Category Archive for: Recreational Marijuana

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Residency Requirements Under Attack – Analysis of the First Circuit’s Opinion on the Dormant Commerce Clause’s Effect on Cannabis Residency Requirements

Author:
Blake Marvis, Attorney at Emerge Law Group; Oregon Litigation Practice Group

In August, the First Circuit Court of Appeals became the first federal appeals court to address an issue that had been litigated in district courts since 2020.  The question was relatively straightforward – does the dormant commerce clause (“DCC”) prohibit state residency requirements for owners of state-licensed cannabis businesses?

Many states that have legalized cannabis instituted various types of residency requirements for owning or operating a cannabis business within their borders.  The Supreme Court’s decision in Tennessee Wine and Spirits Retailers Association v. Thomas, 139 S.Ct. 2449 (2019) also breathed some new life into the DCC. Multiple cannabis-related cases leveraged that decision to make stronger DCC arguments.

Numerous district court cases that addressed this issue concluded that various residency requirements violated the DCC.  See NPG, LLC v. City of Portland, Maine, 2020 WL 474913, at *10-11 (D. Maine, Aug. 14, 2020) (determining that the DCC “likely restricts the City’s licensing of marijuana retail stores”); Toigo v. Dep’t of Health and Senior Servs., 549 F. Supp. 3d 985, 995-996 (W.D. Miss. 2021) (granting preliminary injunction and determining that Missouri’s “residency requirement is likely unconstitutional under the dormant commerce clause.”); Lowe v. City of Detroit, 544 F. Supp. 3d 804, 815-816 (E.D. Mich. 2021) (granting preliminary injunction against residency requirement based on violation of the DCC).  However, one district court determined that because cannabis is illegal under federal law, the DCC offered no protection or mechanism for striking down residency requirements related to cannabis.  See Original Investments, LLC v. State, 542 F. Supp. 3d 1230, 1234-1237 (W.D. Ok. 2021).

The First Circuit sided with the majority of district court decisions and held that Maine’s residency requirement for officers and directors of medical cannabis dispensaries violated the DCC.  See Northeast Patients Group v. United Cannabis Patients and Caregivers of Maine, 45 F.4th 542, 558 (1st Cir. 2022).  The First Circuit addressed defendant’s three main arguments in making its holding.

First, the Court addressed the argument that because cannabis is illegal under federal law, there is no “interstate” market for cannabis.  Therefore, the DCC does not apply because Maine was not discriminating against any “interstate” market.  Id. at 547.  The Court rejected this argument, stating that Gonzales v. Raich had established there was an interstate market for cannabis that Congress could regulate, even though that market was illegal.  Id.  The Court also looked to the fact that Congress had passed the Rohrabacher-Farr Amendment, and identical versions every annual congressional appropriation since, which the Court considered a tacit acknowledgement of the interstate cannabis market.  Id. at 547-48.

Second, the Court addressed the argument that because cannabis is federally illegal under the Controlled Substances Act (“CSA”), the DCC offered no protection to such illegal commerce.  Id. at 548.  The Court rejected this argument as well, indicating that the precise question before it was not “whether the CSA preempts the residency requirement,” but rather whether “the residency requirement cannot stand because it transgresses the [DCC] due to the substantial burden that this requirement . . . imposes on interstate commerce.”  Id.  The Court also focused again on how Congress had passed legislation related to state-legal cannabis regimes – including the Rohrabacher-Farr Amendment – since the enactment of the CSA, which reflects that “Congress contemplates both that an interstate market in medical marijuana may exist that is free from federal criminal enforcement and that, if so, this interstate market may be subject to state regulation.”  Id. at 549-550.

Third, the Court addressed the final argument from defendants, which asserted that the CSA evidenced Congress’s intent to “consent to otherwise impermissible state regulation.”  Id. at 550.  After extensive discussion about which legal standard to apply (i.e., whether Congress needed to make a “clear statement” or not on the issue), the Court ultimately determined that Congress did not need to make a clear statement that residency requirements were permissible, CSA notwithstanding.  Id. at 553.

Zooming out, the real thrust of the First Circuit’s decision narrowed in on how the situation of state-legal cannabis is unique. The Court avoided a finding that the DCC did not apply without a clearer statement from Congress on the issue.  In other words, the Congressional intent that could be gathered from the CSA, the Rohrabacher-Farr Amendment, and other cannabis related legislation was mixed and the Court would not interpret this mixed intent as barring application of the DCC.

It is important to note that the First Circuit’s decision was not unanimous and Judge Gelpi dissented from the holding.  Id. at 558.  The dissent focused on the argument that the CSA rendered cannabis illegal, which subsequently bars application of the DCC.  Id. at 558-559.  In other words, the dissent determined that the “fundamental objective” of the DCC was “inapplicable, because Congress has already outlawed the national market for marijuana.”  Id. at 559.  Interestingly, the dissent agreed that the DCC would render the residency requirement unconstitutional, but that the appellees “should not be able to receive a constitutional remedy in federal court to protect the sale and distribution of a controlled substance which remains illegal under federal law.”  Id. at 560.

Overall, the First Circuit decision provides an interesting glimpse into how subsequent cases addressing this issue could be litigated.  It seems most likely that other federal courts will follow suit and continue to find that the DCC prohibits various residency requirements implemented by states with legal cannabis industries.  Although, the dissent does provide some potential for contrary arguments.  Similar DCC and constitutional issues will be raised in the recent Oregon lawsuit seeking to overturn the prohibition on interstate cannabis sales.  And this type of reasoning can also be applied to other controlled substances, including the up-and-coming psychedelics industry in Oregon and in other states.

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New Guidance for Conditional Adult-Use Retail Dispensaries in New York

Authors:
Duncan Delano, Attorney at Emerge Law Group
Brittany Tovar, Law Clerk at Emerge Law Group

On October 28, 2022, the New York Office of Cannabis Management (“OCM”) issued a new guidance document (the “Guidance”) to assist Conditional Adult-Use Retail Dispensary (“CAURD”) licensees plan their operations before OCM adopts formal regulations. We summarize the Guidance below, including most notably, that OCM reversed course regarding where licensees can locate their dispensaries.  Rather than selecting locations for licensees through the Dormitory Authority of the State of New York (“DASNY”), as before, OCM appears now to allow licensees to use their own qualifying properties.

CAURD Licensees May Now Use Their Own Properties.

OCM had previously stated that CAURD licenses “may not be right for” an applicant desiring to use their own property to locate their dispensary.  But now, according to the Guidance: “Certain retail dispensary licensees may be permitted to select the location of the licensed premises or relocate the location of the licensed premises,” reflecting a complete reversal of OCM’s previous position.  The Guidance still lists certain restrictions for qualifying locations, including compliance with local zoning ordinance and the prohibition on locations on the same road and withing 500 feet of a school’s grounds or “community facility.” Further, a dispensary may not be located on the same street or avenue and within 200 feet of a building used exclusively as a house of worship.  Nevertheless, by now allowing CAURD applicants to select their own properties, rather than relying on DASNY to do so for them (that webpage is still loading…), OCM just may be closer to fulfilling its promise to open NY’s first dispensaries this year.

Operations

The Guidance also covers some operational requirements and restrictions.  For example, dispensaries may not operate between 12 a.m. and 8 a.m. without special municipal approval, but municipalities must allow dispensaries to operate at least 70 hours per week.  The Guidance allows for delivery, drive-thrus, and walk-up windows but prohibits customer loyalty programs and neon-colored advertising.  The Guidance also prohibits dispensaries from selling branded apparel and merchandise containing any brand other than their own.

Supply and Inventory

Under the Guidance, CAURD licensees may only purchase their inventory from licensed distributors, which, for now, includes only Adult Use Conditional Cultivators and Adult Use Conditional Processors who were licensed earlier this year and whose first crop is drying at this very moment.  Dispensaries can purchase the product on credit, but payment must be made within 90 days.  The Guidance also outlines an inventory tracking system and mandates initial inventory reporting to OCM.

Additional Covered Topics 

The Guidance also covers safety and security, including surveillance camera and “secure storage” requirements.  It further outlines employee training requirements and ownership restrictions, including the prohibition against simultaneous ownership in both retail and product supply licenses.

The Guidance leaves many questions unanswered, however, including how Social Equity Fund disbursements will be structured and made.  We will continue to monitor OCM’s communications as they evolve (sometimes without notice and at lightning speed).  So stay tuned!

You can find a link to the Guidance here.

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The OLCC’s Latest Proposed Recreational Marijuana Rule Changes Could Significantly Impact Your Oregon Marijuana Business

Authors:
Alex Berger, Attorney at Emerge Law Group
Kristin Stankiewicz, Senior Counsel at Greenspoon Marder

The Oregon Liquor and Cannabis Commission (“OLCC”) periodically updates its recreational marijuana rules, often just to fix technical errors or clarify existing rules. But sometimes those rule changes can profoundly impact the marijuana business.   OLCC’s current draft rule updates propose changes that, if adopted as written, may significantly impact the industry in ways that could be bad for business.  We discuss below the proposed rules that we think may be the most disruptive for the industry.

Conditional Approval Required for Changes to Business Structure – OAR 845-025-1165(3)

OLCC’s current rules allow a marijuana licensee to add or remove any individual who qualifies as an “applicant” (such as certain equity investors) at any time by simply notifying OLCC before the fact. Then, if OLCC finds the added applicant to be unlicensable, the licensee may remove them from its business structure.  Because the current rule allows a licensee to add equity investors immediately, without having to wait for OLCC approval, it has been a life-saver to the industry, which, especially now, needs investment more than ever.

OLCC now proposes to eliminate this rule and require licensees to obtain “conditional approval” prior to the addition or subtraction of an individual applicant.  If adopted, this rule would be a step backward, causing delays for businesses trying to add capital or make management changes.  In years past, before adopting the current rule, OLCC could take six to nine months (or longer) to approve new applicants, slowing licensees’ ability to change and adapt to the market.  Reverting to a pre-approval system, even just “conditional approval,” could again delay capital raising for an already hobbled industry.

Prohibition on “Operating a Licensed Business” Pending a Change of Ownership – OAR 845-025-1170(3)

This draft amendment would prohibit a proposed buyer from “operating” an OLCC-licensed business until the OLCC approves the buyer’s change of ownership application.  Currently,  change of ownership approval can take anywhere from 30 to 90 days. Under the current rules, a buyer may assist with the seller’s business operations so long as buyer and seller comply with applicable OLCC disclosure rules.

Though it’s not entirely clear from the amendment’s language, the proposed rule may inhibit a buyer’s opportunity to work with a seller in the period leading up to a change of ownership. We see no reason that a buyer should not be able to assist the seller in operating its business so long as that person or entity has first been disclosed to OLCC through the standard change of business structure notification process.  Again, this change appears to be a step backwards from OLCC’s current, streamlined licensing approach, and, if adopted, could disrupt purchase and sale transactions and smooth transitions from sellers to buyers in an already volatile marketplace.

Major Changes to OLCC “Combo” Change of Ownership and Location Actions – OAR 845-025-1170(6)(a)

Currently, OLCC allows a recreational marijuana licensee to submit simultaneous change of ownership and location applications, in what the OLCC calls “combo” actions.  Combo actions allow a licensee to sell an OLCC-licensed business to a buyer who can simultaneously move the business to a new location.  This proposed rule would condition a combo action on the seller first requesting to surrender its license before the OLCC assigns the change of ownership application to an investigator.  And the amendment specifically states that OLCC will process the seller’s license surrender even if the change of ownership process is not ultimately completed, which would leave the seller without a license if the sales transaction falls through.  Such a change could reasonably eliminate most, if not all, combo actions, because the seller risks losing its license if the sale doesn’t close.

Regardless of OLCC’s intent, if adopted, the rule may only serve to undermine the efficient sale and purchase of licensed businesses.  To avoid losing its license, a seller would either need to complete a change of ownership first and then a change of location, or vice versa, each of which requires 30-90 days of wait time.  And doing separate change applications would increase the necessary documentation and assumed legal risk (such as entering into a lease at a location where a seller or buyer does not intend to operate).  Of all the new proposed rules, this one may have the most significant impact to OLCC-licensed businesses, and frankly, would likely create significantly more work for OLCC.

Potency Audits and Relabeling Requirements – OAR 845-025-5760(4)

Current rules permit OLCC to require a licensee to submit any of its products to OLCC audit testing.  However, this proposed rule would allow OLCC to require the batch of product to be relabeled at the cost of the licensee if audit testing reveals a “statistically significant difference” in potency (THC/CBD) results from the initial compliance test. OLCC estimates that such relabeling could cost a licensee $10,000-$30,000, though the actual cost would depend on many factors including batch size, labor costs, supplies, etc.

This proposed amendment would effectively permit OLCC to penalize producer, processor, or wholesaler licensees for a lab licensee’s inaccurate potency test results.  In other words, even if a licensee complies with all testing rules, the OLCC may effectively impose a civil penalty on that licensee, which has not committed any violations, if a laboratory provides that licensee with inaccurate potency numbers.

Further, this proposed amendment presupposes audits of fully packaged and labeled products, including, presumably, those products already on retail shelves and available for purchase.  Auditing products when they are already available to the public seems to undermine the point of audit testing in the first place – to protect the public.  Also, from cost and logistical perspectives, audit tests performed after product distribution would necessitate that product’s recall and collection prior to relabeling.

To address these issues, the OLCC could craft a rule in which it conducts audit testing immediately after, or in conjunction with, compliance testing, so that the licensee can label it accurately the first time around.  Crafted that way, the rule would better protect public safety while sparing producer, processor, or wholesaler licensees from penalties based on a lab’s inaccurate results.

Clarification on Retailer Walk-Up and Drive-Through Windows– OAR 845-025-1300(1)(g)

Current OLCC rules regarding retailer deliveries to customers outside the licensed premises seem to conflict in some ways. The rules have always prohibited the delivery of marijuana through walk-up or drive-through windows. At the beginning of the pandemic, however, the OLCC adopted temporary rules to allow the on-site delivery of marijuana within 150 feet of a licensed premises.  These rules became permanent and have been good for retail customers who want a contactless purchase experience.

Under the current rules, retail staff can simply bring the order out to a customer’s car parked within 150 feet of the licensed premises but cannot sell products through a walk-up or drive-through window. To resolve this conflict, OLCC’s proposed amendment removes the prohibition against walk-up windows, but not drive-through windows. Given that retailers may already deliver to customers in cars nearby, the continued prohibition against drive-through windows seems illogical and may prevent retailers from maximizing their efficiency.

Categorization of Rule Violations, Generally

The proposed rule amendments add categories for rule violations that were previously uncategorized.  This is a positive change insofar as it provides certainty for licensees regarding the penalties for different types of rule violations.  However, some arguably minor violations, including some that pose no threat to public safety, carry fairly stiff penalties under the proposed amendments.

For example, pursuant to the draft amendments, the failure to notify OLCC of a temporary business closure lasting 30-days or longer would be a Category III violation (OAR 845-025-1160(5)(a)). Category III violations are considered “violations that create a potential threat to public health or safety,” and OLCC would typically impose a $2,500 fine or a 10-day license suspension for the first violation in a 2-year period. Notably, “temporary business closure” is undefined, so a licensee may not know when it is in violation of this rule.  Other proposed Category III violations include failure to notify OLCC of change in an applicant’s contact information, and failure to notify OLCC of disciplinary action by another governmental entity (such as a county or city) (OAR 845-025-1160(5)(a)).

Have Your Voice Heard!

The above examples, though significant, represent only a fraction of the proposed amendments.  We encourage all OLCC licensees to read these proposed rule changes and let OLCC know what you think about them.  OLCC has scheduled a public hearing on the proposed rules on October 25, 2022 from 10am-11am, and you can provide testimony virtually at that time by visiting the listed event here under the “Recreational Marijuana” meeting schedule:  .

You can also provide feedback to OLCC by sending in written comments to the proposed rules by October 31, 2022, at noon.  Comments should be emailed to OLCC Rules Coordinator Nicole Blosse at nicole.blosse@oregon.gov.

Please do not hesitate to reach out if you have questions or need guidance regarding these proposed rule changes.

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President Biden Pardons Those Convicted of Federal Marijuana Possession

President Biden Pardons Those Convicted of Federal Marijuana Possession; Seeks Review of Marijuana’s Schedule I Status

Yesterday President Biden pardoned all people convicted of marijuana possession under federal law, according to several news outlets.  He also stated that his administration would review marijuana’s status as a Schedule I drug under the federal Controlled Substances Act.

The pardons will clear about 6,500 people convicted of simple possession of marijuana from 1992-2021, and thousands more convicted of possession in Washington, D.C.  Unfortunately, the vast majority of marijuana convictions stem from state laws unaffected by President Biden’s order, but the president did encourage state governors to follow his example.  It remains to be seen whether any governors will follow suit and whether the Departments of Health and Human Services and Justice will seek to re-schedule or even de-schedule marijuana, but this move does represent a long-awaited signal from the Biden administration regarding the overall decriminalization of cannabis and provides relief for thousands of people who have suffered under America’s so-called “War on Drugs.”

This also comes as welcome news to publicly traded cannabis companies, many of whom that have seen significant upticks in stock prices today in response to the president’s actions, showing that today’s events have given some relief to a struggling industry as well as to those directly affected by America’s historically unjust and biased treatment of non-violent cannabis “offenders.”

For more news on this event, see:

https://www.politico.com/news/2022/10/06/biden-to-pardon-marijuana-offenses-call-for-review-of-federal-law-00060796

https://www.cnn.com/2022/10/06/politics/marijuana-decriminalization-white-house-joe-biden/index.html

https://www.nytimes.com/2022/10/06/us/politics/biden-marijuana-pardon.html

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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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New York Fills 2nd and 3rd Seats on 5-Member Cannabis Control Board

Governor Kathy Hochul kicked things off last Wednesday, appointing former Assemblywoman Tremaine Wright to chair the Cannabis Control Board (“CCB”) and former Drug Policy Alliance staffer, Chris Alexander, to be executive director of the Office of Cannabis Management (“OCM”).  By nominating these two leaders, Governor Hochul put the rollout of New York’s cannabis legalization back on track, as the program had languished in the final months of former Governor Cuomo’s scandal-plagued governorship.  Assembly Speaker Carl Heastie continued the momentum this past Wednesday, announcing his appointment of Adam W. Perry to the CCB, and yesterday Senate Majority Leader Andrea Stewart-Cousins followed suit, tapping former State Senator Jen Metzger, an Ulster County Democrat, as the third CCB member to be selected.

Governor Hochul’s two appointments during an “Extraordinary Session” of the New York State Legislature signal her commitment to moving forward with the State’s cannabis legalization, and her choices reinforce New York’s focus on prioritizing racial and economic justice.  Ms. Wright and Mr. Alexander, both black, have worked hard in advocating for equity in the new cannabis market.

Ms. Wright, an attorney, represented New York State’s 56th District in Brooklyn from 2017 to 2020 and was chair of the New York State Black, Puerto Rican, Hispanic and Asian Legislative Caucus.  She has also practiced as a public defender at Brooklyn Law Services.  As Chairwoman of the CCB, Ms. Wright will lead the five-member board as they draft the State’s cannabis regulations, develop the cannabis license application process, and otherwise implement the Marijuana Regulation and Taxation Act (“MRTA”), which Governor Cuomo signed into law in March.

Mr. Alexander was previously the policy coordinator at Drug Policy Alliance, an organization dedicated to reversing the harmful effects of the “War on Drugs” that have disproportionately affected communities of color, and he was later an associate counsel to the New York Senate, where he led the drafting of the MRTA to ensure it included a strong social and economic equity program.  As Executive Director of OCM, Mr. Alexander will oversee the implementation of the State’s cannabis regulatory scheme and administer the program going forward.

As for Mr. Perry, he is an attorney who focuses on employment litigation, with broad experience representing municipal governments and agencies, and he is very involved in the Buffalo community, where he serves as chair of the Citizen Planning Council.  His local government perspective will be particularly useful in developing the State’s cannabis program, where the state and local governments must work together.  Mr. Perry received a ringing endorsement from Majority Leader Crystal Peoples-Stokes, the lead sponsor of the MRTA, stating that Mr. Perry will be committed to upholding the principles of fairness and justice in helping to shape the new industry.

Ms. Metzger is another long-time public servant, serving as town board member in Rosendale and one term as a state senator representing the Hudson Valley’s 42nd Senate District, during which she was the chair of the Senate Agriculture Committee.  Following the announcement of her pick, Ms. Metzger released a statement declaring that she will work hard to ensure the New York cannabis market is environmentally sustainable, equitable, and accountable.  Many believe that she will be a strong advocate for small farms and rural areas.

Governor Hochul must still appoint two more members to the CCB before it is officially seated and can begin the hard task of drafting rules and regulations.  Labor Day is behind us, and there is much work to be done before the adult-use cannabis market opens in the Empire State, but at least now we have four capable leaders to help get us there.

https://www.governor.ny.gov/news/governor-hochul-announces-confirmations-tremaine-wright-and-christopher-alexander-lead

https://nyassembly.gov/Press/?sec=story&story=99037

https://www.timesunion.com/state/article/Senate-Leader-makes-pick-for-Cannabis-Control-16446173.php

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New Jersey’s Cannabis Regulatory Commission Releases its Initial Rules for the Opening of the State’s Adult-use Cannabis Market.

Although this Zoom screenshot may look like just another boring government agency meeting, it was an exciting day in the New Jersey cannabis world yesterday, as the Cannabis Regulatory Commission (the “CRC”) adopted its initial rules for the rollout of adult-use licensing and sales in the Garden State.  Led by Chairwoman Dianna Houenou, the CRC unveiled its long-awaited regulations two days before the August 21 deadline imposed by the law Governor Murphy signed in February.  Ms. Houenou could not help but point out with a smile that they were ahead of schedule, belying the arduous process that has brought us from voter approval in November of last year to the regulatory framework for legalization in New Jersey that was released yesterday.

As we digest and analyze the details of the new rules, it is clear that the CRC took to heart the significant public input that has been lobbied their way since being officially commissioned in April.  In both the regulations themselves and the CRC members’ comments at the meeting, the CRC has emphasized two core values within this regulatory scheme: local control and a commitment to equity.

While the legislation enacted in February gave municipalities the ability to opt-out of having cannabis businesses within their jurisdictions and the right to impose certain operating restrictions, the rules go further in fleshing that out.  Municipalities will not only be able to control the number and types of cannabis businesses that open within their borders, but they can also enact a local 2% transfer tax on sales between cannabis businesses and—perhaps most importantly—weigh in on licensing decisions with the CRC.  As CRC Executive Director Jeff Brown expressly stated at yesterday’s meeting, the CRC will take into account a municipality’s preferences on whose licenses should be approved.  (Pro tip to all you soon-to-be New Jersey license applicants: time to reconnect with your local elected officials!)

The initial rules also emphasize the CRC’s commitment to making the cannabis market in New Jersey a diverse and equitable one that is open to small businesses.   Three types of equity applicants will be given priority in the approval process:  Social Equity Businesses, Diversely Owned Businesses, and Impact Zone Businesses.  Social Equity Businesses are owned by people with past cannabis convictions or who live in economically disadvantaged areas, Diversely Owned Businesses are owned by minorities, women, or disabled veterans (and certified as such by the NJ Department of Treasury), and Impact Zone Businesses are located in Impact Zones, owned by people who live in Impact Zones, or employ Impact Zone residents—Impact Zones are municipalities with a large population, high crime numbers, or high unemployment.  While standard applications will be reviewed on a rolling basis as they are received, these equity applicants jump to the front of the line.

The CRC will also prioritize applications from “microbusinesses,” which are small businesses capped at 10 employees and 2,500 square feet (among other restrictions), as well as conditional licenses, for which the applicant need not designate a site or obtain municipal approval before applying.  Moreover, the CRC has imposed a progressive, graduated fee structure, both for application fees and annual fees, with some application fees as low as $500 and annual fees as low as $1,000.  Some applicants can submit their application for only $100.

Stay tuned in this space for further analysis on the rules as we dig through the fine print, but the takeaway from yesterday is that the CRC has put in a sincere effort to make the New Jersey cannabis market accessible for small businesses and shaped by the municipalities, with a strong focus on social equity.

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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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As More States Embrace Cannabis, One Oregon County Rejects It. Again.

States across the country have embraced cannabis law reform.  The 2020 election brought the total number of states to legalize recreational marijuana from 11 to 15, and the total to legalize medical marijuana from 33 to 35.  One in three Americans now lives in a state that legalized marijuana in some form.  But not everyone wants to live near cannabis.  A surprising exception to this green wave sweeping the nation is in our home state of Oregon.  The voters in Deschutes County, whose county seat is Bend, passed a measure to prohibit additional OLCC-licensed recreational marijuana production and processing businesses and additional OHA-registered medical marijuana processing sites outside city limits, effectively allowing Deschutes County to opt-out of cannabis legalization.

Since Oregon legalized cannabis in 2014, Deschutes County is the first county in Oregon to have initially opted out of the state’s recreational marijuana program at its inception, then opt in to the program in 2016, only to reverse course and opt out of the program again.  However, Deschutes County’s recent opt-out does not mean that it has completely rid itself of all cannabis.  Existing cannabis businesses are not impacted by the opt-out, and new recreational cannabis retail and wholesale businesses are still allowed.  Additionally, while the newly passed measure prevents the establishment of any new recreational cannabis producers and processors, as well as new medical cannabis processing sites, the County has provided some cover for producer and processor applicants who are caught in the middle, i.e., those who have already begun establishing their businesses in the County.

County Ordinance No. 2019-014, which became effective on August 19, 2019, established the opt-out measure that was referred to voters in last month’s election.  County Ordinance No. 2019-015, which became effective October 16, 2019, provides that the ordinance establishing the opt-out remains adopted, but also clarifies that the opt-out does not apply to:

“an applicant who as of the date this Ordinance is in effect has a pending production or processing license application before the OLCC and who applied for County land use approval/LUCS allowing marijuana production and/or processing prior to August 19, 2019.”

The effect of the clarification in Ordinance No. 2019-015 is to “grandfather” producer and processor applicants who had not yet received an OLCC license or County land use approval, but had a pending OLCC application in the queue and applied for County land use approval before August 19, 2019.

Given that cannabis sales in Oregon reached over $1 billion this year, Deschutes County’s decision to preclude additional recreational cannabis producer and processor businesses in its jurisdiction may also preclude a good opportunity for future economic development in the County.  But who knows, the County could decide to change its mind once again.

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Oregon Marijuana Regulatory Roundup

The Oregon Liquor Control Commission (“OLCC”) has been busy over the last couple months working on new rule and policy updates in an effort to address the backlog of marijuana license applications, to speed up their processing timelines, and generally to increase efficiency.  Such efforts have culminated in new application and financial interest disclosure requirements and the new Verification of Compliance (“VOC”) disciplinary policy.

New Financial Interest Disclosure Requirements.

Effective October 15, 2020, OLCC issued new rules and policy guidance regarding updated and less restrictive application and financial interest disclosure requirements summarized in Compliance Education Bulletin 2020-06.  Key changes include:

• Definition of “applicant” revised to include only persons and entities: (1) with 20% direct or indirect ownership of the licensed business; (2) entitled to 20% or more revenue or profits from the licensed business; or (3) with “direct control” over the licensed business.

• For “applicant” entities, only the following individuals also considered “applicants”:
– Managers of a manager-managed LLC;
– Principal officers of a corporation;
– General partners of a limited partnership.

• Updated financial interest disclosure requirements:
– OLCC pre-approval is required before a financial interest is added if the business structure change amounts to a 51% or greater addition of new ownership interest(s) (*A new license application is also still required).
– OLCC notification (no pre-approval) is required before a financial interest is added for the addition or removal of any “applicant” entity or individual.
– OLCC notification is required within 60 days after a financial interest is added for a shareholder accumulating 20% or more stock of a publicly traded corporation or the addition or removal of a principal officer of a publicly traded corporation.
– No OLCC notification required for the addition or removal of any other financial interest-holder (e.g. individuals or entities with less than 20% ownership in the licensed business).

Note that OLCC retains discretion to request additional information and background checks for any financial interest-holder.  Also, if OLCC finds an entity or individual who qualifies as an “applicant” or financial interest holder to be unlicensable, the licensee must remove that entity or individual or OLCC may propose to suspend or revoke the license.  For complete details regarding the application and financial interest disclosure changes, click on the links provided above.

Verification of Compliance (“VOC”) Policy

Effective October 1, 2020, OLCC has implemented a new “VOC” enforcement policy for certain types of rule violations, detailed in Compliance Education Bulletin 2020-05.  The policy gives OLCC inspectors discretion to provide VOC paperwork (similar to a traffic “fix-it-ticket”) that allows a licensee to avoid a formal rule violation and penalty if the licensee can demonstrate to the inspector that they have fixed the compliance issue within a certain period of time.  Violation types subject to the VOC program include the following (so long as the violation can be “fixed” by the licensee):

• Video Recordings: 845-025-1450(2)(a)-(g), (k);
• Cameras: 845-025-1440;
• Seed-to-Sale Tracking w/ CTS: 845-025-7540 (1) and (2);
• Reconciliation w/ Inventory (CTS): 845-025-7580;
• Security Requirements: 845-025-1410; and
• UID Tags: 845-025-7520.

The full Compliance Education Bulletin 2020-05 contains complete explanation regarding the details of the VOC program.

Current Rulemaking

OLCC and the Oregon Health Authority (“OHA”) are each in the process of promulgating rule amendments.  OLCC has initiated rulemaking to implement new rules regarding substances added to inhalable marijuana products – including non-cannabis-derived terpenes.  The current draft of the rule amendments that OLCC is considering can be found here.

OHA has initiated the rulemaking process to update marijuana testing rules, which may result in requiring new tests for certain substances.  The current drafts of the rule amendments OHA is considering can be found here.

The rulemaking process provides for a public comment period in which industry stakeholders and other interested parties can submit written feedback regarding the draft rules.  We recommend you sign up for OLCC and OHA email alerts so that you can be notified when OLCC and OHA will begin accepting public comment on each rule package.

As always, our marijuana and cannabis regulatory and compliance attorneys are ready to answer any questions you may have regarding the new OLCC rules and policies, the current OLCC and OHA rulemaking process, or any other legal compliance questions you may have.

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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: