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What the New Deschutes County Ban on OLCC Processors and Producers Means for You

On August 19th, 2019, the Deschutes County Board of Commissioners voted unanimously to opt out of the establishment of “future marijuana production and processing businesses” in unincorporated Deschutes County pending a county-wide referendum vote in November 2020.  According to the County, it intended the ban to affect only “future” marijuana businesses.  However, we have been receiving differing opinions from the OLCC and Deschutes County regarding which businesses are actually affected.  Moreover, the state statute under which the County adopted the ban leaves room for interpretation. Does the ban apply to: (1) businesses who have yet to submit an OLCC application, (2) businesses who have pending, but unapproved applications in to OLCC, (3) businesses who have not yet received their Land Use Compatibility Statements (LUCSes), but have pending County applications, (4) businesses with existing OLCC licensees that are up for renewal, or (5) some or all of the above?

We are at work analyzing the applicable laws and are working with clients and public officials to get to the bottom of the ban and clarify who it affects and how.  If you have questions about how this ban may affect your business, please don’t hesitate to get in touch with Emerge for assistance.

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Business Law: Amending LLC and Partnership Agreements to Protect Against the New IRS Audit Rules

For those of you with business partnerships (including LLCs taxed as partnerships) filing an IRS Form 1065 U.S. Return of Partnership Income, this blog contains important news for you.  Treasury Regulations implementing the centralized partnership audit regime under the Bipartisan Budget Act of 2015 (the “BBA Procedures”) were published earlier this year.  The BBA Procedures effectively replaced the three previously existing partnership audit regimes.

The BBA Procedures represent a new set of rules under which the IRS assesses and collects understatements of tax, interest, and penalties.  Now, rather than assessing and collecting the tax attributable to the partnership from individual partners, the IRS can assess and collect at the partnership level, without having to identify specific partners and partnership items.  The IRS can even assess and collect tax from the partnership (effectively from its existing partners), even if doing so allows a former partner to avoid tax that he or she should have paid for the year being audited.

The BBA Procedures affect all existing partnerships and is effective for all tax years beginning on or after January 1, 2018.  The BBA Procedures could have a significant impact on any partnership that becomes subject to an IRS audit.  Under the former Tax Equity and Fiscal Responsibility Act (“TEFRA”) rules, a “tax matters partner”—someone typically designated in a partnership agreement (e.g., an operating agreement)—could bind the partnership itself, but not individual partners, in IRS audit proceedings.  Also, under TEFRA, individual partners had the right to notification regarding an impending audit and a right to participate in administrative or judicial proceedings against the IRS.

Under the new regime, the “tax matters partner” has been replaced with a “partnership representative” (“PR”).  The PR is now the only point of contact with the IRS and has the authority to bind the partnership and,  in relation to the partnership, the individual partners in all of the partnership’s dealings with the IRS, including audits, litigation, and settlements.  Unless an individual partner has been designated as PR, he or she no longer has a right to participate in IRS-related proceedings without special permission from the IRS.  More significantly, individual partners no longer have authority to appeal or challenge the PR’s decisions in IRS or U.S. Tax Court proceedings.

Note also that, unlike a tax matters partner, the PR need not be a partner.  The PR has extremely broad authority in matters relating to audits and it is critical that partnerships keep this in mind when making the designation.  However, designating a PR is not as simple as naming an individual in an LLC or partnership agreement. The partnership must also name the PR on the partnership’s return. Under the BBA Procedures, if the partnership does not make a valid designation of the PR, the IRS itself has authority to designate a PR.  This is concerning because the IRS could theoretically appoint a partner of its choice or even a non-partner.

The BBA Procedures make it clear that neither state law nor a partnership agreement can limit the authority of the PR in audit proceedings.  But partnership agreements can put in place important contractual protections for the partnership, the individual partners, or the PR in the event of an audit.

For instance, partnership agreements can:

  • Require the PR to notify individual partners of communications with the IRS;
  • Mandate that the PR follow consult with partners regarding important decisions;
  • Require the partnership to engage CPAs and other professionals to work with the PR on IRS audit matters;
  • Include appropriate standards of care for PRs in the exercise of their authority as PR;
  • Include provisions indemnifying PRs to safeguard PRs against the threat of lawsuits from other partners;
  • Require the PR to make important elections, including to “push out” tax liabilities to individual partners; and
  • Include provisions indemnifying the partnership against tax for a prior year that the former partner could otherwise avoid paying.

These measures may provide protections impacting the financial well-being of the partnership, the PR, and individual partners and achieve greater certainty for all parties.

You may wish to discuss the implications of the BBA Procedures in the context of your LLC or partnership with your CPA or qualified business lawyer and consider whether an amendment of its operating agreement or partnership agreement would be prudent.

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Signing on the Dotted Line: Contract Signature Issues in Litigation

The idea that “any contract is better than no contract” gets many new businesses into hot water. Small businesses, start-ups, and business partners eager to hit the ground running will skim over early documents or sign “temporary” agreements, intending to revisit the topic later or amend the agreements as the business grows. These hastily signed documents, however, can cause major issues if the parties get involved in future litigation.  Here are some common and easily avoidable contract issues we’ve seen.

Signing “Placeholder” Contracts

When starting a business, some people will sign a “placeholder” or “temporary” contract, planning to draft a “permanent” contract later. Believe it or not, oftentimes the parties never get around to forming a definitive agreement.

“Placeholder” contracts are often valid contracts, though. Even if the parties have verbally discussed drafting formal contracts later, they may still be bound by the terms of the original placeholder agreement. This can be problematic during litigation because the signed agreement may contain provisions that the parties had not considered carefully before signing. For example, a “placeholder” operating agreement may have a mandatory arbitration clause that neither party realized was in the document, or may contain complicated terms about how and when the members may dissolve the company. This can make litigation increasingly expensive as the parties try to piece together the intended terms of their agreement after the fact.

Signing “Key Terms” Contracts

Some parties may try to avoid signing initial contracts by instead signing “preliminary” documents that summarize the main points or key terms of their overall business transaction. Unlike “placeholder” contracts, these preliminary agreements may provide a false sense of security by including provisions that state that the parties will draft and agree to additional formal business documents later.

But if a party takes action pursuant to a signed “key terms” agreement, they run the risk of binding all parties to the agreement’s terms. If the agreement has enough essential terms, a preliminary contract may still be legally binding, even if the parties see it as incomplete. A court may enforce such a binding agreement even if it has open terms or minor terms that the parties intended to address later. This is so even when the contract contemplates that the parties will negotiate and agree upon additional terms set forth in a “final” agreement.

A related issue is the agreement to agree. The problem with agreeing to agree to later terms or documents is that—surprise! —both parties will eventually have to agree to the later terms or documents. If the parties are unable to agree at the beginning, when they are both excited about the new business and eager to work together, the likelihood of being able to agree on those terms once the realities of business ownership set in will probably be much lower, especially in the event of a business dispute.

Who’s Signing This Thing?

Many business owners choose to form multiple entities that will each focus on one portion of their larger business plan. This makes it important to keep track of exactly who is signing because one misplaced signature can put unintended people and entities at risk.

The signature blocks on any corporate document should be clear regarding the entity that is party to the contract. One entity breaching a business loan contract, for example, could endanger the assets of other entities under the same business umbrella if the contract is not clear on which entity entered into the contract. Other companies not intended to be responsible for the loan may be named in a lawsuit along with the breaching entity and may incur significant costs trying to remove themselves from the lawsuit.

Inaccurate signatures can even expose business owners to personal liability. If the incorrectly named entity does not exist, but the managers signing the contract do, a court or arbitrator may hold them personally liable for debts of the nonexistent entity. This absurd result – and the significant legal fees that may be incurred correcting this result – might be avoided by simply cross-referencing the contract with the Oregon Secretary of State business registry prior to signing.

Look (For A Lawyer) Before You Sign!

Signatures—even on initial, preliminary, or placeholder business documents—can carry far more weight than parties realize or intend. Litigation issues over signatures like these can be avoided by consulting with an experienced business attorney at the onset of a business, rather than waiting until litigation disputes arise when it can be too late. And, once litigation proceeds, it is crucial that the parties provide any and all signed business documents to their attorneys, no matter how unimportant or inconsequential the documents may seem, so that any potential contractual issues can be resolved as quickly and smoothly as possible.

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Why Networking is Important For a Cannabis Business

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

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

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

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

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

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

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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: