracking, inspections and local government regulation. Both Governor’s office and Saxton have said they support these types of regulations. Or, OHA does not nothing, Governor’s office does nothing. Medical program stays exactly the same.

For 91, it means that OLCC has ultimate decision making power. There are zero statutory guidelines other than what is in the four corners of the ballot measure. There would be no residency requirement, no adjustment to where tax is collected, none of the technical fixes requested by OLCC, no research license or lab license. We duke it out city by city, county by county on issues of land use, zoning and local ordinances meant to be so prohibitive that they act almost like a ban.

– Nothing happens with OMMP but Legislature addresses 91 through an already drafted omnibus bill. Issues mentioned above get addressed. Legislature comes back in 2016 or 2017 to look at medical program. Or not.

– It seems possible that they could start over with a new medical bill. This is the most remote possibility but, who knows, maybe whatever is the most crazy and unlikely will happen.

We shall stay tuned and see what happens in the next few weeks of the legislative session. There is very little precedent for a committee dissolving like this. Certainly watching this has reminded me over and over again of the quote, “Laws are like sausages, it is better not to see them being made.” Couldn’t be more true than right now.

 

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Indian reservations now have the opportunity to cultivate and sell cannabis if they so choose under authority granted to them from the Department of Justice. The federal government has made it clear that if tribes approve legislation to legalize cannabis, it will not interfere with the process. Though there is some reluctance to follow through given the substance abuse problems already prevalent on reservations, Indian tribes are at least interested in learning more about the potential impacts of the cannabis industry.

Launched just over a few weeks ago at a reservation economic summit in Las Vegas, the National Indian Cannabis Coalition (“NICC”) is the nation’s first Indian trade organization focused on marijuana and Indian tribes.

The NICC seeks to educate the Indian community about the legalization and regulation of on-reservation marijuana. One of the NICC’s main goals is to help guide Indian tribal members who are interested in cannabis cultivation. Specifically, the NICC aims to provide information on cannabis medical benefits, methods of production and investments with public health and safety considerations. The NICC is also aware that proper financing and design plans are necessary for effective cannabis cultivation and it hopes to assist tribes with these issues as they decide to move forward. Furthermore, the NICC firmly believes that a united front from Indian tribal leaders will bring about more strength and power in the cannabis industry.

NICC co-chair Allyson Doctor, one partner of a licensed cannabis facility in Northern Las Vegas, hopes that the organization will help answer questions related to cannabis policy and regulation. Doctor also hopes that the NICC will help fill gaps in an area where such a resource is needed at this time. According to Doctor, though many tribal leaders are supportive in moving forward not everyone is equally as thrilled. Some tribes feel that it is not in their best interest to actively participate in this industry.

Currently, the NICC is not charging tribal members any membership fees, but hopes to cover its costs through vendor sponsorship. Doctor also hopes that such sponsors could serve as potential partners for the Indian community in the near future. This is particularly important for Indian tribes who are interested in marijuana cultivation in territories located in states where there is currently no retail or medical marijuana industry present.

In addition to the NICC’s formation, other organizations are running legal conferences directed at Indian tribal governments who are considering whether to legalize for medical, recreational, or agricultural purposes. It is likely that the NICC will be active in such future conferences as the goals of such conferences, and the NICC, will overlap substantially. These types of conferences will provide yet another arena for Indian tribal leaders to learn the ins and outs of the cannabis industry.

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Beginning July 1, 2015, Ballot Measure 91 will allow Oregon residents 21 years and older to possess, grow, and transfer cannabis. The rules are as follows:

1. Adults can possess up to eight ounces of marijuana in their homes, but may only possess up to an ounce of marijuana in public areas.

2. Individuals may not consume marijuana in public or while driving. This is true currently as well.

3. Persons over the age of 21 may also gift marijuana based on the following limits: an ounce of marijuana, 16 ounces of solid marijuana products, or 72 ounces of liquid marijuana products.

4. Adults over 21 may also cultivate up to four marijuana plants in their homes. However, these plants may not be visible to the public.

*This plant cultivation limit applies to households, not to individual persons. For example, four adults over the age of 21 may not grow four marijuana plants each for a total of 16 plants, but can only cultivate four total plants per the household.

5. Though adults can lawfully purchase marijuana extracts from licensed facilities, one important caveat of Measure 91 is its prohibition against homemade cannabis extracts. Specifically, no person can produce, process, keep, or store any homemade marijuana extracts. Furthermore, the home extract production using butane, hexane, and alcohol is prohibited.

6. As far as where adults may legally purchase recreational marijuana, Senator Ted Ferrioli is currently working on legislation that would temporarily allow medical marijuana dispensaries to sell retail marijuana beginning July 1, 2015. This concept is attached to Senate Bill 844 otherwise known as the OLCC technical bill.

While the amendments to SB 844 would potentially provide people a place to legally buy recreational marijuana, it is more likely that the state retail licensing system will not be active until sometime in 2016—meaning customers will not have any licensed dispensaries available until that time.

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Before fully understanding the upcoming regulation schemes for recreational marijuana in Oregon, it is important to recognize the individuals responsible for implementing Measure 91 and determining the regulation process. Here’s the breakdown:

Tom Burns, appointed as the Oregon Liquor Control Commission’s (OLCC) Director of Marijuana Programs, is the lead policy person, outside the commission, in charge of executing Measure 91. He previously supervised the implementation of Oregon’s medical marijuana dispensary program. In addition, he has served as the Director of Pharmacy Programs at the Oregon Health Authority (OHA) and has over forty years of state government and policy experience. This experience includes serving as a longtime policy advisor to California Republican lawmakers. Burns has also worked as a pharmaceutical industry lobbyist and GlaxoSmithKline’s vice president for state government affairs.

The OLCC Commissioners will be working closely alongside Burns in implementing Measure 91. Members of the OLCC Commission include Commission Chair Rob Patridge and Commissioners Robert Rice, Pamela Weatherspoon, Marvin D. Révoal, and Michael E. Harper, Sr. The Board of Commissioners’ different experiences will all impact the implementation of Measure 91 and regulation of recreational marijuana.

Chair Patridge: Born and raised in Oregon, Commission Chair Patridge currently serves as Klamath County’s District Attorney. His prior experience includes serving as the President of the Medford City Council, Deputy District Attorney in southern Oregon, and three terms as Medford’s State Representative. Commission Chair Patridge also served as General Counsel for U.S. Congressman Greg Walden and for the Rogue Valley Manor/Pacific Retirement Services.

Commissioner Rice: A Portland restaurant owner, represents the 1st Congressional District and hospitality industry. He has also served as a board member for Associated Oregon Industries, National Restaurant Association, and Liberty Northwest Companies. Commissioner Weatherspoon, representing the 3rd Congressional District, works with Community Relations for Randall Children’s Hospital at Legacy Emanuel and Legacy Emanuel Medical Center.

Commissioner Weatherspoon: Born in southern California and raised in southern Oregon, Commissioner Weatherspoon has remained an active participant in the community through her work with the Make it Better Foundation for the Portland Trail Blazers, the Big Brothers Big Sisters program, and the Oregon Association of Minority Entrepreneurs.

Commissioner Revoal: Representing the 4th Congressional District, Commissioner Révoal, a former police officer, is now the owner of Senior Principal of Pacific Benefit Planners. His other previous experience includes business leadership relating to board development, strategic planning, and continuation planning for nonprofits and private businesses.

Commissioner Harper: A former basketball player and now assistant coach of Lewis & Clark College’s basketball team, Commissioner Harper has been with the OLCC for almost four years. In addition to working as an agent with State Farm Insurance for more than 20 years, he has also served on the Oregon Commission on Children and Families and Oregon Mortuary and Cemetery Board.

In beginning the implementation and regulation process, the OLCC has organized a Marijuana listening tour, which has taken place and continues to take place throughout the state. These listening sessions began in Baker City on January 22, 2015 and will conclude in Newport on March 11, 2015. Additional cities with meetings have included Pendelton, Salem, Eugene, Ashland, Klamath Falls, Bend, Tigard, and Clackamas. These meetings are designed to encourage residents to provide feedback and input regarding marijuana regulations specifically focused on the production, processing, and sale of marijuana for recreational purposes.

In its attempt to remain informed about the potential impacts of the recreational marijuana market, the OLCC also recently released a report on marijuana consumption. The report indicated that heavy marijuana consumers are likely to stay away from the retail market and instead remain with current sources such as the black market or the medical marijuana program. This represents a main challenge for the recreational market, as one focus is to deter marijuana users away from the illicit market.

Accordingly, this month’s OLCC meeting focused primarily on discussing recreational marijuana legalization with potential votes on budget and policy priorities. Additional topics of discussion will include a legislative update and the formation of a rules advisory committee. The main job of this committee will focus on developing regulations focused on all elements of the recreational marijuana market.

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Emerge Law Group is headed to Vegas today for the MMJ Business Daily Conference and the NCIA 4th anniversary dinner.

We will be there with hundreds of other cannabis professionals networking, sharing stories and celebrating our victory with Ballot Measure 91 in Oregon. We will also be reaching out to the people who have gone through the legalization process in Washington and Colorado to see what worked and what didn’t from an internal policy-making experience.

We will also be meeting other dispensary owners, growers and entrepreneurs from around the country who are working to make this industry great. These events are always fun and worthwhile.​

If you are a canna-business, either established or just in the planning stage, these events are a great opportunity. Even though this country seems vast and it may appear that legal markets are already getting full, we are still a very, very small community. We can help each other learn and grow. We can provide support to each other and view our fellow travelers as allies and partners instead of competition.

While it might be too late for you to hop on a plane to Vegas (is it ever really too late to hop a plane to Vegas??) there are other great events coming up including the next ICBC, International Cannabis Business Conference, in San Francisco February 15th and 16th.

Take the time to come to these events and conferences. Meet everyone, share a drink or coffee and a story. We can make the cannabis industry in Oregon, and across the country, stronger with our collaboration and communication.

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Now that Ballot Measure 91 has passed many people who have been waiting on the sidelines are feeling more comfortable moving forward with starting their cannabis business in Oregon. But, because rule-making won’t start for many months, and there is still a 2015 legislative session to get through, how do you do it?

Below are a number of issues to consider if you are ready to start your cannabis business now:

– The Oregon Medical Marijuana Act still applies. https://www.oregonlegislature.gov/bills_laws/lawsstatutes/2013ors475.html

– Because OMMA still applies we are a reimbursement state for all cannabis until July 2015 and still a reimbursement state for medical even after recreational becomes operative- until the legislature modifies that language during the 2015 legislative session

– If you plan to open your cannabis business in Oregon before the licensing process is done you will be operating under the existing laws. That means if you are a dispensary you are applying for a license under House Bill 3460, if you are a grower you are finding patients and growing for them under the OMMP and if you are a processor or making edibles you are continuing to operate in an almost unregulated environment.

– There are lots of things we don’t know yet which makes some decisions risky. These things include zoning for grows, local regulation of time, place and manner, whether a medical dispensary can become a recreational one, if grows and processing can be in the same location and many more. Some of you will make good bets and some won’t and we will wind up fighting about it. Consider this a period of transition.

– We don’t know if the Oregon legislature, which meets for the first half of next year, will make serious statutory changes to Ballot Measure 91. While they have been typically resistant to overhauling a measure the voters just endorsed, it may very well happen. There are a lot of interests at play and there are likely to be at least a few unexpected changes.

Here’s what we do know about Ballot Measure 91 and the recreational cannabis market:

– There will be four licenses. Those are producer, processor, wholesaler and retail. Producers are growers, processors are packagers and labelers, edible makers and people making extracts and concentrates. Wholesale licenses are like beer and wine distributers. This license should cover transportation, brokers and cannabis reps. Retail licenses will be issued to storefronts.

– Taxes are paid at the grower level. Growers will pay $35 per ounce on flower, $10 per ounce on trim or leaf and $5 per immature plant. That’s it. Oregon has no sales tax and no additional excise tax. Many cities and counties are trying to pass additional taxes but the language of Ballot Measure 91 strictly prohibits that (this may very well be a statutory change that happens at the legislative level).

– There is no residency requirement. That means a 100% open market that is not unfriendly to out of state investment.

– This will not dismantle the medical marijuana system in Oregon. That language is in the Ballot Measure and was intended to prevent that from happening through rule-making or the legislative process. Whether the medical market eventually disappears on it’s own is another post.

– There are no limits in the Ballot Measure as to the number of licenses or the size of a grow facility.

– The Ballot Measure makes it very difficult for local jurisdictions to opt-out and ban facilities. In 2014 the Legislature allowed temporary moratoriums on dispensaries through Senate Bill 1531. While they could do that again, it seems unlikely due to the strong language in the Ballot Measure.

– There is going to be an intense rule making process that will take many months. Who will be involved in that is still an unknown. It will likely look like an expanded version of the HB 3460 process. You can watch what that looked like here: http://www.oregon.gov/oha/mmj/Pages/rules.aspx

– Ballot Measure 91 is a relatively simple measure even though it’s a long read. It essentially gives the OLCC  the power to promulgate rules and regulate the cannabis market in Oregon. OLCC has already put up a website and you can subscribe for updates. http://www.oregon.gov/olcc/marijuana/Pages/default.aspx

While there are many unknowns, this is great time to become an owner of a cannabis business in Oregon. If you want to talk about the upcoming changes or are ready to get started please contact us at Emerge Law Group, we can help.

You can read the full text of Ballot Measure 91 here:

 http://ballotpedia.org/Oregon_Legalized_Marijuana_Initiative,_Measure_91_(2014),_Full_text_of_measure,

 

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Support for the ongoing planning process that is managing a business is a big part of why a marijuana business can benefit from a good relationship with its CPA. If having an accountant is new to you, think of him or her as someone that can provide you with an extra set of eyes and ears for your business. The process of checking in with your accountant regularly should help you anticipate financial and tax problems before they threaten to disrupt your business or personal finances.

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Two potential threats to Oregon medical marijuana businesses came to mind when I saw this article published by USA Today: http://www.usatoday.com/story/news/nation/2014/11/03/irs-limits-profits-marijuana-businesses/18165033/

The first is the difficulty of managing reimbursements for a tax liability that may not be calculated until the following year. The second is the ongoing drag on a business that is struggling to pay off back taxes in its second year of operation.

Under The Oregon Medical Marijuana Act (“OMMA”), a medical marijuana business is generally permitted to accept reimbursement for its normal and customary costs of doing business. Presumably that includes taxes.

But, how is reimbursement of tax expense to occur if the taxes (1) are not paid on an ongoing basis and (2) are not even known in amount until the tax return is prepared the following year? It appears that to comply with OMMA, the tax compliance process may need to to be a year-round endeavor. An Oregon medical marijuana business should engage its accountant to help it juggle the sometimes conflicting requirements of the reimbursement model and the Internal Revenue Code.

The business owner mentioned in the USA Today article apparently operated his business at a financial loss in its first year and discovered he was deemed to be profitable under the Internal Revenue Code. As a result, he owed $20,000 of income tax for a business that lacked the cash to pay it. Given the amount owed, it is not surprising he is paying that tax over time (it appears he entered into an installment arrangement with the IRS). However, he would presumably rather use the money to pay his current year tax liability or, better yet, use it to help grow his business.

This article is a cautionary tale, for sure. An Oregon cannabis lawyer, specifically a tax attorney, can help guide you through this process. Knowing up front your tax liability and potential pitfalls can help your cannabis business in Oregon avoid outstanding liability and the ultimate failure of your cannabis business.

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