The shredding of the Cole memo last month leaves the cannabis industry in an uncertain regulatory environment.
Industry-wide anxiety of this sort can sometimes breed business disputes that wind up in litigation. Besides being expensive, defending a lawsuit from a business partner, investor, supplier, or employee can be a major distraction from your business goals.
If tensions are simmering in your company, maybe it’s time to address any legal loose ends governing your business relationships. Virtually every lawsuit ever filed could have been avoided had the parties identified sources of conflict early and attempted to resolve their differences.
Here are some key questions to help identify whether legal issues may be bubbling beneath the surface of your cannabis business.
U.S. Attorney General Jeff Sessions today rescinded the Cole Memorandum, which had directed the federal justice department to de-prioritize the prosecution of federal marijuana laws in states where the use of marijuana has been legalized under state law if state enforcement procedures were in line with certain specified law enforcement priorities.
The Executive Director of the Oregon Liquor Control Commission is spreading good cheer this holiday season by issuing a “Winter Holiday Checklist” to all recreational marijuana licensees. The Checklist includes a list of regulatory violations that the OLCC is seeing on a regular basis, and a reminder of the OLCC’s enforcement authority to address these violations. One might criticize the Director for being a bit of a Scrooge by warning licensees that they are subject to investigation and enforcement action (which can include license revocation) for violations of OLCC rules. However, the Director is actually providing an early holiday gift with this Checklist, because he is providing all licensees with advance notice of those areas where the OLCC is going to pay particular attention to confirm compliance. Those areas include the following
A fundamental rule of contract law is that “illegal” contracts are not enforceable. But what constitutes an “illegal contract”? Generally speaking, an illegal contract is one where the performance of the contract results in an illegal act. Illegal contracts are considered “void and unenforceable,” meaning neither party can sue the other party for nonperformance of the contract.
What if a tenant enters into a commercial lease that contemplates illegal activities by the tenant on the property? This is the situation for many tenants who are leasing property for cannabis operations. In many cases, the activity may be properly licensed and permitted under state recreational marijuana laws, but the activity is illegal under federal law (such as the Controlled Substances Act). A recent Arizona Court of Appeals case addressed this issue directly.
All eyes in the medical cannabis industry are watching a December deadline faced by Congress. A short-term funding deal signed into law on September 8 by President Donald Trump not only kept the government running, it also preserved an existing provision known as the Rohrabacher-Blumenauer Amendment that prohibited the Department of Justice from interfering with state medical marijuana laws. That deal will expire on December 8, and Congress will have to approve a new version of the amendment if the protections are to remain in the next spending bill.
The Financial Crimes Enforcement Network (“FinCen”) issued a Marijuana Related Business update in June with data from the first quarter of 2017. FinCen reports that the number of depository institutions that are actively banking marijuana businesses increased to 368 by the end of March of 2017. This is an approximate 22% increase from the end of March 2016. FinCen has received an increasingly large number of suspicious activity reports (“SARs”) from banking institutions for marijuana businesses.
The Washington State Liquor and Cannabis Board (“WSLCB”) recently issued a declaratory order (Order No. 01-2017) finding that the WSLCB is not required to determine that an applicant for a marijuana license is in compliance with all local zoning and land use ordinances prior to granting a license for a marijuana business. Accordingly, applicants and licensees should continue to check with their local jurisdiction to understand the jurisdiction’s zoning and land use regulations. Absent such confirmation, it is possible that an applicant could receive a marijuana license from WSCLB but not be able to operate in its WSLCB-approved location due to a local jurisdiction’s zoning or land use ordinances.
On May 16, 2017, Washington Governor Jay Inslee signed GOP-sponsored Senate Bill 5131 to allow Washington State to be the first state in the nation to create a program to certify cannabis products as organic. The new law creates a voluntary program for the certification and regulation of organic cannabis products (both recreational and medicinal) to be administered by the Washington State Department of Agriculture (WSDA). The WSDA is now working on creating the rules for the new program and has stated that it will likely take several months to as long as a year before the rules are complete and certifications are handed out.
In two years, Oregon’s legalized recreational marijuana industry has gone from non-existent to a thriving industry, with over $60 million a year in total sales and over 400 licensed retailers. Despite the growing popularity of legalized recreational marijuana, no states have provided for the public consumption of marijuana. Oregon is considering changing that with SB 307. This measure would permit the Oregon Liquor Control Commission, the state’s regulatory body for cannabis sales, to issue permits for temporary events and for “cannabis lounges”. These permits could be issued if a county or city agrees to allow such permits in their jurisdiction.
This is just a reminder that we will be hosting a free half-day seminar for Oregon cannabis businesses this Thursday, May 18 at the World Trade Center in Portland. The program, titled Growing Up Green: Learning How to Blossom in Oregon’s Budding Marketplace (co-hosted by Garvey Schubert Barer, ACT Resources, PLLC, and Mosaic Insurance Alliance), will provide information on what every cannabis license holder needs to know, including attracting investors, employment, real estate, insurance, taxes and lessons learned from the Washington market. Additionally, the OLCC’s Portland Metro Public Safety Manager will be on hand to discuss regulatory issues and answer your questions.
The complete agenda is available on the seminar's event page on our website.
Date & Time
Thurs. May 18, 2017
Registration: 12:30 - 1:00 pm
Program: 1:00 - 4:20 pm (followed by a hosted networking social)
Two World Trade Center (Mezzanine Room 3/4)
25 SW Salmon Street
Portland, OR 97204
Foster Garvey’s Cannabis practice group comprises a premier legal counsel team who provides a full range of legal services such as regulatory compliance, marijuana licensing, business finance, contracts, labor and employment, health care, real estate, intellectual property, litigation and dispute resolution, technology and tax. Our team possesses deep and diverse industry experience and has counseled clients across virtually all industry sectors. We understand the inherent challenges that licensed marijuana and ancillary businesses in Washington state, Oregon and Alaska are burdened with in this highly regulated industry as they deal with onerous state and local regulations as well as uncertainty resulting from federal law.
We are committed to helping our clients achieve their business goals while navigating the intricacies in this rapidly changing area of law. We prize innovation and entrepreneurship, and closely monitoring industry trends.