Oregon Marijuana Laws: The Status of Residency Requirements After HB 3400 (Part 1)

Ballot Measure 91 intentionally did not include any residency requirement for anyone who owned or who was otherwise involved with a licensed marijuana business. Since 2014, the Oregon Medical Marijuana Act (“OMMA”) required the person responsible for (“PRF”) a medical marijuana facility (“MMF”) to be an Oregon resident. However, because there was no requirement that the PRF had to be an owner of the MMF, OMMA never contained any residency requirements for anyone who owned an MMF. OMMA did not license growers or processors, and so those businesses were never subject to any residency requirements.

House Bill 3400, which was signed by the Governor on June 30, 2015, has changed all of that.

Ballot Measure 91

For Ballot Measure 91 businesses, HB 3400 imposes a two-year residency requirement. Who exactly needs to be a resident? Unfortunately, we don’t know yet because the legislature has, somewhat surprisingly, delegated that decision to the Oregon Liquor Control Commission (“OLCC”).

For producers, processors, wholesalers, and retailers, HB 3400 requires that “an applicant listed on an application” must have been an Oregon resident for two years. See Sections 12, 14, 15, and 16. Who has to be listed on an application? HB 3400 doesn’t say. And that’s how the legislature has, in a rather subtle way, delegated the decision to the OLCC.

For some context, the OLCC has defined “applicant” under the Oregon Liquor Control Act (the “Liquor Act”) to include all of the individuals and legal entities who own or have an interest in the business. For each corporation or other legal entity, this means: (1) each principal officer; (2) each director; (3) each person or entity who owns or controls 10% or more of the entity’s stock or who holds 10% or more of the total membership interest in the entity or whose investment interest is 10% or more of the total investment interests in the entity; (4) each manager of a limited liability company; and (5) each general partner of a limited partnership. The Liquor Act does not contain any residency requirements however. And so that rather broad definition of “applicant” in the Liquor Act is solely for other purposes, including criminal records checks.

The exact language in HB 3400 for residency purposes is a bit peculiar. The phrase “an applicant listed on an application” is unique and does not appear in the Liquor Act. The phrase seems to contemplate that a Ballot Measure 91 application, like a Liquor Act application, will include a list of one or more individuals and legal entities. And the phrase “an applicant” could indicate that only one of those must be an Oregon resident. (The legislature easily could have said “each applicant listed on an application” must be a resident, but it didn’t.) The “an applicant” phrase can also be compared and contrasted to the criminal records provision in HB 3400, which states that the OLCC may require the fingerprints of “any individual listed on an application.” See Section 10. And finally, there’s some oral legislative history from Representative Ann Lininger, where she states that the definition of “applicant” for residency purposes was not intended to apply to every investor, but rather was intended only to include a person who “directly manages” the business. See Representative Lininger’s testimony at the 1:12 mark.

Still, at this time, the only thing we know for sure is that at least one individual listed on each producer, processor, wholesale, and retail application must have been an Oregon resident for two years. Presumably we will know more when the OLCC publishes the initial draft of its rules under Ballot Measure 91.

Handlers

Individuals who perform work for or on behalf of a Ballot Measure 91 marijuana retailer must obtain a permit from the OLCC. HB 3400 does not impose any residency requirements for such individuals. See Sections 19 and 20.

Laboratories

Laboratories that test marijuana items (under both Ballot Measure 91 and OMMA) must be licensed by the OLCC. HB 3400 does not impose any residency requirements for anyone who owns or who is otherwise involved with a licensed laboratory. See Sections 92(7) and 93.

OMMA

HB 3400 imposes residency requirements for medical marijuana producers, processors, and dispensaries that will be registered by the Oregon Heath Authority (“OHA”).

For medical marijuana producers, the residency requirement applies to: (1) the PRF of the marijuana grow site; and (2) any other person whose name is included in the application. See Sections 81(2)(b) and 173(1). Other than the PRF, HB 3400 does not say who has to be listed on a medical marijuana producer application. Therefore the legislature has, for medical marijuana producers, delegated to the OHA the decision of who exactly needs to be a resident.

For medical marijuana processors, the residency requirement applies to each individual responsible for the marijuana processing site. See Section 85(2)(b). This language is slightly different from the PRF language for medical marijuana producers, although the reasons for the difference are not evident. And for some reason, Section 173, which adds the potentially broad “any person whose name is included in the application” language, does not apply to processors.

The residency requirements for medical marijuana dispensaries are the most stringent. For dispensaries, the residency requirement applies to: (1) each individual responsible for the medical marijuana dispensary; and (2) each individual who has a “financial interest” in the dispensary. See Sections 86(2)(a), (b), and (d) and 173(1). The term “financial interest” is not defined in HB 3400, and so the OHA will presumably define the term in its rules. However, by the plain meaning of the term, the definition would almost certainly include each direct and indirect individual owner of the business, and perhaps even unsecured lenders, third parties whose compensation is based on a percentage of revenues or profits, and others.

The residency requirement for the PRFs and the individuals responsible for the registered sites is two years. For medical marijuana producers and retailers, the residency requirement for all other persons included in the application is two years, unless a person first registered with the OHA on or before January 1, 2015, in which case it is one year. See Section 173(1).

Operative Dates

HB 3400’s residency requirements for Ballot Measure 91 businesses become operative on January 1, 2016. See Section 178(1).

HB 3400’s residency requirements for medical marijuana businesses become operative on March 1, 2016. See Section 179(1).

What to Do

If your business is seeking an investment from one or more out-of-state investors, or if your business already has one or more out-of-state owners, and if you haven’t already discussed the issue with us, contact us today to do so. Additionally, if your business is made up entirely of out-of-state owners, and if you haven’t already done so, you should begin searching for one or more Oregon residents who you might be willing to make a co-owner.

Stay tuned to our blog, as we will post any updated residency information when we receive it.