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California Cannabis Legislative Update

Governor Newsome Budget Proposal

On May 13, 2022, Governor Newsom released his proposed California Budget which included cannabis tax reform. The state has acknowledged that the current cannabis tax framework is overly complex and burdensome to both operators and consumers. The hope is to simplify the tax structure, remove unnecessary burdens and costs, and temporarily reduce taxes with hope to assist in stabilizing the cannabis market. The major proposed changes are as follows:

  • eliminate the cultivation tax beginning July 1, 2022 and temporarily maintain the excise tax rate at 15%;
  • shift the collection of the excise tax from the distributor to the retailer starting January 1, 2023;
  • allow the excise the tax to increase between January 1, 2024 to July 1, 2025 depending on the amount of tax revenue received; and
  • starting July 1, 2025, increase the excise tax to 19%.

The release of the proposal is the first step in the legislative process. The proposal will be reviewed and potentially accepted, rejected, or amended over the next four-weeks. Reach out to your local advocacy groups for information on how to reach out to your state representatives and voice your thoughts.

Other tax related bills have been moving forward through the California legislative process, including SB-1074 (eliminates the cultivation tax and increases the excise tax by an undetermined amount) which has recently been ordered inactive, and SB-1281 (discontinue cultivation tax and lowers the excise tax to 5%) which has been held at its current desk.

AB-2691 – Temporary Event Cultivator Retailer License

As of May 26, 2022, this bill has been ordered inactive at the request of Assembly Member Wood. The bill would have allowed equity applicants and cultivators of less than an acre of cannabis (inclusive of all licensed premises) to obtain up to 8 temporary event retail licenses per year to sell cannabis direct to consumers at licensed cannabis events. Additional work needs to be done to get this bill, or at least some version of this bill, to move forward.

SB-1148 – Cannabis: California Environmental Quality Act

The bill was last amended on May 23, 2022. If passed as written, CEQA review would not be required by the state agency to issue a state license if the local jurisdiction filed a notice of exemption or determination with the Office of Planning and Research specific to the cannabis activity. The exemption only applies to the activities associated and reviewed under CEQA by the local jurisdiction. As of May 27th, this bill was moved to the Assembly, read for the first time, and held at the Assembly desk.

SB – 1186 – Medicinal Cannabis Patient’s Right of Access

This bill prohibits local jurisdictions, on or after January 1, 2024, from adopting or enforcing any regulation that prohibits the delivery of medicinal cannabis within the local jurisdiction. On May 23, 2022, the bill passed the state Senate and ordered to the Assembly. Given that there are still a majority of the local jurisdictions that banned commercial activity, it has been burdensome for medical patients to receive their medicine. This could help ensure access to patients that don’t have the capability to travel to the nearest dispensary. As of May 24, 2022, this bill was moved to the Assembly, read for the first time, and held at the Assembly desk.

This blog is for informational purposes only and is not intended for legal advice. Emerge is tracking numerous pieces of state and local statutes, ordinances, and rules. If you have any questions, reach out to attorneys Genny Kiley or Delia Rojas.

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Lions and Tigers and Shell Companies, Oh My! Preparing Your Business for Federal Beneficial Ownership Reporting Requirements

By:  Delia Rojas and Kaci Hohmann

The Corporate Transparency Act (“CTA”), part of the federal Anti-Money Laundering Act of 2020, came into effect in January 2021. Its goal is to prevent money laundering and abuse related to the use of shell companies as a mechanism for concealing illicit business activities.  In December 2021, the Financial Crimes Enforcement Network (“FinCEN”) published proposed rules for public comment implementing the beneficial ownership information reporting requirements of the CTA (the “Draft Rules”).  The Draft Rules address who must report beneficial ownership information to FinCEN, when they must report, and what information the reports must include.  The public comment period for the Draft Rules closed on February 7, 2021. As of the date of this blog post, it isn’t yet clear whether FinCEN will further revise the Draft Rules and open a second public comment period before finalizing and publishing the final rules. Regardless, the scope of the CTA is broad and will impact small and large businesses alike.

Below we summarize some of the most important reporting requirements proposed under the Draft Rules. These requirements are subject to change, and as more information becomes available, Emerge Law Group will keep you updated.

Who must report?

Under the Draft Rules, a corporation, limited liability company (LLC), or similar entity formed or registered to do business in any state by filing documents with a U.S. state or Indian Tribe (“Reporting Company”) must report certain information to FinCEN about anyone who, directly or indirectly, exercises substantial control over, or owns or controls 25% or more (“Beneficial Owners”) of the Reporting Company. The definition of Reporting Company broadly captures many businesses with a number of important exceptions, including certain publicly traded companies; tax-exempt entities, such as 501(c) entities; and heavily regulated businesses that already provide ownership information to a federal government agency. The Draft Rules also specifically exclude financial institutions; insurance companies; and large operating companies that employ more than 20 full-time employees, have an operating presence in the U.S., and have gross receipts or sales in the U.S. exceeding $5 million dollars.

Examples of an individual who exercises “substantial control” over a Reporting Company are those who serve as senior officers; and those who direct, determine, or “substantially influence important matters of a Reporting Company.” FinCEN specifically stated that a person who makes day-to-day managerial decisions with respect to one part of a Reporting Company’s assets or employees should not, in isolation, cause that person to be deemed to exercise “substantial control” of a Reporting Company, unless that person satisfies another element of the “substantial control” criteria.

Examples of an individual who “owns or controls 25% or more” of a Reporting Company are those who hold an ownership interest through stock, LLC units, profit interests, and other convertible equity interests, such as warrants or options.

Additionally, information about individuals who file documents creating, or first registering, a Reporting Company under state law, or who direct or control the filing of such documents (“Company Applicants”), must be included in the report to FinCEN. This means attorneys, legal assistants, entity registration service providers, and any person involved in the preparation and filing of entity formation documents will also have to provide their information to Reporting Companies for reporting obligations.

When must reports be filed?

When a Reporting Company must file their initial report will depend on when the final rules become effective.

For Reporting Companies formed after the effective date, the report must be filed within 14 days of formation. For Reporting Companies formed before the effective date, the report must be filed within one year of the effective date of the final rules.

Furthermore, the Draft Rules require ongoing reporting to ensure that all beneficial ownership information is up to date, requiring updates to be made within 30 days of a change.

What information must reports include?

The Draft Rules provide that Reporting Company reports must include the Reporting Company’s legal entity name, assumed business name, street address, state of organization, and federal employer identification number. The reports for Beneficial Owners and Company Applicants must include the individual’s name, birthdate, residential address, and acceptable photo ID.

Confidentiality will be of concern for many of our firm’s clients. The CTA requires the establishment of security protocols to protect the confidentiality of the reported information. FinCEN is specifically prohibited from sharing the information with the general public and as a general matter, the information can only be disclosed, subject to stringent access protocols, to law enforcement, financial institutions, and other authorized users for the purpose of protecting national security and intelligence, enhancing financial system transparency, and assisting in other enforcement efforts to counter illegal activity. However, rules detailing which agencies will be authorized to view reported information and the security protections for that information have yet to be published for public comment.

What proactive steps should businesses take?

For starters, your business can begin collecting the beneficial ownership information that will eventually need to be reported to FinCEN. Businesses and business attorneys should also consider adding provisions to agreements with owners requiring the owner’s cooperation to collect the owner’s required reporting information and update confidentiality clauses in legal documents to carve out exceptions for these reporting requirements.

Violating the beneficial ownership reporting requirements could result in civil penalties up to $500 per day and criminal fines up to $10,000 or up to two years in jail. Compliance with these impending rules will be crucial and Emerge Law Group will continue to monitor developments.

If you have any questions or concerns about how the beneficial ownership reporting requirements will impact your business, contact an attorney from our Business Group.

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New Federal Trademark Proceedings: What To Know

On December 18, 2021, rules promulgated under the Trademark Modernization Act of 2020 (“Act”) went into effect. The rules, among other things, implement two major additions to the repertoire of trademark proceedings:  (1) expungement, and (2) reexamination.

The purpose of these new proceedings is to assist the United States Patent and Trademark Office (“USPTO”) in addressing “dead wood” and the clutter of registered marks that are not actually in use, or were registered with inaccurate goods or services. With these new rules, the USPTO also seeks to combat fraudulent registrations and the resulting loss of available trademarks.  The Act provides an efficient method for third parties to bring unused trademark registrations to the USPTO’s attention and provides the USPTO new authority to clean things up. Before the Act, the USPTO itself had very limited authority to review and reconsider trademark registrations.

Expungement Proceeding

The purpose of an expungement proceeding is to decide whether or not the registered mark has never been used in commerce in connection with some or all of the listed goods or services . A petition to expunge can be filed between three and ten years following the date of registration. However, the Act provides that until December 27, 2023, the proceeding can be instituted for any registration that is at least three years old.

Reexamination Proceeding

A reexamination proceeding looks to see whether the registered mark was used in commerce with some or all of the goods or services before a certain date depending on the filing basis. For use-based filings under Section 1(a), the record must show use on or before the date of filing. For intent-to-use based filings under Section 1(b), as initially filed or as amended, the date is the later of (1) the filing date of the amendment to allege use, or (2) the expiration of the deadline for filing the statement of use for the goods listed in the petition, including all approved extensions. The reexamination proceeding can be initiated during the first five years of registration.

Process Of Proceedings

The general process of the proceedings is simpler compared to litigation-esque cancellation proceedings. The petition is filed, then the director reviews and decides whether or not to institute the proceeding. If the proceeding moves forward, the USPTO will send an Office action notice to the registrant and the original petitioner has no further responsibilities.

The registrant must respond within three months by either proving use or amending or cancelling the registration (or submit a 30-day extension request). If the USPTO issues a final order of non-use, the registration will be cancelled in whole or in part depending on the petition. However, the registrant has the opportunity to request reconsideration or appeal before the Trademark Trial and Appeal Board.

A few key takeaways:

  • All registrants should retain accurate evidence of first use for each good and service listed on their trademark applications and registrations.
  • All trademark owners should review their registrations to ensure they accurately reflect what’s used in commerce. A registrant can voluntarily amend their registration to delete goods or services, or surrender registration altogether. The fee for voluntarily amending the registration is $0. But if a registrant deletes goods after one of the proceedings starts, there is a $250 fee per class.
  • A registrant can utilize these proceedings as a tool in the clearance, prosecution, and enforcement of their mark.

If you hold trademark registrations and need assistance with the review of your portfolio, Emerge Law Group is here help. Please feel free to contact attorneys Delia Rojas or Sean Clancy from Intellectual Property Practice Group.

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Starting the New Year in California Cannabis

There hasn’t been a dull moment in the California cannabis industry since the passage of Proposition 64, and rolling into 2022, this year doesn’t look like it’s going to be any different. The sunset process for provisional licenses begins and cannabis taxes were raised as the market continues to fall.  On the bright side, licensees may apply for state equity license fee waivers and the Cannabis Appellations Program will be rolling out, which the industry hopes will give small farmers a competitive edge in a saturated market.  Let’s take a closer look at what’s in store for 2022.

Provisional Licenses

This new year brings the end of the issuance of provisional licenses for many applicants and higher thresholds to renew.

•  As of January 1, 2022, the The Department of Cannabis Control (“DCC“) no longer will issue provisional cultivation licenses to licensees which would hold over one acre of outdoor or 22,000 square feet of mixed-light or indoor.

•  As of July 1, 2022, the DCC will no longer issue any new provisional licenses for any license type unless the applicant falls under one of two exceptions (see below).  However, in order to meet the upcoming deadline, all applications for any license type must be submitted by March 31, 2022.

•  Small Farmer Exception – An applicant for less than 20,000 square feet can apply for a new provisional license until June 30, 2022.  However, the provisional license must be issued by September 30, 2022.

•  Equity Applicant Exception –  An applicant that qualifies as a social equity applicant can apply for a new provisional license until March 31, 2023.  However, such provisional license must be issued by June 30, 2023.

Applicants holding provisional licenses will also face deadlines with respect to renewal.

•  Starting July 1, 2022, in order to renew a provisional license, a licensee will need to submit:  (i) a final Lake or Stream bed Alteration Agreement (“LSAA“); (ii) a draft LSAA; (iii) a notification that application is complete; or (iv) that an LSAA is not needed. Additionally, the licensee will have to submit an initial study, addendum, or checklist to demonstrate substantial progress on California Environmental Quality Act (“CEQA“) review in the previous 12 months by the lead agency.

•  Starting January 1, 2023, the DCC will no longer renew provisional cultivation licenses for licensees which would hold over one acre of outdoor or 22.000 square feet of mixed-light or indoor.  Thus, all larger cultivation operations will need to be in full annual compliance in order to apply for a renewal next year.

See our handy Provisional License Deadline Chart.

Equity Fee Waiver

As of January 1, 2022, the DCC started their Equity Fee Waiver Program.  If a business is eligible, the DCC will waive the license fee. The waiver can be applied for a single license every 12-month licensure period.  There are two requirements that must be satisfied to be eligible for an equity fee waiver.

First, the cannabis business cannot have a gross revenue of more than $1.5 million a year.

Second, at least 50% of the business must be owned by people who meet one of the following three equity criteria: (i) cannabis conviction or arrest; (ii) household income is no more that 60% of the area’s median income; or (iii) live in a place for at least 5 years between 1980 and 2016 that was affected by criminalization of cannabis.  If the business reaches these thresholds, they can submit a request form when applying for, or renewing a license.

Cultivation Taxes

As the cannabis industry continues to face external hardships from local communities, federal and local government, or otherwise, the State of California continues to increase the cost to participate in the legal market.  As of January 1, 2022, the California Department of Tax and Fee Administration (“CDTFA“) raised the cultivation tax even despite the price for cannabis has dropped to about $200 to $500 per  pound.  This was even after California announced that there was a $31 billion budget surplus.  In response, late last year, an owner of Flow Kana called for distributors to withhold paying taxes after July 1, 2022.  The goal was to spark change on the state level to suspend, eliminate, or at least lower taxes, and it looks like the industry’s voice is starting to be heard.  On Monday, January 10, 2022, following the introduction of the proposed state budget for 2022, Governor Newsom indicated that he is open to tax reform for all cannabis operators.  This is a decent step forward for the efforts made by the industry this last year.  Hopefully, 2022 is the year for a little relief to California cannabis operators.

Appellations Program

On November 23, 2021, the Office of Administrative Law approved the proposed regulations for the Cannabis Appellations Program, which went into effect on January 1, 2022.  The regulations detail the process and requirements by which a “petitioning organization” (defined as a group of licensed cultivators of 3 or more within the proposed areas of appellation of origin) can apply for and establish a specific appellation of origin.  However, CDFA is not accepting applications at this time. CDFA has indicated that they are working on the administrative structure for the review process.  Acceptance of applications are not expected until at least mid-2022.  Overall, this gives cultivators time to collaborate and put together the complex application to apply for and create an appellation.  Petitioners will need to prepare and submit a detailed description and documentation of the proposed appellation.  As the program develops, CDFA plans to send out updates to inform the public on the process forward.

Emerge Law Group is keeping up to date on changes in the California cannabis industry.  If you have any need any assistance with obtaining or renewing a license, please contact attorneys Genny Kiley or Delia Rojas from our California Regulatory Compliance and Licensing Practice Group.

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California’s Department Of Cannabis Control Consolidated Regulations APPROVED

In July of this year, the state consolidated the three separate cannabis regulatory agencies into one – Department of Cannabis Control. Their immediate effort is to consolidate and clarify the separate sets of regulations. On July 14, 2021, the state approved the movement of the three sets of regulations under a single title of the California Code of Regulations (Title 4, division 19). The state has been working hard to consolidate the three sets of regulations and amend sections where there was uncertainty or conflict between them. The goal is to provide all licensees with consistency.

On September 8, 2021, the DCC released proposed consolidated regulations and was subsequently filed with the Office of Administrative Law (“OAL”) on September 15th. Since they are emergency regulations, there was only a 5-day public comment period which gave interest holders until September 20th to submit any and all comments on the almost 400 pages of regulations, and a 10-day review period for the OAL.

On September 27, 2021, the DCC announced that the proposed regulations were approved and NOW in effect. The DCC further revealed that “the text was modified from the proposed version, published on September 8, 2021, in response to feedback received during the public comment period. Changes were also made for grammar, punctuation or spelling that did not change the meaning of the regulation.”

You can view the regulations that are now in effect HERE. An explanation of changes between the proposed and effective regulations can be found HERE.

Depending on the license type, each operator will likely need to submit additional documents, disclosures, or otherwise to be compliant. Emerge Law Group is here to assist all operators to reach compliance. Please feel free to contact our Santa Rosa Office at 707-203-5350 or Los Angeles Office at 949-936-2610 with any questions.

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Emerge Law Group Challenges Sonoma County, California Policy of Fining Medical Cannabis Users as Illicit Commercial Growers

Sonoma County, CA, August 16, 2021 — Emerge Law Group has filed a Petition in California Superior Court challenging penalties of over $28,000 imposed by Sonoma County on a mother and daughter for exceeding the allowed medical cultivation of 100 square feet.

The Petition seeks to overturn the July 16, 2021 decision by an administrative hearing officer that approved the County’s practice of imposing huge fines, even without any evidence that the property owner sold cannabis to any other person.  The penalty approved by the hearing officer would, if not overturned in Court, be financially destructive to the mother and daughter.

Sonoma County contended at the administrative hearing that any cultivation area that exceeds 100 square feet “magically” becomes subject to prosecution as an illegal “commercial” cannabis business.  By simply exceeding the allowed square footage, a property owner engages in “commercial cultivation,” according to the County.  County officials said at the hearing that imposing the harsh fine schedule for illegal commercial growers in these circumstances is “easiest” for them.

The Petition filed by Emerge attorneys Timothy L. Alger and Delia Rojas asks the Superior Court to vacate the fines, order Sonoma County to stop its arbitrary and excessively punitive enforcement practices and seeks damages for violation of the civil rights of the mother and daughter. The Petition alleges that Sonoma County has adopted policies and practices that are unfair and designed to punish individuals who, often by inadvertence, become non-compliant with regulations allowing limited personal and medical cannabis cultivations.

The mother and daughter contend in their Petition that a Sonoma County enforcement official, when he conducted an unscheduled inspection, called one of the petitioners names and threatened the petitioners with $10,000 fines per day if the inspector was not immediately allowed onto the property.  The petitioners have had medical approvals for their cultivation, and there is no evidence that they ever sold cannabis to any person.  The petitioners assert that they always attempted to comply with County regulations and cooperated with inspections.

“This is an important lawsuit because it holds local governments to account for abusing their limited power to regulate cannabis cultivation,” said Emerge attorney Timothy Alger.  “Californians overwhelmingly approved at the ballot box the right of residents to grow cannabis for personal and medical use.  Minor violations do not entitle a city or county to treat people who are exercising their rights to personal and medical cultivation — and attempting in good faith to comply with complicated and often illogical regulations — as illegal commercial businesses.”

Emerge Law Group is a full-service law firm that focuses on representing companies in the legal cannabis industry.  It has offices in Irvine, Los Angeles, and Santa Rosa, California, as well as Portland, Oregon.

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From Three to One: California Consolidation

On July 12, 2021 Governor Gavin Newsom signed the Cannabis Trailer Bill, Assembly Bill – 141, which, among other things, consolidates the three California state regulatory programs—the Bureau of Cannabis Control, Cal Cannabis, and Manufactured Cannabis Safety Branch—into one state department, the Department of Cannabis Control (“DCC”). Newsome appointed Nicole Elliott as its first Director.

Nicole Elliott, Department of Cannabis Control Director

The DCC will oversee the licensing and enforcement of all types of commercial cannabis operations along with the state’s track-and-trace system. As part of the consolidation, one of the first major priorities of the DCC is to combine the three sets of cannabis regulations into one. The goal is to provide consistency within the requirements for each license and improve the regulations with further comment from the public. The DCC created a new website that includes information for all applicants and licensees and currently links licensees to the appropriate licensing system. Eventually, the DCC will combine the licensing systems as well.

The bill also extends the timeline for the DCC to issue and renew provisional licenses. Subject to the new eligibility requirements, an operator can renew their provisional license up until January 1, 2025, with all provisional licenses expiring by January 1, 2026. Regardless of whether the business is looking to apply or renew, moving forward, cultivation operators will need to submit additional paperwork to demonstrate the progress on compliance with the environmental standards in order to obtain or keep a provisional license.

Furthermore, starting January 1, 2022, the bill implements a prohibition on issuing a provisional license to an applicant or licensee if doing so would cause the operator to hold multiple cultivation licenses that would exceed an acre of outdoor or 22,000 square feet of mixed light or indoor on contiguous premises. Starting January 1, 2023, the DCC will not be authorized to renew a provisional license on the same basis. On its face, the bill prohibits the licensure of larger growing operations without first reaching full environmental compliance, which can take years depending on the area and size of the project.

Senate Bill 160 is a bill that quickly moved through the legislative process last week and was approved by Newsome on July 16, 2021. SB-160 amends AB-141 in various ways. Most importantly, the bill authorizes the DCC to the issue new provisional licenses until September 30, 2022, for general applicants and June 30, 2023, for equity applicants. A cultivation operator looking to obtain a new provisional license must submit an application to the DCC no later than June 30, 2022, or, if an equity applicant, no later than March 31, 2023, which is not much time for cultivators given the onerous environmental review that they each face.

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California Cannabis: Billboard Advertising

On January 21, 2021, the California Bureau of Cannabis Control (“BCC”) issued a notification that on January 11th the Superior Court in San Louis Obispo held that Section 5040(b)(3) of the Bureau’s regulation is invalid. Section 5040(b)(3) allowed advertisements along any interstate highway or state highway, except for the 15-mile radius from California borders. This section stemmed from Proposition 64, which states: “A licensee shall not do any of the following: advertise or market on a billboard or similar advertising device located on an interstate highway or on a state highway which crosses the California boarder.”

The Court found BCC’s 15-mile radius interpretation too broad and held that the Prop. 64 statute prohibits advertising on a billboard or similar advertising device located on any part of a highway that crosses any California border.  In response to the court’s holding, BCC advised licensees to remove current advertisements and began prohibiting any new advertisements to be placed along any highway that crosses the California boarder, which includes Interstate 5, Interstate 80, and U.S. Highway 101. Yet, the notification does not include a deadline for the billboard removal before it takes any potential enforcement action. We recommend that licensees who advertise through the now prohibited billboards immediately review their billboard contracts and contact their applicable advertising vendors to work out ways to remove prohibited billboards.

Notably, a week after the court ruling, California Assembly Member Jacqui Irwin introduced a bill addressing this issue. The bill would amend the Prop. 64 statute to state that “[a] licensee shall not do any of the following: advertise or market on a billboard or similar advertising devise visible from an interstate highway or on a state highway within California.” The bill would expand the new prohibition even further by including all highways, not just those that cross state borders, and would prohibit advertisements that are simply “visible” from any highway, rather than just located by a highway.

If you need any assistance or have questions about how to comply with the change in advertising regulations for your cannabis business, please reach out to Emerge Law Group.

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Open for Opportunity: 2021 Changes for the California Cannabis Industry

To say the least, 2020 was a year unlike any other, including for the cannabis industry.  California, among other states, declared cannabis “essential” during the pandemic – a vital win for the industry in a year short on wins.  The last few years have been nothing short of transformative – for many Americans, cannabis has gone from flat-out illegal to essential.  But the work is far from over, and more change is coming, certainly in California and some of its local jurisdictions.

California State Law and Regulations

Big changes are coming down the pike this year for the entire California cannabis industry. First, the industry awaits the completion of two key regulatory programs– the Cannabis Appellations Program (“CAP”) and the Certification of Cannabis Comparable to National Organic Program (“OCal”). CAP paves the way for cultivators to petition for and claim an appellation of origin, which is a protected designation that identifies the geographical origin of cannabis and how the cannabis was produced. CAP will provide meaningful support to small legacy farmers that represent California regions famous for their unique cannabis. OCal is a establishes a cannabis organics designation  program similar to the National Organics Program. The final regulations are expected to be released shortly.

Second, the state is working to consolidate the three state agencies that currently regulate cannabis – Bureau of Cannabis Control (“BCC”), California Department of Food and Agriculture – Cal Cannabis (“Cal Cannabis”), and the California Department of Public Health – Manufactured Cannabis Safety Branch (“MCSB”) – into one – the Department of Cannabis Control (“DCC”). to the consolidation will hopefully streamline the application process, lower barriers to enter the market, and result in a single set of regulations for all cannabis applicants. The DCC’s creation is set for July 1, 2021.

Lake County

In December 2020, the Lake County Board of Supervisors adopted an ordinance that imposed certain restrictions on “farmland” designated areas. The ordinance created new “farmland protection zones” in which outdoor cannabis cultivation is prohibited.  Outdoor cultivation may not even exist within 1000 feet of those zones, and any outdoor cultivation premises within a mile of those zones must install “vegetation screens” to block the cannabis operations from view.. The new ordinance also imposes setback requirements for outdoor cultivators on designated farmland outside of protection zones, including 500-1000 ft setbacks from “important highways” and may require additional vegetative screening as well.  The distances for the setbacks are still under review. The County also discussed applying the new rule to cultivators with pending permit applications and requiring some cultivators to “move” their canopy, though the County may provide exceptions to certain existing permit applicants depending on their circumstances.

Lastly, we expect the County to begin discussions on extending the deadline for the required registration with the California State Water Resources Control Board (“SWRCB”).  For local and state compliance, all cultivators must register their proposed water use with the SWRCB.  To receive a local permit, Lake County requires cultivators to apply with SWCRB prior to a specific date. The County has already moved this date twice, with the last deadline falling on October 31, 2020. Cultivators who failed to apply with SWRCB by that deadline are not qualified to apply for a local cannabis permit even if they’ve met all other requirements. Hopefully, the County extends the deadline and allows additional operators to enter the Lake County market. Discussions on this issue are expected to resume sometime this year.

Mendocino County

Mendocino County held a meeting on January 5, 2021 to discuss two cannabis-related topics: (1) the upcoming County legislative agenda, and (2) creating a process for cultivators to hire consultants to assist them with California Environmental Quality Act (“CEQA”) compliance. The County is ramping up its legislative advocacy in the coming year. The County plans to advocate on both the state and federal level regarding the state extension of the provisional license to January 1, 2024 (which would provide much-needed breathing room for cannabis licensees who are still waiting for their official annual licenses); removal of the 4-acre cap on cannabis cooperative associations; and efforts to legalize cannabis federally.

The Board also discussed the framework for helping its cultivators meet their extensive CEQA requirements. CEQA details over 20 review categories to ensure that the project does not heavily impact the surrounding environment. The review process for each cultivation site takes at least 6 months regardless of the jurisdiction. Given the County staff time required to conduct each review, the County signaled its desire to remove itself from the equation and allow operators to prepare their own packages for County approval with the help of CEQA consultants. Ultimately the County Board approved the creation of a framework to certify CEQA consultants and maintain a public list of approved consultants.

Lastly, and most importantly for new cultivators, the Board is discussing the new phase 3 ordinance on January 25, 2021. Currently, the County only accepts applications under phase 2 – for certain indoor and mixed light cultivation. Phase 3 is currently set to open on April 1, 2021, which would open the door for all cultivators to obtain local permits. Cultivators looking to cultivate in Mendocino County should start preparing now in anticipation of phase 3.

Sonoma County

After several delays, we expect Sonoma County to release its long-awaited cannabis ordinance some time in 2021.The ordinance is expected to streamline the local cannabis permitting process by treating cannabis cultivation similar to other agricultural uses and move the application review to the Agriculture Department. Without the ordinance, many local cultivators, who have already been waiting for local permit approval for two years or more, will continue to languish in line for approval with no end in sight. As of the end of October 2020, the County has only issued 6 cannabis-related conditional use permits. Hopefully, the County will release the ordinance ASAP to get the local permitting process back on track. If you are a part of the Sonoma County cannabis community who would benefit from the new ordinance, you may wish to contact your county Supervisor and urge him or her to prioritize cannabis in 2021.

Trinity County

On December 28, 2020, the Board of Supervisors moved to approve a new cannabis ordinance to implement certain “mitigation” measures required under CEQA.  The ordinance goes into effect on January 27, 2020. The ordinance includes numerous changes including new noise level requirements, screens for cultivation along county designated scenic roadways, prohibition on all cannabis cultivation in the 100-year flood plain, specific requirements for the required biological assessment report detailing potential environmental impacts, and a slew of other mitigation requirements for environmental protections. Most importantly, the new ordinance provides for “only one application countywide may be submitted per legal parcel.” This provision effectively limits each parcel to only one licensed facility.

Additionally, the County has taken steps to address the longer-than-expected delay in local permit renewals. To prevent widespread permit expiration, the Board passed an “urgency ordinance” extending the current local cannabis permits for an additional 6 months. The ordinance also prohibits further processing of new cannabis permit applications pending implementation of the ordinance’s other requirements.

2021 is gearing up to, once again, be a busy year for the California cannabis industry.  If you have any questions regarding changes to California state or local laws and regulations, don’t hesitate to contact Emerge’s regulatory attorneys for help.

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California: New Year, Potential New Extension

On December 7, 2020, a Senate Bill 59 was introduced in the California State Assembly that would extend the expiration of adult-use and medical-use cannabis licenses from January 1, 2022 to January 1, 2028.  The text of SB-59 can be found here.

It’s difficult to express the significance of this bill, or any extension to the repeal date of the provisional licenses. Thousands of operators could lose their licensure if the deadline is not extended.  The current deadline could once again create a bottleneck in the supply chain and prevent cultivators from meeting statewide demand, just as we saw at the end of 2018.

To obtain a (non-provisional) Annual License for cultivation, California law requires each applicant to obtain a project-specific California Environmental Quality Act (“CEQA”) compliance determination for each licensed property, which has had a greater impact on cultivators. The required environmental impact reviews for each cultivation project site takes longer than originally expected.  Although local agencies are working with relevant state regulators to provide a pathway to compliance, most localities have learned that bringing all authorized operators into compliance will require a lot more time than the remaining years allotted to provisional licenses.

For example, though the Mendocino County Cannabis Program has dedicated much of its time to ensuring that the approximately 1100 current phase one applicants in the County receive their permits, the County Board of Supervisors recently stated that the County would need almost 10 years to complete the CEQA review for all applicants. This is very troubling as we reach the end of 2020 and if operators do not reach CEQA compliance by the current provisional license repeal deadline, they will need to cease operations as of January 1, 2022.

So, because the bill was just introduced to the Senate, now is the time for the industry to advocate and express their support for such an extension. All persons that support this bill should contact their state senator and assembly member by phone and/or email and ask them to support this – or any – extension. You can locate your state congressional representative here.

If you have any questions about this or any other legal issue affecting your California-based cannabis business, please do not hesitate to reach out to Emerge.

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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: