Posts Tagged:OLCC

Home / Tag: OLCC
image title

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.

Continue Reading
image title

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.

Continue Reading
image title

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.

Continue Reading
image title

Oregon Beer Franchise Law

By Russell Rotondi, Shareholder

One of the most important relationships a beer supplier or brewery will enter into is with that of its wholesale distributor.  As such, the malt beverage distribution agreement is one of the most important contracts for the brewery and wholesaler alike.  In Oregon, like many other states, this relationship is highly regulated.  But unsuspecting breweries, especially start-ups, are often unaware of the pitfalls of entering into a supplier-wholesaler relationship without understanding the statutory and administrative law that works behind the scenes to the supplier’s disadvantage.

It should be noted at the outset that Oregon law provides that as an exception to its tied-house rules (i.e., prohibition against suppliers, wholesalers or retailers in owning a financial interest in one another), Oregon malt beverage suppliers licensed as a brewery-public house (BP) are allowed to self-distribute up to 7,500 barrels of the beer it brews per year.[2]  For context, of the reporting U.S. breweries in 2021, greater than 92% of them produce fewer than 7,500 barrels of beer per year (one barrel equaling 31,000 gallons).[1]

That said, what if a supplier (of any size) wants to focus on plying its beer-making craft and intends to rely on a third-party wholesaler for its distribution needs?  Unfortunately for suppliers, most U.S. state legislatures have placed their thumb on the scale to create what this author considers to be an unfair advantage to wholesalers with respect to the supplier-wholesaler relationship.

This interventionism from state legislatures was originally justified as protectionism by the state in favor of smaller, local distributors dealing with larger, often multi-state, breweries (e.g., Anheuser-Busch) importing their beer into local jurisdictions and taking advantage of the “little guy.” However, in the beverage industry of 2022, distributors have become the large, often multi-state, operators, and the suppliers are often craft brewery start-ups that would traditionally benefit from such protectionism.  In other words, over the years, the balance of power has shifted one-hundred and eighty (180) degrees.

Alcohol franchise law is the body of state law that serves to govern the relationship between two contracting licensee parties.  In the case of the supplier-wholesaler relationship, it is this author’s opinion that franchise laws often distort the free market relationship to restrict the ability of a brewery to leave its distributor.  Even worse, suppliers are often unaware of the imbalance of power created by franchise law when entering into such relationships.

In Oregon, the relevant statutes are contained in Oregon Revised Statutes (ORS) §§ 474.005-474.115.  Some of the highlights of Oregon’s beer franchise law are as follows:

  • Wholesale distribution agreements must be in writing (ORS § 474.007);
  • Good cause is required for a supplier to terminate, cancel or fail to renew a distribution agreement and distributors have an opportunity to cure and take corrective action for 90 days (ORS § 474. 011);
  • In the event of a termination by supplier that is not for good cause, or in bad faith, the distributor is entitled to compensation from the supplier pursuant to “fair market value” (ORS § 474.011) and the supplier has the burden to prove it acted reasonably (ORS § 474.075);
  • There are limited grounds for supplier to terminate without providing an opportunity to cure (ORS § 474.015);
  • Successors in interest are bound by such agreements (ORS § 475.025) and a supplier may not unreasonably interfere with the transfer of a wholesaler (ORS § 475.045); and
  • The territory of the distribution agreement must be designated in writing and filed with Oregon’s relevant regulatory agency, the Oregon Liquor and Cannabis Commission (OLCC) (ORS § 475.115).

While on its face, the statutory provisions may seem innocuous, but given the generous cure period, the economic consequences of “fair market” compensation, and the totality of statutory protections for the distributor, state alcohol franchise law, and specifically Oregon’s beer franchise law, often serve to grant the distributor indefinite and typically exclusive rights to sell a supplier’s products, no matter the distributor’s performance (good or bad) in the relationship.  This leaves an opening for distributors to abuse the system to the detriment of suppliers.

Before an Oregon brewery enters into a relationship with a third-party wholesale distributor, it should familiarize itself with Oregon’s beer franchise laws and consult an experienced attorney to understand its rights, what material terms are dictated by statute even if contrary to the terms of a written agreement, and what material terms are open for negotiation and on what commercially reasonable terms.

[1] Oregon Revised Statutes (ORS) § 471.200

[2] https://www.ttb.gov/beer/statistics

Continue Reading
image title

The Potential Expansion of OLCC Marijuana License Moratoria: A Look at House Bill 4016

A bill – HB4016 – was recently introduced in the Oregon Legislature’s 2022 short session, which, if passed with one or more amendments, could provide the Oregon Liquor and Cannabis Commission (“OLCC”) with the discretion to stop issuing new marijuana producer, processor, wholesaler, and retailer licenses.  The initial version of the bill would also provide the Oregon Department of Agriculture (“ODA”) the ability to issue new hemp grower licenses.

Perhaps most controversial, the bill could also make the moratoria on the above license types retroactive to January 1, 2022.  In other words, OLCC and ODA could be required to inactivate applications for the above license types that were submitted on or after January 2, 2022.  If the bill passes with those provisions intact, that could have serious financial consequences for folks who have purchased or leased property and invested money in a marijuana business for which they submitted on application on or after January 2, 2022.  Such folks would have their applications inactivated and could only secure a new license by purchasing an existing licensed business (the bill does not affect changes in ownership or renewals).  One amendment would repeal the moratoria on March 31, 2024, which presumably would mean applicants could submit new applications starting in a little over two years.

Other bill provisions and amendments provide for the ability for OLCC to establish a program to assign expired or surrendered licenses to “qualified applicants” (which we understand means license applicants who qualify under a to-be-created social equity program), subjecting illegal hemp premises to liens for cleanup and removal of industrial hemp, employees of OLCC marijuana licensees to report suspected sex or human trafficking, and earmarking additional funds to combat illegal marijuana operations.

The legislature will hold a second public hearing on HB 4016 on February 7, 2022, and, although remote testimony is no longer available for the hearing, written testimony may be submitted until 8 am on the morning of February 8, 2022.  If HB 4016 affects you and you would like to submit written testimony, you may do so here.

Continue Reading
image title

Oregon Cannabis: Key OLCC Rule Amendments Open for Public Comment

Last week the Oregon Liquor Control Commission (“OLCC”) published two proposed rule amendment packages – the “Marijuana Licensing Streamlining” and “Marijuana Violation Reclassification” packages.  The former contains several rule changes generally designed to make licensing processes, such as initial licensure, changes of business structure, etc. easier and faster.  The latter decreases the categories of certain violations and alters the required timelines to provide OLCC with certain notifications.

Both packages are open for public comment until March 22, 2021 at 5 pm, so now is the time to make your voices heard!  Comments on the open rules can be submitted by email at OLCC.rulemaking@oregon.gov.  If you’d prefer to provide oral testimony, you may do so for the Streamlining amendments at the virtual public hearing on March 15 at 1 pm; the Violation Reclassification hearing is scheduled for March 16 at 2:30 pm.  OLCC asks that you notify them via the above email address if you wish to testify at either hearing.

The proposed amendments will affect every licensed marijuana business in the state, so, if you’re a licensee, it’s certainly worth reviewing them.  Some key changes include:

*The creation of a “Licensee of Record,” which means the licensee or licensees listed on the actual physical license;

*Making permanent OLCC’s new definition of “applicant,” which includes 20% or greater direct or indirect owners of the licensed business, those entitled to 20% or more profits or revenue of a licensed business, and persons with an “ownership interest” in the business, as well as some others.

*Allowance for producers to change their production type once per license year, i.e., indoor to outdoor,;

*Extension of the timeline to notify OLCC of an arrest or conviction from 24 to 72 hours;

*Requiring licensees to maintain a list of individuals and legal entities who are “applicants,” complete information about the ownership structure of any “applicant” legal entity, and a list of all individuals and entities entitled to receive any portion of the revenue, proceeds, or profits of the licensed business;

*Extension of the timeline to notify OLCC of surveillance equipment failure from “immediately” to 24 hours.

For complete versions of the proposed amendments, click on the links above.  Even if OLCC is not proposing to change a certain rule, any rule within the amendment package is open for public comment, so if you’d like to see changes that haven’t been proposed, you may advocate for such changes in your public comment.

Please let us know if you have any questions about thee proposed amendments, how they might affect your business, or how to submit public comments.

Continue Reading
image title

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.

Continue Reading
image title

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.

Continue Reading
image title

Key OLCC Amendments Going Into Effect on February 1, 2020

The Oregon Liquor Control Commission (“OLCC”) recently published several amendments to its regulations that will go into effect on February 1, 2020.  If you operate an OLCC-licensed recreational marijuana business, some of these amendments may have a significant effect on your operations.  Please see our summary below of the key changes.  We strongly recommend that you carefully review all rule changes listed on the OLCC website here.

  • “Financial interest” definition expanded to include adults who share the same permanent address with an applicant or licensee.
  • “Points of ingress and egress” definition expanded to include “any point that may be reasonably used by an individual to enter into an area,” including “windows,” “crawlspace access points,” and openings whether or not those points are secured by a locked door, window, or means capable of being unlocked or unsealed by a key, code, or other method intended to allow access.”
    • This expanded definition may require increased camera coverage for locations that were not previously considered “points of ingress and egress.”
  • Producers who do not own the property on which their premises sits must obtain and submit a form to OLCC signed by the owner of the property consenting to production of marijuana on the premises.
  • Pending applications of all license types may no longer change ownership prior to licensure.
  • If a licensee loses access to its licensed premises, OLCC may allow a change of location of the licensed premises if licensee submits notice at least 15 days prior to loss of access, removes all marijuana items prior to loss of access, is not under investigation for suspected violations, can prove legal access to new property within 30 days of loss of access, and submits a Land Use Compatibility Statement (“LUCS”) for the proposed location.
  • Trade sample limits increased (check rules for precise amounts) and there are new Metrc requirements for designating trade samples.
  • New Metrc requirements for providing employees with quality control samples.
  • Retailers may now store marijuana items – except for immature plants – in a locked, secured location within a limited access area not visible from outside the premises (rather than in a safe or vault).
  • All cameras now required to have minimum resolution of 1280×720 px and record at 10 fps regardless of coverage location.
  • Canopy Areas:
    • If using a racking system, total canopy area of mature plants is measured to include each layer of plants as a separate canopy area.
    • Canopy areas (up to 20 total for immature and mature canopies) must be clearly demarcated with a physical boundary, wall, or marker at the outermost edge or each corner of each designated canopy space.
    • Producer licensed for at least one year may now request an increase in tier at any time after the first license year (rather than only at renewal).
  • Producers now must, within 45 days of harvest, record moisture loss by marking the harvest as complete in Metrc.
  • Changes to UID tag procedures (consult appropriate rule for details).
  • Reconciliation of inventory and weights with Metrc may now be completed by 8 am the next day (rather than the same day).
  • Licensees may now transport marijuana items during a period of 60 hours, including overnight stops. Consult appropriate rule for further changes to transportation requirements.
  • Potential fines have increased depending on license and violation type (consult appropriate rule for details).

If you have questions about any rule changes or any other compliance questions, please contact one of Emerge’s compliance experts.

Continue Reading
image title

Your Chance to Provide Input to OLCC on Proposed Rule Amendments

On November 1, 2019, the Oregon Liquor Control Commission (“OLCC”) released proposed amendments to the recreational marijuana rules and the significant changes would affect every licensee if approved. We encourage you to read the proposed amendments to see if and how they might affect your business.

Also, this is one of the few times during the year when you can make your voice heard by OLCC.  You may submit your comments regarding the proposed amendments (and any rule that contains any amendment) by emailing them to patrick.owen@oregon.gov no later than December 1, 2019.  You may also have your comments heard in person during a public hearing held on November 15, 2019 from 9am – 11am at OLCC’s headquarters in Portland.

Below is a short summary of some of the major proposed amendments, however, you should check out the full draft amendments for a comprehensive view of all the proposed changes. Keep in mind that these amendments are only proposed and are likely to change after the public comment period and hearing.  As always, please contact Emerge Law Group if you have any questions about how these proposed amendments may affect your business.

  • Financial Interests
    • The definition of “financial interest” would be broadened to include “domestic partners” who merely “share the same regular and permanent address and would be financially effected [sic] by the success or failure of the business,” not just adults who qualify for a “domestic partnership” under Oregon law.
  • Pending Application Transfers
    • Pending OLCC applications may not undergo a change of ownership prior to licensure (this rule would presumably only affect changes of ownership of 51% or more). This rule would be expanded to include all license types, not just producers.
  • New Application Deadlines
    • Applicants who submit applications after January 1, 2020 would have 60 days to “complete” the application process or have their applications placed in the “hold queue” for an indeterminate time period.
    • If an applicant cannot meet the 60-day deadline after the application is reassigned from the hold queue, the application would be “inactivated” (withdrawn).
    • Approved license applicants would have 30 days to submit payment of the license fee or the application would be inactivated.
    • If an application is inactivated, the applicant has 10 days to submit a written request for reconsideration (that may or may not be approved).
    • OLCC has authority to place an assigned application in the hold queue to “balance staff resources.”
  • Loss of Access to Premises
    • Licensees who will lose access to their licensed premises may be able to move their premises – if they can meet certain requirements – without losing their licenses.
  • No Tax-Free Sales to Patients
    • Retailers would no longer be able to sell marijuana items tax-free to OMMP patients and caregivers but may still sell to patients at a discounted rate or free of charge.
  • Fine Increase
    • Fine amounts for violations would double.
  • Camera Coverage
    • Required coverage would increase to certain “points of ingress or egress” that formerly did not require coverage.
    • All cameras would be required to capture at 10 frames per second.
  • Retailer Product Storage
    • Products would no longer have to be stored in a safe or vault during non-operating hours if storage meets other security requirements.
  • Extension of Allowable Transport Time Period
    • Product transport between licensees could be completed within 60 hours and allow overnight pauses in transport.
Continue Reading

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: