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PsychedeLinks – March 17, 2023

PsychedeLinks is a curated selection of top news stories impacting business, research, and culture in the psychedelics ecosystem, crafted by Emerge Law Group’s groundbreaking Psychedelics Group.

 Emerge’s Hot Take

Oregon Closer to Magic Mushroom Therapy, But Has Setback
Last week, more than 100 future Oregon facilitators graduated from InnerTrek’s psilocybin facilitator training program. Congrats to those students! Soon enough those facilitators will be licensed by the Oregon Health Authority (OHA) and ready to provide psilocybin services to clients. But without any currently licensed OHA services centers or manufacturers, there are no clients for facilitators to guide and no psilocybin products to administer. It’s a classic chicken and egg scenario. It isn’t clear yet how many service centers will be licensed and operational by the end of the year and many facilitators may be without a job for longer than initially anticipated. “The service center to facilitator ratio may be out of whack for quite some time. So, facilitators will be forced to wait it out, apply for service center licenses of their own to address the bottleneck, or maybe even turn (or return) to the underground,” says Emerge attorney Kaci Hohmann.

 Other Noteworthy News

Psychedelics Could Revolutionize Couples Therapy
“Proponents of psychedelic use expect the U.S. Food and Drug Administration (FDA) to approve MDMA as a treatment for post-traumatic stress disorder (PTSD) within the next two years. If that happens, it could potentially open the door to other therapeutic uses of the drug—possibly including couples therapy. Research on MDMA in couples therapy is limited, but the practice has a long history. Some therapists legally used MDMA in couples counseling in the 1970s and 1980s. Effective as they can be, though, experts say it’s a mistake to think that psychedelics offer a one-way ticket to marital bliss.”
Vermont Legislators File Four Bills that Would Legalize Psychedelics and Decriminalize All Drugs
“Four major drug reform bills have been introduced in the Vermont State Legislature to decriminalize simple possession of all drugs, expand harm reduction services, remove criminal penalties for using and selling psilocybin and decriminalize certain psychedelic plants and fungi. Nearly a third of their 150-member House of Representatives have co-sponsored H.423, an all-drug decriminalization legislation sponsored by Reps. Logan Nicoll (D) and Taylor Small (P/D). Rep. Vyhovsky (P/D) has joined forces with ten other senators on the S.119 companion bill, making Vermont on its way to becoming the promised psychedelics land. H.439, sponsored by Rep. Brian Cina (P/D), would completely decriminalize psilocybin, mescaline and peyote in Vermont by removing them from Vermont's definition of hallucinogenic drugs. S.114 ,the other proposed bill by Sen. Martine Gulick (D) would not only remove the famed psilocybin mushroom from Vermont's drug classification, but also take an entire step above her colleague's effort to create a working group dedicated to studying the potential physical and mental health benefits of these substances. The specific psilocybin bill has been assigned to the Senate Health and Welfare Committee for deliberation, while all other related bills have been referred to their respective chamber's judiciary committee.”
Washington Senate Approves Scaled-Down Psilocybin Bill to Prepare State for Future Psychedelic Services
“The Washington State Senate has approved a bill to create a task force promoting research into psilocybin and developing a pathway for legal access to the psychedelic.
The legislation from Sen. Jesse Salomon (D)—which was effectively gutted in an earlier Senate committee to exclude original regulated access provisions—cleared the full chamber in a 41-7 vote on Tuesday. It now heads to the House. Senate Democrats cheered the passage, but advocates remain disappointed about the extent to which the bill was watered down in committee. That 81-page bill was reduced to an eight-page bill mandating the formation of a task force to explore regulatory pathways for the psychedelic in the future. It’s possible, of course, that House lawmakers may seek to further amend it in their chamber.”
Colorado’s Proposition 122: Too Soon for the Mushroom Boom?
“Is Colorado's passage of Prop. 122 a bridge too far for federal law enforcement? We have yet to see what the federal government's enforcement position will be with regard to legalizing magic mushrooms, much less DMT or Mescaline. Will the Department of Justice sit back and allow states to continue to legalize other Schedule 1 Controlled Substances without some federal interference? Alternatively, will Merrick Garland's Department of Justice issue a "mushroom memorandum" akin to the now-rescinded Cole Memorandum of 2013 for cannabis? As they say, history is often bound to be repeated. While Psilocybin may have a faster federal legalization trajectory than cannabis has, Colorado is wise to create a robust regulatory framework to stave off possible federal enforcement of the Controlled Substances Act. Industry participants need to understand the potential risks, and armed with a hefty dose of risk tolerance, seriously address compliance with state law. Is it too soon for a mushroom boom? We will have to wait and see.”
Vancouver Company Inks MDMA and Psilocybin Distribution Agreement in Australia
“Vancouver-based drug manufacturer and formulator Optimi Health has signed a distribution agreement to supply the Australian market with its MDMA formulation and psilocybin capsules. The products will be exported to Australia by July 1, 2023, when authorized psychiatrists can begin prescribing MDMA and psilocybin for specific mental health conditions. The distribution agreement is with Mind Medicine Australia (MMA), a leading charitable organization and patient advocacy group seeking to expand access to legal psychedelic-assisted therapies, and marks Optimi Health’s first international MDMA and psilocybin sale. All products destined for the Australian market will be manufactured, encapsulated and packaged inside Optimi’s facility under GMP-compliant protocols, and will follow Health Canada’s controlled substances export laws. To provide equitable access to its products, Optimi will allocate a percentage of product sales towards a fund managed by MMA to assist low-income earners and others who face systemic barriers to access, with those details to be announced in the coming weeks.”

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PsychedeLinks by Emerge Law Group
PsychedeLinks is a curated selection of top news stories impacting business, research, and culture in the psychedelics ecosystem, crafted by Emerge Law Group’s groundbreaking Psychedelics Group.
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Beneficial Owners – New Reporting Rules

Authors:
Kaci Hohmann and Delia Rojas, Attorneys at Emerge Law Group

On September 30, 2022, the federal Financial Crimes Enforcement Network (“FinCEN”) published final regulations governing beneficial ownership reporting requirements under the Corporate Transparency Act (the “Final Rule”). The Final Rule substantially mirrors the draft rules covered in our earlier blog on the topic. The Final Rule becomes effective January 1, 2024. See our summary and tips below to prepare for the upcoming reporting requirements.

Who must report?

The Final Rule requires a “reporting company” to report certain information to FinCEN regarding its beneficial owners and company applicants. A “reporting company” is any domestic or foreign entity created or registered to do business in a U.S. state or Indian tribal jurisdiction (“Reporting Company”). This definition would seemingly capture nearly all US businesses, although there are 23 categories of exemptions set forth in the Final Rule, including (i) certain inactive entities, (ii) insurance companies, (iii) financial institutions, and (iv) large operating companies employing more than 20 full-time employees, having an operating presence in the U.S., and having gross receipts for sales in the U.S. exceeding $5,000,000.

Who is reported?

Each Reporting Company must report information concerning its “beneficial owners,” which includes any individual who, directly or indirectly, exercises “substantial control” over or owns or controls 25% or more of the “ownership interests” of the Reporting Company (“Beneficial Owners”).

An individual has “substantial control” over a Reporting Company if they serve as a senior officer, have authority over the appointment or removal of any senior officer or a majority of the directors (or similar body), or directs, determines, or substantially influences important Reporting Company decisions.  FinCEN indicated that it designed the “substantial control” element to capture the key individuals of the Reporting Company who direct its actions and to “focus the applicability [of the Final Rule] on the senior officer element of the definition of substantial control”.

In the Final Rule, the definition of “ownership interest’’ more broadly focuses on types of arrangements that directly or indirectly convey ownership interests, such as equity, convertible instruments, and put options. Additionally, the definition of “ownership interest” now includes a catch-all provision for “any other instrument, contract, arrangement, understanding, relationship, or other mechanism used to establish ownership.” Importantly, any option or similar interest of the Reporting Company is treated as exercised in determining “ownership interest.”

In response to extensive public comments on the topic of a “company applicant”, the Final Rule requires Reporting Companies created or registered on or after January 1, 2024, to report information related to a “company applicant.” A company applicant is the individual(s) primarily responsible for directly filing the document that creates or registers a Reporting Company, such as a law firm (“Company Applicant”).  Entities created or registered before January 1, 2024, are not required to report information with respect to any “company applicant.”

What information must reports include?

The initial report for the Reporting Company must include the legal name, any trade name or d/b/a name, principal place of business address in the U.S., state of formation or registration, and its IRS employee identification number. The Reporting Company must also provide the full name, date of birth, current address, the number and issuing jurisdiction of a passport, identification card, or driver’s license, and a photo of the identification document used for each Beneficial Owner and Company Applicant.

When must reports be filed?

Reporting Companies in existence prior to January 1, 2024 must file its initial report before January 1, 2025. Reporting Companies created or registered on or after January 1, 2024 must file its initial report within 30 calendar days of receiving actual notice that it was created or registered to do business with a secretary of state or similar office. If a Reporting Company’s exemption status changes, a report must be filed within 30 calendar days of the change in exemption status. Lastly, if there are any changes to the information filed in the initial report, an updated report must be submitted within 30 calendar days of the change.

What proactive compliance steps should businesses take?

The Final Rule imposes considerable new federal compliance requirements on businesses. Although some entities will be exempted, many will not. Every business should investigate whether it is a Reporting Company or qualifies for an exemption. A Reporting Company’s failure to comply with the reporting requirements could result in significant penalties and possible imprisonment.

Businesses with reporting obligations should create and implement internal policies and procedures to ensure that all reporting is timely and properly made. It’s not too early to begin collecting the information your business may need to report. Additionally, businesses and business attorneys should consider adding provisions to certain agreements requiring the applicable people to cooperation with required information collection and reporting, and update confidentiality clauses to carve out exceptions for reporting requirements.

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

See the final rule here.

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Next Deep Dive Webinar: Revised OHA Rules and Election Day Opt-Out Results

Two major events relating to the Oregon Psilocybin Services Act are right around the corner.  First, the Oregon Health Authority will be releasing the next version of the proposed rules by November 1, 2022.  The OHA released the initial draft of the rules on September 1, 2022 and hosted a series of Rules Advisory Committee meetings during the month of September.  There have been many suggested revisions to the OHA’s initial draft of the rules and it will be interesting to see how the OHA responds.  Second, Election Day is on November 8, 2022.  Voters in many Oregon jurisdictions will be deciding whether their jurisdiction should prohibit or allow OHA-licensed psilocybin businesses.  The current status of Oregon’s jurisdictional “opt-outs” can be found on our Local Jurisdiction Tracker.  Organized “reject the ban” campaigns are occurring in Deschutes County, Jackson County, and elsewhere, and the Local Jurisdictional Tracker is sure to change after Election Day.

Emerge Law Group is continuing its FREE virtual event series “Deep Dive Into the Oregon Psilocybin Services Act“!

Session 9:  OHA Rules and Election Day Results

Join us on:

Thursday, November 10, 2022
4:00 pm to 6:00 pm Pacific Standard Time
via Zoom

 

REGISTRATION LINK HERE.

We will discuss our “Preliminary Major Takeaways” from the next version of the OHA’s draft rules and also the post-Election Day jurisdictional “opt-out” situation in Oregon.  The event will feature Dave Kopilak, Sean Clancy, Kaci Hohmann, Alex Berger, and Corinne Celko from our Psychedelics Industry Group.   As always, we will provide ample time for an extended Q&A session with attendees.

In the meantime, if you have any questions concerning the Oregon Psilocybin Services Act or any other laws involving psilocybin, entheogenic plants, or psychedelics in general, please contact us.

 

Event Recordings

If you couldn’t make it or would like to revisit any prior events, the video recordings are available on Emerge Law Group’s YouTube Channel.

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The Craft Beverage Industry Expands into to the Cannabis Space and Vice Versa

Author: Jake Cormier

As the markets for legal cannabis continue to expand nationwide, companies continue to develop new products to attract new customers in different commercial markets.  Long gone are the days when smoking cannabis was the only way to receive its benefits and options for consumption now include vaping and eating tasty sweets or gourmet foods.  And now the 30+ year-old craft beverage industry is crossing over with the cannabis space.

Beverage companies large and small are betting on continued growth in legal cannabis markets and also betting that the beverage consumer may look to replace (or at least compliment) alcohol consumption with THC and other cannabis-derived substances.  Large beverage companies such as Pabst and Constellation have developed non-alcoholic “beers” and replaced the alcohol with intoxicating cannabis extract.  Likewise, smaller THC-centric brewed beverage companies are also in start-up and growth mode.  New cannabis-derived beverage products range from dealcoholized beer and wine that contain THC, to craft beverages that use terpenes (flavorful botanical compounds found in cannabis and other plants) to flavor alcoholic drinks, to cannabis-infused seltzers flavored like tequila or gin.

So, some beverages taste like alcoholic drinks, but contain only THC and others contain alcohol, but include flavors associated with cannabis.  Notably, none of these beverages contain alcohol and THC due to the regulatory prohibition against mixing the two.  Producing such products can require navigating complex malt or cereal beverage-related regulations and cannabis regulations. Further issues include questions on how the body handles THC in drink form, how beverage manufacturers are formulating THC levels and dosing, and how the consumer will control consumption.  In other words, innovation in alcoholic and cannabis-infused beverages present exciting new consumption options, but also new risks and challenges.

Emerge has several craft beverage and cannabis regulatory attorneys eager to help clients bring new creative products to market in safe and compliant ways.

Don't Miss our Craft Beverage Industry Group (C-BIG) Fall Social Event at Oakshire Beer Hall on October 18th!
Join us and our network of craft beverage business owners, industry advisors and professionals, for a fall social at Oakshire Beer Hall in northeast Portland!
Click here for event details.
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The OHA’s Rules Are Out! Next Deep Dive Webinar Scheduled.

On September 1, 2022, the Oregon Health Authority released the second installment of draft rules implementing the Oregon Psilocybin Services Act.  The rules can be found here:  RULES LINK.  This long-awaited event marks a major milestone in the Act’s development period because it brings the anticipated regulations into sharper focus.

As noted in an earlier blog, we postponed our August 2022 “Deep Dive” webinar in anticipation of the draft rules.  And so, without further ado:

Emerge Law Group presents the next installment in its FREE virtual event series “Deep Dive Into the Oregon Psilocybin Services Act“!

Session 8:  OHA Rules (Part 2)

Join us on:

Thursday, September 8, 2022
4:00 pm to 6:00 pm Pacific Daylight Time
via Zoom

REGISTRATION LINK HERE.

We will discuss our “Preliminary Major Takeaways” from the draft rules, and we will be eager to hear everyone else’s feedback on them.  The event will feature Dave Kopilak, Sean Clancy, Kaci Hohmann, Alex Berger, and Corinne Celko from our Psychedelics Industry Group.   As always, we will provide ample time for Q&A with attendees.

In the meantime, if you have any questions concerning the Oregon Psilocybin Services Act or any psilocybin or psychedelics law in general, please contact our Psychedelics Industry Group.

Event Recordings

If you couldn’t make, or would like to revisit, any prior events the video recordings are available on Emerge Law Group’s YouTube Channel.

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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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Emerge East: Pioneer Law Firm Goes Big to the Big Apple

Newark, NJ • New York, NY • Portland, OR – Emerge Law Group (“Emerge”), Oregon’s first full-service law firm with cannabis and psychedelics practices, announced today the opening of new offices in Newark, NJ and New York, NY to serve the burgeoning cannabis industry in the Northeast.

“Given the firm’s growth in California and history of helping clients dating back to the early days of cannabis legalization in the Pacific Northwest, we believe our expertise and experience will help new and existing clients navigate the newly opening markets in the Northeast,” said Dave Kopilak, Emerge’s co-founder and primary drafter of Oregon Measure 91 legalizing adult use cannabis in Oregon and Oregon Measure 109 legalizing psilocybin therapy in Oregon.

Emerge’s new offices are led by Duncan Delano.  Duncan is a commercial real estate and business lawyer representing institutional and non-traditional lenders, borrowers, developers, tenants and landlords.  Duncan works closely with Emerge’s deep bench of business, regulatory and litigation attorneys to assist cannabis entrepreneurs in forming businesses, obtaining cannabis licenses, and legal needs that arise with operation and expansion.  With over a decade of experience Duncan joins Emerge from Haynes and Boone, LLP where he previously practiced in the firm’s real estate group.

“We could not be more excited about expanding into this emerging market and adding Duncan, a skilled and dynamic business and cannabis attorney, to our great team,” said Marco Materazzi, one of Emerge’s co-managing shareholders.

As part of Emerge’s growth, the firm is also pleased to announce that Kaci Hohmann has obtained her New Jersey bar license and will provide key business support to the firm’s East Coast clients.  Kaci has been, and will continue to be, a key member the firm’s business practice in Oregon.  Kaci is a business lawyer representing clients in every stage of business growth, including corporate formation, governance, debt and equity financing, mergers and acquisitions, and other commercial transactions.

“Emerge East” comes on the heels of the recent additions of business attorneys Russ Rotondi and Jake Cormier, and litigator Blake Marvis, to Emerge’s headquarters in Portland, OR.  They bring over 41 years of combined legal experience and represent Emerge’s commitment to continued growth to better serve its clients.

About Emerge Law Group

Emerge is a full-service business law firm that represents a wide range of clients, from publicly-traded companies to small family businesses and start-ups.  Emerge provides counsel to clients in the areas of technology, manufacturing, real estate development, hospitality, and entertainment.  Emerge is most well known for handling high profile matters that have shaped the law in the cutting edge industries of cannabis and psychedelics.  While many firms claim expertise in these areas, few have Emerge’s depth and experience in shaping the laws and successfully representing clients through the dynamic and uncertain stages of new industry.  Emerge is also committed to advocacy for equity, diversity, and inclusion in the communities it serves, through actively engaging in impact litigation and pro bono services.

For more information contact:

Marketing Department
503.227.4525
marketing@emergelawgroup.com

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Follow-up: Guide to Accessing Paycheck Protection Program for Small Businesses Affected by COVID-19

On April 24, 2020, President Trump signed the new “phase 3.5” emergency coronavirus relief package into law (the “Bill”). The Bill includes an additional $310 billion for the Paycheck Protection Program (the “PPP”). The PPP is a federal loan forgiveness program created under the CARES Act to assist small businesses struggling with payroll and operating expenses due to the economic fallout from the global COVID-19 pandemic. Though initially funded with an unprecedented $350 billion, the PPP is a “first come, first served” lending program and quickly ran out of funds within a matter of two weeks.

Banks may begin accepting PPP applications again as early as next week and if you missed out on the initial round of funding, it is crucial that you prepare for the new round of funding before the well runs dry. Notably, the Bill has specifically earmarked $60 billion of the new PPP funds for distribution by small credit unions and community banks. This is good news for the smallest of small businesses that struggled to obtain loan proceeds through big banks during the first round of funding.

For more information about whether your business qualifies for financial assistance under the PPP, see our previous blog on the topic or reach out to one of our business law experts for advice.

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Guide to Accessing Paycheck Protection Program for Small Businesses Affected by COVID-19

The federal Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020 to provide assistance to individuals and businesses affected by the global COVID-19 pandemic.  Under Sections 1102 and 1006 of the CARES Act, the Small Business Administration (the “SBA”) is authorized to establish a new loan program known as the “Paycheck Protection Program” (the “PPP”) with $350 billion in funding and a goal to disburse loans as quickly as possible to small businesses to cover payroll and other operating expenses.  Importantly, the principal amount of PPP loans may qualify for forgiveness so long as certain requirements are met.  Because PPP loans are issued on a “first come, first served” basis, it’s crucial that eligible businesses apply now.

The PPP went “live” on April 3 and that same day, the SBA published its interim final rule implementing the program (the “Rule”).  The Rule is subject to a 30-day public comment period and subsequent amendments may follow.  If COVID-19 has affected your business, read our summary below to better understand the SBA PPP loan eligibility requirements and application process.

Is my business eligible for a PPP loan?

“Small business concerns” or certain tax-exempt nonprofit organizations that were in operation on February 15, 2020 and had 500 or fewer employees are eligible for a PPP loan.  A “small business concern” is a business that is independently owned and operated, not dominant in its field of operation, and does not exceed small business size standards listed in the North American Industry Classification System (“NAICS”).  The SBA has a webpage with a table of small business size standards that matches the NAICS codes.

Sole proprietors, individual contractors, or certain self-employed individuals operating as of February 15, 2020 are also eligible for a PPP loan on and after April 10, 2020.

Although these requirements are easy to meet for many small businesses, the SBA has a host of eligibility disqualifiers.  Ineligible types of businesses are listed in the SBA’s Standard Operating Procedure 50 10 5(K) published on April 1, 2019 (the “SOP”) and include, among others, businesses engaged in any illegal activity.

Despite most states with shelter-in-place orders deeming marijuana businesses as “essential” during this pandemic, marijuana is still classified as a Schedule 1 drug under federal law and the SBA specifically identifies “marijuana-related businesses” as engaged in illegal activity.  Both “direct marijuana businesses” (e.g.. businesses that grow, produce, process, distribute, or sell recreational or medical marijuana or marijuana products) and “indirect marijuana businesses” (e.g. businesses that derive any of their gross revenue from sales to direct marijuana businesses of products or services that could reasonably be determined to aid in the use, cultivation, or distribution of marijuana) are considered ineligible to receive a PPP loan.  However, businesses engaged in hemp-related activities consistent with the 2018 Farm Bill are eligible for a PPP loan.  We can advise on the eligibility of your business if you are unsure whether you qualify for the program.

How much can I borrow and what are the loan terms?

The maximum loan amount available to borrowers under the PPP is the lesser of $10 million or an amount determined using the payroll-based formula specified in the CARES Act.  The Rule contains an easy-to-use guideline for the payroll-based formula, but we recommend working with your accountant to aggregate payroll costs and determine the appropriate PPP loan amount.

The interest rate on a PPP loan is 1% and although loan payments are deferred for 6 months, interest accrues on the principal amount borrowed including during the deferment period.  If your business does not qualify for loan forgiveness, the maturity date for the loan is two years.

Do I qualify for forgiveness under the PPP?

The full principal and accrued interest on the PPP loan is forgivable so long as you use the loan proceeds for authorized purposes and maintain employees at their current compensation levels.  You can use the PPP loan proceeds to pay for payroll costs, costs related to group health care benefits and insurance premiums, mortgage interest obligations, rent payments, utility payments, and interest payments on debt obligations.  However, only up to 25% of the loan forgiveness amount can be attributable to non-payroll costs.

To apply for forgiveness, you must document the proceeds used for payroll costs and other non-payroll expenses during the 8-week period following the loan issuance.  If you use PPP loan proceeds for unauthorized purposes, the loan amounts will not be forgiven and must be repaid.  Furthermore, if you knowingly use the loan proceeds for unauthorized purposes, you may be subject to additional liability such as fraud charges.

Can I apply for a PPP loan if I already received an SBA EIDL loan?

You can still apply for a PPP loan if you already received an SBA Economic Injury Disaster Loan (“EIDL”). However, if you used your EIDL loan to cover payroll costs, your PPP loan must be used to refinance your EIDL loan.  Also, the $10,000 grant issued in connection with the EIDL will be deducted from the loan forgiveness amount on the PPP loan.

When and where should I apply for a PPP loan?

You have until June 30, 2020 to apply for a PPP loan.  However, PPP loans are “first come, first served” and lenders have been inundated with PPP loan applications since the program went “live.”  Therefore, we urge you to apply as soon as possible.

The Rule does not require a borrower to apply with the borrower’s current bank.  However, to prioritize applications, many banks are only lending to businesses with a pre-existing business banking relationship.  If your bank is not servicing PPP loans or you do not have a pre-existing business banking relationship at a bank, there are third-party loan marketplaces that route PPP loan applications to SBA lenders.  The SBA also has a helpful webpage listing participating PPP lenders.

If you do not qualify for a PPP loan, there may be state and local options available to you.  At Emerge Law Group, we strive to provide you with the important information you need to safeguard your business during the COVID-19 pandemic.  Please don’t hesitate to reach out for all of your business-related legal needs.

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Contracts During Coronavirus

By Sean Clancy and Kaci Hohmann

As the coronavirus (COVID-19) pandemic rips across the planet, relationships between the environment, governments, businesses, employers, property owners, and individuals are suddenly much more uncertain than usual. Information, guidance, and directives from authorities are changing daily and will continue to change. The total economic and human cost of this virus will not be known for a while, if ever. It is extremely difficult, if not impossible, to accurately predict what will happen next with our most important relationships.

Ordinarily, contracts help establish certainty in relationships, clarifying what’s supposed to happen and what’s expected from the parties. But what happens during a global health crisis when the parties are faced with unprecedented predicaments that hinder their ability to fulfill the commitments they made or intend to make?

The specific facts of each situation affect whether or not contracts are legally enforceable. Although every situation is different, there are a few legal principles that can shape what happens next.

A force majeure clause in a contract might provide a defense to breach or non-performance when “acts of God,” “acts of Nature,” extreme events, or other circumstances occur that are unforeseeable and beyond a party’s control. Force majeure clauses vary in scope depending upon negotiations between parties or, more commonly (until now maybe), whatever boilerplate language the contract drafter happened to include. Some force majeure clauses contain only broad catch-all language, while others are more specific. Such clauses usually identify a laundry list of catastrophic events that may include earthquakes, volcanoes, riots, declared war, acts of terrorism, and, sometimes, pandemics.

A party seeking to excuse its performance under a force majeure clause must demonstrate that its performance is delayed or made impractical or impossible because of the uncontrollable event. Financial burdens or mere difficulties in meeting obligations are insufficient by themselves to excuse performance under a force majeure clause. Courts typically consider whether: (1) the uncontrollable event fits within the definition of a force majeure event under the contract; (2) the risk of nonperformance was unforeseeable and unable to be mitigated; and (3) performance is truly impossible because of the event.

Specific references to an “epidemic” or “pandemic” in a force majeure clause probably cover COVID-19 depending on the circumstances contemplated for performance under the contract. Force majeure clauses that do not specifically mention “epidemic,” “pandemic,” or similar language, may still include COVID-19, depending upon how broad or narrow the language is. By now, COVID-19 almost certainly fits within a broad term like “act of Nature.”

Foreseeability is also crucial in determining what is excusable when an “act of Nature” occurs. Courts and legal experts might disagree about what was foreseeable by parties who formed contracts while the outbreak was in its earlier stages, outside the parties’ jurisdiction. But contracts currently formed during the pandemic that do not specifically address COVID-19 might not allow for excused performance because the parties now have knowledge of the pandemic. Virtually everyone on the planet is affected by COVID-19, so the existence of the virus itself is no longer unforeseeable. That said, it is difficult to know what additional consequences of COVID-19 may still be unforeseeable.

Additionally, if a party wants to be excused, it must prove that performance is an “impossibility.” Even if there isn’t a force majeure clause in a contract, sometimes contractual performance can still be excused based upon common law legal concepts of “impracticability” or “impossibility.” These legal concepts are heavily fact dependent, based upon the circumstances of the deal and the parties’ respective situations. As governments and businesses continue expanding limitations on travel, work, and gatherings of humans, contractual obligations might or might not be deemed legally impracticable or impossible.

There aren’t easy answers regarding what to do next. We recommend reviewing important existing contracts closely to understand rights, obligations, and exit strategies in light of the current COVID-19 pandemic; specifically, take a close look to determine if your contract contains a force majeure clause and ask what that clause does or doesn’t allow. Consider your options and available remedies if a party to the contract wants to excuse or delay their performance.

If you are entering a new deal and forming a new contract, you should consider the existence of COVID-19 during the contract’s formation and its potential effects on the deal later. If you want the counterparty to perform no matter what, consider an “anti-force majeure clause” or negotiating terms that explicitly prevent COVID-19 from being an excuse for nonperformance. If you are apprehensive about either party’s ability to perform, consider the advantages and disadvantages of addressing “pandemic” and COVID-19 specifically as a force majeure event.

Don’t hesitate to contact an attorney if you are concerned about what to do next. Our job is to develop creative solutions for difficult situations to help protect your goals, especially during times of uncertainty.

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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: