Alex Berger, Attorney at Emerge Law Group
OLCC is set to enact a temporary emergency tax compliance rule for cannabis retailers at the Commission’s June 15 meeting. This is a response to Governor Kotek’s May 16 directive to make state tax compliance a requirement for OLCC to issue or renew retail licenses, released after highly publicized revelations about cannabis licensee La Mota’s apparent tax liens and other issues. According to a high-level source at OLCC, the rule will require all new retailer license applicants and existing retailer license renewal applicants to obtain a Tax Compliance Certification, demonstrating compliance with state tax requirements, before OLCC will approve the application. The requirement would apply to all “applicants” under OLCC rules – typically 20% or greater direct or indirect owners and entities and individuals with direct operational control over the licensed entity. Per the rule, “tax compliance” includes all Oregon State cannabis sales, business, payroll, and personal taxes for every “applicant,” regardless of the individual’s or entity’s role or involvement with the retailer license.
Failure of any single applicant to demonstrate tax compliance will result in “inactivation” of the application, which, for a change of ownership application, effectively means denial, and, for a renewal application, is tantamount to license cancellation. The OLCC source indicated that application inactivation, unlike application denial, does not come with hearing rights in which an applicant can appeal the denial to an administrative law judge. The temporary rule will likely be adopted at the June 15 Commission meeting and become effective on June 16, immediately applying to all pending and future change of ownership applications. The rule as currently written will apply to renewal applications for licenses set to expire on or after September 15, 2023, per the OLCC source. Despite the rule’s imminent passage, a copy of the rule has not been published and may not be available to the public until on or after the June 15 meeting. OLCC will then enter permanent rulemaking procedures to make the rule permanent at a future date.
Emerge has serious concerns about what passage of the rule means for the already struggling cannabis industry still reeling from the La Mota revelations and facing myriad obstacles including chronic depressed prices, problematic new testing requirements, and longstanding federal taxation issues. We’re also investigating potential legal issues with the new rule, which singles out retail licensees for disparate treatment and could penalize tax-compliant licensees based on their business partners’ personal income tax delinquency, which could be entirely unrelated to the cannabis business or the cannabis retail tax. The lack of hearing rights for inactivations resulting from this rule is also concerning.
We will continue to closely monitor this issue and post updates accordingly. In the meantime, please let us know if you have any questions or concerns about the forthcoming tax compliance rule or any other licensing questions.