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The Sessions Memo

The Cole Memo is history.  The Sessions Memo, which was released today, January 4, 2018, is now the policy of the land.

The Sessions Memo contains two main points:

1. Federal prosecutors should follow the “well-established principles” that govern all federal prosecutions, which principles are now set forth in a U.S. Attorney’s Manual (“USAM”).
2. Previous nationwide guidance specific to marijuana (including but not limited to the Cole Memo) is “unnecessary” given the well-established principles, and is rescinded.

In other words, according to Sessions, the Cole Memo was superfluous all along.

So, what are these well-established principles that we all now live under?

Well, USAM 9-27.230 provides that federal prosecutors should weigh all relevant considerations in determining whether charges should be initiated or declined, including:

1. Federal law enforcement priorities, including any federal law enforcement initiatives or operations aimed at accomplishing those priorities;
2. The nature and seriousness of the offense;
3. The deterrent effect of prosecution;
4. The person’s culpability in connection with the offense;
5. The person’s history with respect to criminal activity;
6. The person’s willingness to cooperate in the investigation or prosecution of others;
7. The interests of any victims; and
8. The probable sentence or other consequences if the person is convicted.

OK, that sounds fairly reasonable.

But wait a minute.

Consideration #1 (presumably a significant one, as it comes first) references federal law enforcement priorities. And so, what are the federal government’s law enforcement priorities with respect to marijuana?

Well, before I woke up this morning, they were set forth in the Cole Memo, and included priorities relating to minors, cartels, diversion of marijuana to other states, other illegal drugs and activities, violence, drugged driving, public lands, and federal property.

What are they now? I don’t know exactly.

For the moment, it seems that Sessions is giving each individual U.S. Attorney the discretion to formulate his or her own federal law enforcement priorities. Rather than a top-down promulgation of priorities set forth by Mr. Cole, this seems to be more of a delegation of authority to each U.S. Attorney (of which there are currently 93).

Billy J. Williams, Oregon’s one-and-only U.S. Attorney, released the following statement today: “As noted by Attorney General Sessions, today’s memo on marijuana enforcement directs all U.S. Attorneys to use the reasoned exercise of discretion when pursuing prosecutions related to marijuana crimes. We will continue working with our federal, state, local and tribal law enforcement partners to pursue shared public safety objectives, with an emphasis on stemming the overproduction of marijuana and the diversion of marijuana out of state, dismantling criminal organizations and thwarting violent crime in our communities.”

Not bad overall. The immediate takeaway seems to be: “Stay compliant with Oregon law.”

Bob Troyer, Colorado’s one-and-only U.S. Attorney, was less vague, and seemed to strongly signal that the Sessions Memo will have no effect on his policies. He stated: “Today the Attorney General rescinded the Cole Memo on marijuana prosecutions, and directed that federal marijuana prosecution decisions be governed by the same principles that have long governed all of our prosecution decisions.  The United States Attorney’s Office in Colorado has already been guided by these principles in marijuana prosecutions — focusing in particular on identifying and prosecuting those who create the greatest safety threats to our communities around the state.  We will, consistent with the Attorney General’s latest guidance, continue to take this approach in all of our work with our law enforcement partners throughout Colorado.”

Various Oregon elected officials, including Governor Kate Brown, Attorney General Ellen Rosenblum, Senator Ron Wyden, Senator Jeff Merkley, and Representative Earl Blumenauer, made their own statements supporting and vowing to protect Oregon’s marijuana industry.

Events will undoubtedly unfold over the coming days, weeks, and months, and we will post further blogs on this subject. We also will post a blog about how this may affect securities law disclosures and business transactions in general. In the meantime, if you have any questions, please contact one of our attorneys.

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Oregon: The Latest on Applicants and Financial Interests

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: https://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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The Donald Trump Risk Factor and a Showdown for the Cole Memo

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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Oregon Marijuana Laws: The Status of Residency Requirements After HB 3400 (Part 4)

In Part 3 of this series, I discussed the residency rules for Ballot Measure 91 businesses that the Oregon Liquor Control Commission (“OLCC”) distributed to members of the Rules Advisory Committee on August 14. The OLCC has not yet made any changes to those rules. However, there is some news to report.

On September 3, Amy Margolis and I met with Steve Marks (Executive Director) and Jesse Sweet from the OLCC to discuss the residency rules. The purpose of the meeting was not to debate the merits of the OLCC’s policy decisions regarding residency. Rather, we were there to: (1) find out what the OLCC’s policy was in the first place; and (2) discuss ways in which: (a) the language in the rules could be clarified; and (b) certain common business organization structures could be specifically addressed. Our firm’s only goal was to attempt to assist the OLCC in making the rules as clear as is reasonably possible, so that license applicants will have some relative certainty (before they file their applications!) that their business organization structures are permissible under the rules. We informed the OLCC that our firm does not support residency requirements and that, in fact, we were reserving the right to assist one or more of our clients in challenging the residency rules.

OLCC’s Current Policy

We were informed that the OLCC’s policy is as follows:

  1. Ownership – 51% of the ownership interests must be owned by two-year Oregon residents.
  2. Management – 100% of the individuals who are directly involved in the operation or management of the business must be two-year Oregon residents.

In Part 3 of this series, I expressed skepticism that the OLCC meant what it was actually saying in the August 14 version of the rules. Either my skepticism was valid or my analysis was partially incorrect, because my interpretation of the OLCC’s August 14 rules concerning management that I stated in Part 3 is not consistent with the OLCC’s management policy stated above. No matter. I now am suggesting that everyone should ignore my management conclusion from Part 3 and consider the above management policy to be the OLCC’s current position, even if the current version of the rules doesn’t exactly say that.

Clarifications / Safe Harbors

At the meeting and in subsequent correspondence, I proposed several clarifications and safe harbors to the OLCC.

On the ownership side of things, I proposed clarifications and safe harbors for: (1) options to purchase ownership interests; (2) convertible promissory notes; (3) preferential distribution rights based on return of capital contributions; and (4) security interests.

On the management side of things, clarifications and safe harbors are particularly important because the numerical threshold (100%) is so high and the substantive threshold (“direct involvement in the operation or management of the business”) is so vague. Of utmost importance, is what exactly does “direct involvement” mean? In Part 2 of this series, I noted that the term “direct involvement “ is not a phrase that is typically used by businesses or business law attorneys. Without clarification, there is simply no understanding what it means. I proposed limiting its definition to participation in the control of day-to-day ordinary course of business matters. There is statutory precedence for such line-drawing. Under the Oregon Business Corporation Act, the Oregon Limited Liability Company Act, and the Oregon Limited Partnership Act, certain major decisions are “kicked up” to the ownership level, while day-to-day ordinary course of business matters are dealt with at the management level. For example, the Oregon Limited Liability Company provides that in a manager-managed LLC, all decisions are made by the managers, except for certain major decisions (which are specified in the statute) that require the consent of the members. See ORS 63.130(2-4). For the OLCC’s residency requirements, it would be beneficial to know that the right to vote on certain decisions that are outside the ordinary course of business does not constitute “direct involvement” in the operation or management of the business.

Legal and Political Pressure

All of our clients should assume that the OLCC’s current policy will, in fact, end up being the policy in the final version of the rules. However, there is always a chance that the OLCC could be affected by certain legal and political pressures.

1. Legislative Counsel Committee Legal Memorandum – At the request of Representative Ann Lininger, Oregon’s Legislative Counsel Committee issued a memorandum that concluded that Oregon House Bill 3400 does not permit the OLCC to impose residency requirements on mere owners of a business. The memorandum was written by Deputy Legislative Counsel Mark Mayer and is dated July 28, 2015 (although it was just recently delivered to us). The memorandum’s legal conclusion is as follows: “For purposes of [Ballot Measure 91 and Oregon House Bill 3400], an “applicant” is a person that participates in the management of the business, owns the business outright or otherwise has the power to control the operations of the business. An “applicant” is not a person that merely has an ownership interest in the business.” The OLCC’s current 51% ownership policy directly conflicts with this legal opinion, and so it will be interesting to see if the OLCC agrees or disagrees with the memorandum.

2. Legislative Days – Members of the Oregon legislature are convening for “Legislative Days” from September 28 through September 30. During Legislative Days, various committees hold informational hearings to hear updates on the implementation of past legislation and to consider potential future legislation. The OLCC’s position on residency requirements could be a topic of discussion, especially in light of the Legislative Counsel Committee’s memorandum.

3. Legal Challenge – A lawsuit could be filed challenging some or all of the residency rules. The ownership requirements could be challenged based on the reasons set forth in the Legislative Counsel Committee’s memorandum. Additionally, all of the residency requirements could be challenged on a constitutional basis. In a subsequent part of this series, I will discuss why the residency requirements probably violate the U.S. Constitution.

4. Oregonian Editorial Board – On September 5, 2015, the Oregonian Editorial Board published an editorial opposing residency requirements for owners.

What to Do

Our overall advice has not changed. If your business is seeking an investment from one or more out-of-state investors, or if your business already has one or more out-of-state owners, and if you haven’t already discussed the issue with us, contact us today to do so. Additionally, if your business is made up entirely of out-of-state owners, and if you haven’t already done so, you should begin searching for one or more Oregon residents who you might be willing to make a co-owner or a manager, director, or officer.

Continue to stay tuned to our blog, as we will post any updated residency information when we receive it.

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Oregon Marijuana Laws: The Status of Residency Requirements After HB 3400 (Part 3)

On August 14, the Oregon Liquor Control Commission (“OLCC”) distributed to members of the Rules Advisory Committee (“RAC”) a revised draft of the rules that will affect the residency requirements for Ballot Measure 91 businesses.

There are several significant changes from the initial draft of the rules (which initial draft was discussed in Part 2 of this series).

Here are the latest versions of the most relevant provisions:

Definitions

() “Applicant” means any person or legal entity having a financial interest in the business for which licensure is sought and who is directly involved in the operation or management of the business
(a) Direct involvement in the operation or management of the business may be indicated by, but is not limited to, the following behaviors, benefits or obligations:
(i) Any person or legal entity that exercises control over, or is entitled to exercise control over, the business;
(ii) Any person or legal entity, that incurs, or is entitled to incur, debt or similar obligations on behalf of the business;
(iii) Any person or legal entity, that enters into, or is entitled to enter into, a contract or similar obligations on behalf of business [sic];
(iv) Any person or legal entity that identified [sic] as the lessee of the premises proposed to be licensed.

() “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, and such interests include but are not limited to:
(a) Receiving, as an employee or agent, out-of-the-ordinary compensation, either in the form of over-compensation or under compensation;
(b) Lending money, real property or personal property to an applicant or licensee for use in the business;
(c) Giving money, real property or personal property to an applicant or licensee for use in the business; or
(d) Being the spouse or domestic partner of an applicant or licensee. For purposes of this subsection, “domestic partners” includes adults who qualify for a “domestic partnership” as defined under ORS 106.310.

845-025-XXXX
Applicant and Licensee Qualifications

(1) An applicant must:
(a) Be at least 21 years of age; and
(b) Be the legitimate owner of the business proposed to be licensed; and
(c) Until January 1, 2020, have been a resident of Oregon for at least two consecutive two years [sic] prior to the date the initial or renewal application was submitted.
(2) Individuals listed as applicants on an initial or renewal application, or identified by the commission as an applicant must maintain Oregon residency while the business is licensed.

845-025-XXXX
Legitimate Ownership

In determining whether an applicant is the legitimate owner of the business proposed to be licensed or subject to license renewal the Commission:
(1) Must consider whether at least one applicant owns at least 51% of the business proposed to be licensed or whether one or more applicant [sic] in sum owns at least 51% of the business proposed to be licensed; and
(2) May consider whether an individual or legal entity other than an applicant, or an employee acting under the direction of an applicant, is directly involved in the operation or management of the business.

This is my best analysis of what the latest versions of the rules say:

1. Two-year Oregon residents must own at least 51% of the business. The OLCC has provided for this in a rather roundabout way by adding the “legitimate owner” requirement to the Applicant and Licensee Qualifications provision, and then by saying that the OLCC, in determining the identity of the legitimate owner, must consider who (individually or in the aggregate) owns 51% of the business. See clause (1)(b)) of Applicant and Licensee Qualifications and clause (1) of Legitimate Ownership.

2. If any single individual controls the business, or if any single individual has the unilateral authority to take certain actions on behalf of the business (such as incurring debt or entering into contracts), then that individual must be a two-year Oregon resident. The OLCC’s language is not clear here, but this appears to me to be the most likely interpretation. Under the rules, an individual is not an “applicant” unless the individual is “directly involved” in the operation or management of the business. “Direct involvement” means controlling the business or having the right to take certain actions on behalf of the business. If there is a single owner who completely controls the business, then the rule is clear and can be simply applied. However, consider a multiple-owner scenario where a business is owned only by minority investors, some of whom are residents and some of whom are non-residents. For example, assume that a business is owned by four individual shareholders (25% each) and that all four shareholders are also directors. Then assume that the shareholders/directors adopt a common “majority rules” approach, where a majority of the shareholders/directors (three out of four) make all decisions on behalf of business. Finally, assume that two of the shareholder/directors satisfy the two-year Oregon residency requirement and the other two do not. Under this common scenario, no individual person controls the business and no individual person has the unilateral ability to do anything without the majority’s approval. Who then, from the OLCC’s perspective, would be “directly involved” in the operation or management? Because the definition of “direct involvement” in the latest version of the rules does not contain the “individually or in the aggregate” concept that appears in the Legitimate Ownership provision, it stands to reason that each individual person must be analyzed on his or her own to determine whether the individual controls the business or has the right to take certain actions on behalf of the business. Consequently, under the above multiple-owner scenario, I would say that none of the individuals is directly involved in the operation or management of the business.

Some observations:

Observation #1 – If my interpretations are correct, then the revised rules appear to be a complete flip-flop from the initial draft of the rules. As was noted in Part 2 of this series, in the initial draft of the rules, the OLCC seemed much more concerned with non-resident managers than non-resident owners. However, under the revised draft of the rules, the focus seems to be primarily on making sure: (1) that 51% of the owners (individually or in the aggregate) satisfy the residency requirements; and (2) that no single individual non-resident controls the management of the business.

Observation #2 – I’m a bit reluctant to say this, but at this point I believe it has to be said. Both drafts of the OLCC’s rules regarding residency are worded so poorly, and are so vague and ambiguous, that I essentially don’t have much faith in my own analysis of what the rules actually mean. Or to be more accurate, I don’t have much faith that the OLCC’s rules say what the OLCC actually means. Or even worse, it’s entirely possible that the OLCC does not even know what it wants to say in the first place. The rules regarding “direct involvement” in management are not clear even when considering the most basic and simple organizational structures. And there are many other more complicated (but quite common) organizational structures that are not even being contemplated by the OLCC. Additionally, the OLCC’s way of drafting open-ended non-exclusive definitions (“Direct involvement . . . may be indicated by, but is not limited to . . . .”), together with the absence of any safe harbors, will make compliance a virtual guessing game in many scenarios.

Observation #3 (editorial comment) – In my opinion, it is practically unconscionable that the residency requirements have not yet been finalized. The Oregon Medical Marijuana Act never contained any residency requirements for ownership or management. Ballot Measure 91 intentionally did not contain any residency requirements for anyone. The Oregon legislature, in an unfortunate move, imposed a residency requirement on somebody, but then failed to say who. And now the OLCC is struggling with what it wants to do on this issue. From a policy perspective, residency requirements have absolutely nothing to do with public safety, with the ability of the OLCC to conduct criminal records checks, with law enforcement, with the eight Federal enforcement priorities set forth in the “Cole Memo,” with Oregon tax revenues, with local jurisdictions, or with anything else, other than good old-fashioned economic protectionism. And for that very reason, from a legal perspective, residency requirements probably violate the U.S. Constitution (which I will discuss in a subsequent part of this series). In just a bit more than four months, hundreds and hundreds of businesses will be submitting license applications to the OLCC. And a substantial number of those businesses have no idea if their current ownership and management structures will be legal under the OLCC’s rules. Organizing and capitalizing businesses takes a significant amount of time, energy, and money. Reorganizing and recapitalizing businesses so close to the opening day of applications will cause a substantial number of businesses to spend time, energy, and money that is better spent on safety, compliance, higher employee wages, and other matters. For the sake of the entire industry, this issue should be decided and finalized as soon as possible. And just as importantly, the rules must be absolutely clear on the front end. If the rules are vague, ambiguous, or too simplistic, and if the applications of businesses are denied based on some 2016 after-the-fact policy interpretation by the OLCC, there is certain to be litigation and finger-pointing.

Recommendation to the OLCC

At this point, the OLCC should seriously consider taking a more benign and objective approach to residency. The OLCC would be well within its statutory authority to require only that a single individual on the application be a two-year Oregon resident, or that some other relatively minimum threshold be satisfied. This would have the following positive effects: (a) businesses would be better capitalized overall, and would be able to spend more money on “industry best practices” instead of being forced to spend money on corporate legal fees, owner buyouts, and other reorganization matters; (b) the process of reviewing initial applications by the OLCC would be simplified; (c) the process of reviewing change forms for future changes of ownership or business structures would be simplified; (d) the likelihood of one or more lawsuits being filed against the OLCC alleging the unconstitutionality of residency requirements would be practically eliminated; and (e) the likelihood of individual lawsuits being filed against the OLCC alleging the improper denial of an application based on unclear residency requirements would be substantially reduced.

To the extent that the OLCC is dead set on promulgating rules that impose significant residency requirements, the OLCC should promptly consult with one or more experienced business law attorneys to ensure: (a) that there are no ambiguities in the rules; (b) that the rules are sophisticated enough to capture scenarios that are common in organizing and structuring businesses; and (c) that the rules contain safe harbor provisions that make clear that certain organizational and management structures will not violate the rules.

What to Do

If your business is seeking an investment from one or more out-of-state investors, or if your business already has one or more out-of-state owners, and if you haven’t already discussed the issue with us, contact us today to do so. Additionally, if your business is made up entirely of out-of-state owners, and if you haven’t already done so, you should begin searching for one or more Oregon residents who you might be willing to make a co-owner or a manager, director, or officer.

Continue to stay tuned to our blog, as we will post any updated residency information when we receive it.

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Oregon Marijuana Laws: The Status of Residency Requirements After HB 3400 (Part 2)

On July 17, the Oregon Liquor Control Commission (“OLCC”) distributed to members of the Licensing, Compliance, and Enforcement Technical Advisory Subcommittee an initial draft of certain rules that would affect the residency requirements for Ballot Measure 91 businesses.

The most relevant provisions relating to residency are as follows:

Definitions

() “Applicant” means any individual:
(a) Having a financial interest in the business for which licensure is sought and who is directly involved in the management of the business; or
(b) Who owns 51% or greater interest in the business proposed to be licensed; or
(c) Any individual who is a managing member, partner or director or officer of a legal entity if the legal entity owns or operates the business for which licensure is sought.

() “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, and such interests include but are not limited to:
(a) Receiving, as an employee or agent, out-of-the-ordinary compensation, either in the form of over-compensation or under compensation;
(b) Renting or leasing real property to an applicant or licensee for use by the business;
(c) Lending money, real property or personal property to an applicant or licensee for use in the business;
(d) Giving money, real property or personal property to an applicant or licensee for use in the business; or
(e) Being the spouse or domestic partner of an applicant or licensee. For purposes of this subsection, “domestic partners” includes adults who share the same regular and permanent address and would be financially effected by the success or failure of the business as well as adults who qualify for a “domestic partnership” as defined under ORS 106.310.

845-025-XXXX
Applicant and License Qualifications

(1) An applicant must:
(a) Be at least 21 years of age; and
(b) Until January 1, 2020, have been a resident of Oregon for at least two consecutive two years [sic]prior to the date the initial or renewal application was submitted.
(2) Individuals listed as applicants on an initial or renewal application, or identified by the commission as an applicant must maintain Oregon residency while the business is licensed.

Here is my analysis:

Observation #1 – The OLCC seems much more concerned about non-resident managers than non-resident owners. For example, it appears that a non-resident individual could own up to a 50.99% interest in a licensee, so long as the non-resident individual is not a manager, partner, director, officer, or otherwise directly involved in management. In fact, it would appear from the rules that 100% of the ownership interests of a licensee could be owned by non-residents so long as: (1) no individual non-resident owned a 51% or greater ownership interest; and (2) the owners hired an Oregon resident to be the sole manager of the business.

Observation #2 – Certain words and phrases in the rules are either ambiguous, or are not sophisticated enough to capture scenarios that are common in organizing and structuring businesses.

For example, the term “directly involved in the management” is not a phrase that is typically used by businesses or business law attorneys. The phrase may have come from Representative Ann Lininger’s oral legislative history (which was mentioned in Part 1 of this series), where she stated that the definition of applicant was intended only to include a person who “directly manages” the business. However, the line between “direct” and “indirect” involvement in the management of a business is definitely not self-evident. A more commonly-used phrase (and perhaps this is what Representative Lininger and the OLCC are trying to get at) is the term “ordinary course of business”, which is usually used to distinguish between: (1) day-to-day operational decisions that are generally made by managers or officers; and (2) more significant decisions that are generally made by members, shareholders, and directors. However, even that distinction is unclear, and what might be the ordinary course of business for one company may not be the ordinary course of business for another. Another commonly-used phrase is “control,” which usually means that one or more individuals have a majority of the voting power.

As another example, the term “51% or greater interest” could, in some circumstances, be ambiguous. Not every entity has only one class of ownership interests, and some owners may have the right to receive preferential returns for a period of time. In a typical preferential return scenario, a cash investor may have the right to receive 100% of the distributions from the entity until such time as the investor recoups the entire amount invested, and then, after receiving such amount, would have the right to receive a lesser percentage of all future distributions. Depending on the numbers and percentages before and after recoupment, it may be unclear whether an individual would be considered the owner of a “51% or greater interest.”

Observation #3 – The policy behind the rules is difficult to discern. Like most sets of line-drawing rules, there are scenarios that can be articulated that make the rules seem nonsensical. For example, a corporation having only Oregon shareholders and only Oregon directors would nevertheless be disqualified merely because it hired a single non-resident officer as an employee. On the flip side, as was noted above, an entity having no Oregon owners could obtain a license merely because it hired an Oregon resident to be the sole manager.

Observation #4 – The draft rules may be inconsistent with Sections 12, 14, 15, and 16 of HB 3400. As was mentioned in Part 1 of this series, the phrase “an applicant listed on an application” in Sections 12, 14, 15, and 16 of HB 3400 arguably indicates that only one individual listed on the OLCC application needs be an Oregon resident. Also, although the OLCC may have considered Representative Lininger’s oral legislative history when drafting clause (a) of the definition of “Applicant,” the OLCC disregarded the other portion of her legislative history where she stated that the definition of “Applicant” for residency purposes was intended only to include a person who “directly manages” the business. Therefore, clauses (b) and (c) of the definition of “Applicant” in the draft rules are inconsistent with Representative Lininger’s legislative history. (In a subsequent part of this series, I will discuss the possibility that the residency requirements for a marijuana license violate the Commerce Clause of the U.S. Constitution.)

Recommendation to the OLCC

To the extent that the OLCC is going to promulgate rules that impose residency requirements, the OLCC should consult with one or more experienced business law attorneys to ensure: (1) that there are no ambiguities in the rules; and (2) that the rules are sophisticated enough to capture scenarios that are common in organizing and structuring businesses. Additionally, and ideally, the rules should contain “safe harbor” provisions that make clear that certain business organizational structures will not violate the rules.

What to Do

If your business is seeking an investment from one or more out-of-state investors, or if your business already has one or more out-of-state owners, and if you haven’t already discussed the issue with us, contact us today. Additionally, if your business is made up entirely of out-of-state owners, and if you haven’t already done so, you should begin searching for one or more Oregon residents who you might be willing to make a co-owner or a manager, director, or officer.

Stay tuned to our blog, as we will post any updated residency information when we receive it.

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Oregon Marijuana Laws: The Status of Residency Requirements After HB 3400 (Part 1)

Ballot Measure 91 intentionally did not include any residency requirement for anyone who owned or who was otherwise involved with a licensed marijuana business. Since 2014, the Oregon Medical Marijuana Act (“OMMA”) required the person responsible for (“PRF”) a medical marijuana facility (“MMF”) to be an Oregon resident. However, because there was no requirement that the PRF had to be an owner of the MMF, OMMA never contained any residency requirements for anyone who owned an MMF. OMMA did not license growers or processors, and so those businesses were never subject to any residency requirements.

House Bill 3400, which was signed by the Governor on June 30, 2015, has changed all of that.

Ballot Measure 91

For Ballot Measure 91 businesses, HB 3400 imposes a two-year residency requirement. Who exactly needs to be a resident? Unfortunately, we don’t know yet because the legislature has, somewhat surprisingly, delegated that decision to the Oregon Liquor Control Commission (“OLCC”).

For producers, processors, wholesalers, and retailers, HB 3400 requires that “an applicant listed on an application” must have been an Oregon resident for two years. See Sections 12, 14, 15, and 16. Who has to be listed on an application? HB 3400 doesn’t say. And that’s how the legislature has, in a rather subtle way, delegated the decision to the OLCC.

For some context, the OLCC has defined “applicant” under the Oregon Liquor Control Act (the “Liquor Act”) to include all of the individuals and legal entities who own or have an interest in the business. For each corporation or other legal entity, this means: (1) each principal officer; (2) each director; (3) each person or entity who owns or controls 10% or more of the entity’s stock or who holds 10% or more of the total membership interest in the entity or whose investment interest is 10% or more of the total investment interests in the entity; (4) each manager of a limited liability company; and (5) each general partner of a limited partnership. The Liquor Act does not contain any residency requirements however. And so that rather broad definition of “applicant” in the Liquor Act is solely for other purposes, including criminal records checks.

The exact language in HB 3400 for residency purposes is a bit peculiar. The phrase “an applicant listed on an application” is unique and does not appear in the Liquor Act. The phrase seems to contemplate that a Ballot Measure 91 application, like a Liquor Act application, will include a list of one or more individuals and legal entities. And the phrase “an applicant” could indicate that only one of those must be an Oregon resident. (The legislature easily could have said “each applicant listed on an application” must be a resident, but it didn’t.) The “an applicant” phrase can also be compared and contrasted to the criminal records provision in HB 3400, which states that the OLCC may require the fingerprints of “any individual listed on an application.” See Section 10. And finally, there’s some oral legislative history from Representative Ann Lininger, where she states that the definition of “applicant” for residency purposes was not intended to apply to every investor, but rather was intended only to include a person who “directly manages” the business. See Representative Lininger’s testimony at the 1:12 mark.

Still, at this time, the only thing we know for sure is that at least one individual listed on each producer, processor, wholesale, and retail application must have been an Oregon resident for two years. Presumably we will know more when the OLCC publishes the initial draft of its rules under Ballot Measure 91.

Handlers

Individuals who perform work for or on behalf of a Ballot Measure 91 marijuana retailer must obtain a permit from the OLCC. HB 3400 does not impose any residency requirements for such individuals. See Sections 19 and 20.

Laboratories

Laboratories that test marijuana items (under both Ballot Measure 91 and OMMA) must be licensed by the OLCC. HB 3400 does not impose any residency requirements for anyone who owns or who is otherwise involved with a licensed laboratory. See Sections 92(7) and 93.

OMMA

HB 3400 imposes residency requirements for medical marijuana producers, processors, and dispensaries that will be registered by the Oregon Heath Authority (“OHA”).

For medical marijuana producers, the residency requirement applies to: (1) the PRF of the marijuana grow site; and (2) any other person whose name is included in the application. See Sections 81(2)(b) and 173(1). Other than the PRF, HB 3400 does not say who has to be listed on a medical marijuana producer application. Therefore the legislature has, for medical marijuana producers, delegated to the OHA the decision of who exactly needs to be a resident.

For medical marijuana processors, the residency requirement applies to each individual responsible for the marijuana processing site. See Section 85(2)(b). This language is slightly different from the PRF language for medical marijuana producers, although the reasons for the difference are not evident. And for some reason, Section 173, which adds the potentially broad “any person whose name is included in the application” language, does not apply to processors.

The residency requirements for medical marijuana dispensaries are the most stringent. For dispensaries, the residency requirement applies to: (1) each individual responsible for the medical marijuana dispensary; and (2) each individual who has a “financial interest” in the dispensary. See Sections 86(2)(a), (b), and (d) and 173(1). The term “financial interest” is not defined in HB 3400, and so the OHA will presumably define the term in its rules. However, by the plain meaning of the term, the definition would almost certainly include each direct and indirect individual owner of the business, and perhaps even unsecured lenders, third parties whose compensation is based on a percentage of revenues or profits, and others.

The residency requirement for the PRFs and the individuals responsible for the registered sites is two years. For medical marijuana producers and retailers, the residency requirement for all other persons included in the application is two years, unless a person first registered with the OHA on or before January 1, 2015, in which case it is one year. See Section 173(1).

Operative Dates

HB 3400’s residency requirements for Ballot Measure 91 businesses become operative on January 1, 2016. See Section 178(1).

HB 3400’s residency requirements for medical marijuana businesses become operative on March 1, 2016. See Section 179(1).

What to Do

If your business is seeking an investment from one or more out-of-state investors, or if your business already has one or more out-of-state owners, and if you haven’t already discussed the issue with us, contact us today to do so. Additionally, if your business is made up entirely of out-of-state owners, and if you haven’t already done so, you should begin searching for one or more Oregon residents who you might be willing to make a co-owner.

Stay tuned to our blog, as we will post any updated residency information when we receive it.

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FRANCHISE LAW

Franchisors

Franchise law is a heavily regulated area of law.  We help clients expand their businesses through franchising and other distribution methods. We have experience in many industries including, restaurants, health, and beauty, alcohol, and cannabis among others. Our representative services include the following:

Franchisees

We also help potential franchisees interested in buying a franchise. We are able to assist with evaluation of franchise opportunities with respect to:

Alternative Structures

However, not all businesses are suited to franchise. We are also experienced with helping clients structure alternative distribution methods to prevent classification as a franchise.

MERGERS AND ACQUISITIONS

Our M&A attorneys are highly experienced in counseling clients who are considering acquisitions or exit strategies.  We have many years of experience handling deals of various types and sizes, ranging from sales of small closely-held business, private companies, and publicly-traded corporations.  We have represented business owners, private equity firms and investment banks in a wide range of industries. 

We have a deep business bench, and Emerge attorneys have handled transactions of all shapes and sizes.  Whether your deal is valued at $100,000 or $100,000,000, our experienced attorneys will guide you through the deal process.

We understand the intensity, technical skill and judgment needed to get deals done, and we provide our clients with timely, practical and cost-effective legal advice.  We are highly capable in all aspects of M&A, including the following:

CANNABIS INDUSTRY

Emerge Law Group is highly experienced in the cannabis industry.  We have helped many clients obtain state licenses and local permits to operate cannabis businesses throughout California, Oregon, and Washington.

Emerge attorneys were instrumental in the drafting and passage of Oregon Measure 91, legalizing marijuana in the State of Oregon, and have represented cannabis businesses well before many law firms were willing to enter the cannabis industry. As a firm that has provided legal services in the cannabis space for many years, we are familiar with the unique and complex issues businesses and individuals face in an emerging and highly regulated industry.

We regularly help clients with:

Cannabis laws and rules are also regularly changing.  Members of our team are dedicated to attending legislative hearings, state agency and local city and county meetings to stay up-to-date on any new changes and how to adjust to any new changes.

See our Cannabis Industry page for more information.

PSYCHEDELICS

There is tremendous excitement about the potential for psychedelic drugs to benefit a wide variety of populations, including terminally ill patients suffering with anxiety and depression. Until recently, psychedelic substances have been accessible only in the illicit market and are illegal under federal and state to manufacture, distribute, or possess. These substances have, since 1970, been treated as having no legitimate medical use, and no commercial application. As such, no one invested in this area or required legal services, outside of the criminal context.

Today, researchers in a multitude of clinical studies are proving the medical safety and efficacy of these medicines, with the objective of changing the treatment of these substances under the Controlled Substances Act. Companies are now actively raising money to develop intellectual property and seize market opportunities associated with psychedelic drugs.

In addition, advocates at the state and local levels are not waiting for the rescheduling of these substances and are active in undertaking efforts to decriminalize these substances and/or make them affirmatively legal under state and/or municipal law. Decriminalization already has occurred in cities including Denver, Oakland, Santa Cruz, and Ann Arbor. Oregon is poised to be the first state to make psilocybin therapy affirmatively legal. Emerge Law Group is working with a wide array of clients pushing forward in this emerging area.

See our Psychedelics Practice Group page for more information.

TAXATION

CORPORATE AND PARTNERSHIP TAX

Businesses of all kinds benefit from a customized but systematic approach to structuring legal relationships. Emerge Law Group helps businesses and business owners with a variety of tax planning matters.

Representative client services include:

ESTATE PLANNING

Estate planning encompasses everything from a will and power of attorney to combined estate and business succession planning. In almost all cases, the purpose of the plan is to help the client protect those they care about most in the event they can no longer be there for them.

Emerge Law Group has experience with a wide range of tools used in estate planning, including wills, trusts, and family business entity planning.

TAX CONTROVERSIES

Emerge Law Group can assist with the resolution of difficult tax controversies. Our areas of emphasis and experience include:

REAL ESTATE TRANSACTIONS

Emerge Law Group assists clients with a wide range of real estate transactional matters.  We regularly help clients with:

LAND USE

Emerge Law Group also assists clients with all aspects of local government land use and development processes, ranging from preliminary property analyses and building permit issues to complex land use reviews and hearings. Our attorneys are experienced in obtaining land use entitlements and development permits for a wide range of uses.

We regularly help clients with:

Above all, we understand the value of working with cities and counties to enhance communities while developing the land to its potential. We strive to create solutions to land use issues that serve to better our clients and the communities in which they live and work.

LITIGATION AND ALTERNATIVE DISPUTE RESOLUTION

The attorneys in Emerge Law Group’s Litigation and Alternative Dispute Resolution practice group litigate commercial, intellectual property, and public interest matters in state and federal courts, as well as private mediation and arbitration proceedings.  Our lawyers have represented national and regional financial institutions, major media, entertainment and technology companies, and other Fortune 500 companies in a broad array of high-stakes disputes.  Our team of litigators has handled leading cases that have shaped the law in cutting-edge business, technology, free speech, and public interest impact lawsuits in trial and the courts of appeal.

We have particular expertise in handling civil litigation and regulatory enforcement matters in the cannabis and psychedelic industries.  While many firms claim expertise in the these industries, few have our depth of experience successfully litigating contract, trademark, partnership, shareholder, land use, and real estate disputes in court and arbitration.  Even fewer firms have our level of experience handling writ of mandate proceedings against the government regulators.

Our litigators practice in California, Oregon, and Washington, but have appeared in state and federal courts nationwide.  Our knowledge of our clients’ businesses, goals and concerns, and our experience litigating at the highest levels, give us unique insight into possible outcomes and pitfalls as we continuously confront issues of new impression.

No matter what the industry, we pride ourselves in achieving our clients’ objectives through efficient and creative solutions primarily designed to avoid disputes in the first place—which is always the best litigation strategy.  Many times, our clients obtain excellent outcomes before or at the earliest stages of litigation because our adversaries quickly recognize the challenges they will face in litigating against us.  When litigation is unavoidable, however, we work hard to provide our clients with both cost-efficient and “big firm” quality representation.

 

INTELLECTUAL PROPERTY

Your intellectual property (or “IP”) strategy can harness your most valuable information and intangible assets including your name, your brand, your designs, your content, your services, and your products — what makes your business stand apart in a competitive world.  We can help you evaluate and build your IP portfolio, then secure it, monetize it, and protect it.

IP encompasses multiple areas of law and different types of information or material.

Our Intellectual Property practice focuses on:

TRADEMARK

Trademarks include names, signs, logos, designs, phrases, slogans, expressions, and sometimes even colors, sounds, or smells that identify or distinguish one business compared to others.  Trademark protection is fundamental in securing your “brand.”

COPYRIGHT

Copyright covers original works of creative authorship fixed in a tangible medium of expression.  This includes literary, dramatic, musical, and artistic works, such as poetry, novels, designs, movies, songs, computer software, and architecture. Copyright does not protect facts, ideas, systems, or methods of operation, although it may protect the way these things are expressed.  Depending upon the type of work, “moral rights” (such as the right of attribution) may be implicated as well.

TRADE SECRET

Trade secret laws can vary somewhat between states, but generally trade secrets cover information, including drawings, cost data, customer lists, formulas, recipes, patterns, compilations, programs, devices, methods, techniques or processes that derive economic value from not being generally known and are the subject of efforts that are “reasonable under the circumstances” to maintain secrecy.

PRIVACY

Depending upon where you live or operate, there is a special patchwork of laws and regulations that protect and regulate personal information.  If you are handling or giving out personal or potentially sensitive information, you may be implicating privacy laws.

PUBLICITY

Publicity rights address the commercial use of an individual’s face, name, image, or likeness.  These rights vary state-to-state.  Marilyn Monroe, for example, lived in multiple states which created complex questions about her publicity rights.

Our Intellectual Property services include:

FINANCIAL INSTITUTIONS

In states where new cannabis banking opportunities exist, Emerge Law Group has the proven expertise in creating canna-banking programs to efficiently capitalize on those opportunities. Our Banking Practice Group specializes in working with banks and credit unions to develop regulatory compliant programs and operational best practices. We also train banking staff to become experts in canna-banking so they can effective understand and manage the risk affiliated with canna-banking.

We regularly help clients with:

EMPLOYMENT LAW

At Emerge Law Group, we recognize that employees are the heart and soul of any successful business.  Our Employment Law Practice Group works with employers to help them effectively manage their workforce, navigate the complex web of federal, state and local employment laws and, if necessary, defend against claims before administrative agencies and in court.

We regularly help clients with:

CORPORATE FINANCE AND SECURITIES

Our corporate finance and securities lawyers are experienced attorneys who have practiced at large law firms, worked as in-house counsel for public companies and investment banks, and owned and operated start-up companies. We work with clients to help achieve their financing goals while safely navigating the highly technical securities law landscape. 

In addition to representing issuers, we also routinely represent institutional and individual investors, including in connection with fund formation and investments.

Our expertise includes:

We have a deep understanding of the financing options available to businesses, including simple unsecured loans, asset-backed financing, convertible debt, common and preferred equity, crowdfunding and various other structures.  We work closely with our clients to understand their business and financing needs, ensure they are prepared to approach investors and choose the right partners, structure and negotiate terms, navigate the due diligence process and successfully close the deal.

COMPLIANCE AND LICENSING

ALCOHOL AND BEVERAGE INDUSTRY

Emerge attorneys have represented businesses in the alcohol and beverage industry, including wineries, breweries, distilleries, restaurants, bars, movie theaters, golf courses, and gas stations.  We can help you vet new locations, acquire existing locations, and apply for the appropriate liquor license.  We also provide training to comply with applicable rules and regulations, prepare operating procedures, submit renewals, and keep clients protected in the event of any potential violations or administrative hearings.

CANNABIS INDUSTRY

Emerge Law Group is highly experienced in the cannabis industry.  We have helped many clients obtain state licenses and local permits to operate cannabis businesses throughout California, Oregon, and Washington.  We regularly help clients with:

Cannabis laws and rules are also regularly changing.  Members of our team are dedicated to attending legislative hearings, state agency and local city and county meetings to stay up-to-date on any new changes and how to adjust to any new changes.

See our Cannabis Industry page for more information.

PSYCHEDELICS INDUSTRY

Emerge Law Group is a leader in the psychedelics industry.  There is tremendous excitement about the potential for psychedelic drugs to benefit a wide variety of populations, including veterans struggling with PTSD and terminally ill patients suffering with anxiety and depression.  Until recently, psychedelic substances have been accessible only in the underground; they are illegal under state and federal law to manufacture, distribute, or possess.  These substances have, since 1970, been treated as having no legitimate medical use, and no commercial application.  As such, businesses have not invested in this area or required legal services, outside of the criminal context.

Today, psychedelics are proceeding toward legalization on multiple paths.  Researchers in a multitude of clinical studies are proving the medical safety and efficacy of these medicines, with the objective of changing the treatment of these substances under the federal Controlled Substances Act, opening legal access to them.  Private and public companies are now actively raising money to develop intellectual property and capitalize on the market opportunities associated with psychedelic drugs.  Opportunities to be early actors in this new arena are tremendous.

See our Psychedelics Practice Group page for more information.

BUSINESS AND CORPORATE

Our business transactions team is made up of highly experienced transactional attorneys who have practiced at large law and accounting firms, worked as in-house counsel for public companies and investment banks, and owned and operated start-up companies. We understand complex legal matters and provide high quality legal services in a cost-effective manner.  Our clients value our experience, knowledge and judgment.

ENTITY FORMATION

Our team routinely advises clients regarding:

CORPORATE GOVERNANCE

Emerge attorneys also advise on-going concerns with: