State Law Round-Up

by Christopher Davis

Oregon

On October 1, 2015, recreational sale of cannabis became legal in Oregon. Oregon residents that are 21 years or older may now purchase up to 7 grams of recreational cannabis at roughly 200 of the 350 cannabis dispensaries originally set up to distribute medical marijuana.  Dispensaries specifically designed to cater to the recreational user will become operational sometime in 2016.

While many dispensaries believe that the legal status of recreational marijuana could greatly increase the volume of cannabis sales, some are concerned that local city and municipal regulation could interfere with business as usual. For instance, the Portland City Counsel passed an ordinance that restricts the house of operation for recreational dispensaries to between 7am and 9pm and prohibits a recreational dispensary from being within 1000 feet of a medical dispensary or a school. However, the ordinance applies to those that hold a Portland City recreational dispensary license, the application for which will not be available until 2016. While the city has asked that dispensaries comply with the spirit of the law and begin to restrict the sale of recreational cannabis in accordance with the ordinance, some dispensaries have recognized that the law does not yet have any legal effect and began selling recreational cannabis at 12:01 on October 1, 2015.

In addition to the restriction that Portland and many other cities, town and municipalities have placed on the sale of recreational marijuana, 33 towns and counties throughout Oregon have already completely banned the recreational sale of Cannabis.

Ohio

On November 3, 2015, Ohio voters will consider a state constitutional amendment, which, if passed, would legalize certain medical and recreational use of cannabis, as well as the cultivation and distribution of the plant. Under the amendment, those that are 21 years of age that have a valid state license would be able to use, possess, grow, cultivate and share up to 8 ounces of cannabis and four flowering plants. Individuals that are 21 that do not possess a license would be allowed to possess, purchase, transport, use or share up to one ounce and individuals with a certified medical condition could use cannabis.

However, the amendment comes with a provision that would give the exclusive right to commercially grow and cultivate cannabis to 10 Marijuana Growth, Cultivation and Extraction Facilities (MGCEs), creating a government-sanctioned monopoly in the cultivation industry. In response, Ohio lawmakers have introduced a competing constitutional amendment to the ballot, HJR 4, which would prohibit constitutional amendments that create monopolies, oligopolies or cartels; specify or designate tax rates; or confer commercial rights that are not equally available to similarly situated persons.  HJR 4 has a specific provision targeted at the legalization of cannabis, which states that any constitutional amendment on the ballot for November 3, 2015 that creates a monopoly will not take effect, in its entirety. This amendment, if operative, could invalidate the legalization of cannabis on all levels in Ohio.

If both amendments pass, it is unclear which will control. The Ohio constitution states that if two conflicting amendments are passed on the same ballot, the amendment with more votes becomes law. However, amendments introduced by Ohio lawmakers become effective immediately upon being passed, while those introduced by citizens, such as the cannabis legalization measure, become effective 30 days after passage. This has some convinced that the anti-monopoly amendment will invalidate cannabis legalization because it becomes effective first.  Ultimately, if both amendments pass, the question will likely have to be settled by the Ohio Supreme Court, as neither side appears willing to back down.

Washington

Beginning October 12, 2015, the Washington State Liquor and Cannabis Board (LCB) will begin accepting applications for state recreational cannabis licenses. Currently, Washington dispensaries are unregulated, but in order to remain operational, those businesses must obtain licenses by July 2016. The Washington health department still plans to craft a regulatory structure for the sale of medical cannabis, but does not have a time frame its completion. Therefore, medical dispensaries may want to obtain a recreational license to ensure that they can remain operational past July 1, 2016. Recreational dispensaries may also apply for a medical endorsement to distribute medical cannabis.

There is currently no limit on the number of licenses available, but priority will be given to those that already operate in the industry and that have paid all applicable taxes and fees in a timely manner. Given that there are nine months until the license requirements become effective, some will prefer to delay their applications in order to continue selling cannabis tax-free. Industry participants should, however, keep the July 2016 date in mind to ensure that there will be no interruption to their businesses as the market transitions to the new regulatory structure. 

Christopher Davis works in Finance, Banking and Securities Law. He is a member of the California and New York Bars.

Historic Medical Marijuana Bill Passes in California

California was the first state to authorize medical marijuana, but for almost twenty years the state has had no detailed regulation, forcing localities to take on the issue though zoning and police powers.  All of that ended today when, after weeks of closed-door, high-pressure negotiations, one bill was finally passed. The Governor has indicated he will sign the bill, which can be found here.  NCBA will be hosting a series of round table discussions to flush out what this means for attorneys practicing in California and those with clients who might be looking to enter the space.  Keep an eye on our Events page for more information. 

Check out the Sacramento Bee's coverage for more on the status of the bill. 

Agreement Reached on Historic Medical Marijuana Bill

Press Release from Assemblymember Bonta. (Sacramento, CA) – Today the California State Assembly reached a historic agreement on a comprehensive regulatory framework for the state's billion dollar medical cannabis industry that will be placed in AB 266 and AB 243. AB 266 is authored by Assemblymembers Rob Bonta (D-Oakland), Ken Cooley (D-Rancho Cordova), Reginald Byron Jones-Sawyer (D-Los Angeles), and Tom Lackey (R-Palmdale), while AB 243 is authored by Assemblymember Jim Wood (D-Healdsburg).
 
This is the first time in the history of California that a medical marijuana regulatory framework has been agreed to by the California State Assembly, the California State Senate, and the Governor’s Office. 
 
“AB 266 is the result of an unprecedented stakeholder process in which my colleagues and I brought everyone to the table, from medical marijuana businesses to law enforcement and patient advocates, to create a comprehensive regulatory framework for the state’s billion dollar medical marijuana industry,” explained lead author Assemblymember Bonta.  “My office and the offices of my joint authors have spent thousands of hours holding stakeholder meetings to refine the bill and incorporate recommendations from stakeholders as well as Assembly leadership and the administration.”
 
California was the first state in the nation to allow for the medical use of marijuana with the passage of Proposition 215 nearly two decades ago, leading the charge ahead of 22 other states and the District of Columbia. However, California still that lacks a comprehensive regulatory framework for the medical marijuana industry. AB 266 will fulfill the will of the voters by creating a regulatory framework to ensure patient access, as well as to protect the environment, public safety, and public health.
 
Assemblymember Jim Wood authored a companion piece to AB 266. “The medical marijuana industry has expanded rapidly and without check in my district because direction from the State has been absent.  This long overdue direction is finally closer than ever.  I am thrilled that AB 243, which is focused specifically on the needs of the north coast, will serve as the foundation of the cultivation language in this year’s marijuana package.”
 
“California is in dire need of a strong bipartisan consensus to manage medical marijuana,” said Assemblymember Lackey, a 28-year veteran of the California Highway Patrol.  “With this bill we are demonstrating that we can bring solutions to complex issues. I am proud that this will pave the way for a comprehensive study of strategies to cut down on marijuana-impaired driving which is a growing problem nationwide. AB 266 will make California a leader in drugged driving identification and prevention.”
 
Assemblymember Jones-Sawyer stated, "In 1996, California became the first state in the nation to allow the use of medical marijuana after voters approved Proposition 215. This unprecedented collaborative effort will finally, after 19 years, regulate the medical marijuana industry. AB 266 creates a regulatory system that respects the interests of local government while still providing a consistent statewide structure."
 
AB 266 creates a regulatory framework for the medical marijuana industry that would require state and local licenses for medical marijuana businesses. A new Bureau of Medical Marijuana Regulation would oversee this multiagency licensing and regulatory effort, relying on expertise from the California Department of Food and Agriculture and the Department of Public Health.
 
Assemblymember Cooley commended the historic nature of the bill. “AB 266 is a historic bill.  It is history-making as policy for its breakthroughs in regulation, public safety, local control and patient access. It is historic too for its method -- active listening by a team of lawmakers and staff who, having opened the door to all groups connected to a devilishly complex topic, find a common center supporting consensus. AB 266 exemplifies ‘never-say-die’ lawmaking; its passage makes it 2015’s Little Engine That Could!” 
 
Bonta concluded, “On the first day of session, the Assembly sent a clear message that this would be the year to regulate medical marijuana. Today we fulfilled that promise. I am honored to be a part of this bipartisan legislative collaboration making California once again a leader for our patients."
 
AB 266 will be referred by the Senate Rules committee to a policy committee shortly.

From NCBA Newsletter: September 2015

Cannabis Banking

by Christopher Davis

On July 9, 2015, Senator Jeff Merkley (D-OR) introduced a bill to the US Senate that would allow legitimate marijuana businesses to obtain banking services from federally regulated banking institutions. The Senate legislative proposal tracks the language of a bill introduced to the US House of Representatives by Member Ed Perlmutter (D-CO) on April 28, 2015.

Currently, since marijuana remains illegal on a federal level, banks that serve the marijuana industry risk severe federal penalties, including sanctions, fines related to money laundering, revocation of FDIC insurance, and forfeiture of assets. As a result, many legitimate cannabis businesses that are organized under and adhere to state law must run their businesses on a cash basis, which both invites crime and increases the difficulty and expense of running a legitimate business.

Under the proposal, federal banking regulators would be required to allow federally regulated banks to provide banking services to the cannabis industry, provided that the businesses being served are in compliance with state law. Federal regulators would be prohibited from revoking FDIC insurance from banks for providing financial services to the marijuana industry, discouraging or prohibiting banks from dealing with individuals or businesses in the industry, or offering incentives to avoid providing financial services to the industry. Banks would be able to lend to participants in the marijuana industry without interference from federal banking regulators, and banks’ legal interests in collateral would not be subject to forfeiture even if directly used in the marijuana industry. Depository institutions themselves, as well as their officers, directors, and employees would also be shielded from liability for solely providing banking services to those that operate in the industry.

The House Bill currently has 27 co-sponsors, 26 of which are Democratic, and can be viewed at https://www.congress.gov/bill/114th-congress/house-bill/2076. The Senate Bill currently has 6 co-sponsors, consisting of four democrats and two republicans, and can be viewed at https://www.congress.gov/bill/114th-congress/senate-bill/1726.

The Senate proposal comes almost exactly one year after the House of Representatives passed the Heck Amendment, which would have prohibited the Securities Exchange Commission and the Treasury Department from spending money to penalize banks for working with the cannabis industry. The Heck Amendment, however, was never considered by the Senate.

Christopher Davis works in Finance, Banking and Securities Law. He is a member of the California and New York Bars.

Tougher Penalties for California’s Cannabis Cultivators

by Marc Shapp

On August 7, 2015, California Governor Jerry Brown signed Senate Bill (“SB”) 165 into law, significantly widening the scope of the type of environmental violations subject to penalties, and sharply constraining the discretion of the Department of Fish and Wildlife (“DFW”) to impose those penalties.  Cultivators of controlled substances (e.g., cannabis) in California have always been subject to civil fines for certain environmental violations, such as illegal stream diversions or releases of petroleum.  In particular, Section 12025 of the Fish and Game Code imposes fines on cultivators over and above whatever penalties those environmental violations already carry.  But the dramatic increase in the number and size of grow-sites—coupled with the severe, ongoing drought—has prompted a response from government authorities.  In the words of the new law’s author, commercial-scale cannabis grow-sites “leav[e] behind devastating impacts on the terrestrial and aquatic habitats they occupy. . .  In 2014, DFW found over 135 dams or diversions in rivers and streams, equating to close to 5,000,000 gallons of stolen water.”  In other words, SB 165 was passed to increase the reach and potential sting of the added fines under Section 12025.

Prior to passage of SB 165, Section 12025 of the Fish and Game Code authorized DFW to impose civil penalties for certain violations of the Fish and Game Code in connection with the production or cultivation of controlled substances, including cannabis.  The new law makes two important changes:  (1) in addition to the Fish and Game Code violations, Section 12025 also now imposes penalties of up to $40,000 per violation for sections of the Penal Code and the Public Resources Code; and (2) penalties in connection with violations occurring on private lands legally owned or leased by the cultivator are now mandatory.  The first change expands the list of covered activities to include instances of the dumping of waste or hazardous substances, the illegal removal of plants or vegetation, the unlawful taking of game, or the destruction of forested habitats without timber harvest permits.  The second change removes DFW’s discretion to impose these penalties, even when the land in question is owned, leased, or otherwise legally occupied by the cultivator (previously, only cultivators who were trespassing on public or private lands were subject to mandatory penalties).  Notably, Section 12025 does not distinguish between indoor and outdoor grow-sites.

This development is just one of a number of recent moves by the various branches of California government to tighten environmental protections related to cannabis cultivation.  For example, on August 13, 2015 the North Coast Regional Water Quality Control Board (“Regional Board”) adopted the state’s first regional water quality regulatory order “to protect the environment from discharges of waste associated with cannabis cultivation.”  The Central Valley Regional Board is currently working on a similar order.  Meanwhile, in June 2015 the California Assembly passed AB 243, which contains amendments to the Health and Safety Code and the Water Code to address the environmental impacts of medical cannabis cultivation statewide.  AB 243 is now wending its way through Senate committees, and in its current form could bring comprehensive environmental regulation to the cannabis cultivation industry as soon as next summer. These measures ultimately will subject cannabis cultivation to industry-specific environmental standards.  In the meantime, with SB 165 on the books DFW now has a bigger hammer than ever to bring down on cultivators who violate the current rules.

Marc Shapp is an associate in the San Francisco Bay Area office of Hunsucker Goodstein PC, a national environmental law firm.  Marc practices in the environmental law, litigation, and insurance coverage practice areas.  He represents a wide range of clients on matters concerning soil, air, and groundwater contamination in litigation and regulatory matters.

 

 

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