By a 19-9 vote, the Oregon Senate has passed Senate Bill 582, which authorizes the Governor to enter into agreements with other states for the purposes of “cross-jurisdictional coordinate and enforcement” of marijuana-related businesses and “cross-jurisdictional delivery of marijuana items” between Oregon and other states. The bill moves to the House where it has bipartisan support, and the Governor is expected to sign.

So what does this mean for Oregon cannabis businesses? For now, not much. There are at least two additional obstacles before marijuana import/export can start. First, SB 582 becomes operative only on the occurrence of either: 1) the amendment of federal law to allow for the interstate transfer of marijuana, or 2) the U.S. Department of Justice (DOJ) issues an opinion or memorandum “allowing or tolerating” the interstate transfer of marijuana. Second, SB 582 contemplates an “agreement with another state,” which means that another state would have to pass similar enabling legislation, and the two states would then have to negotiate an agreement.

As to the federal issue, there are a few existing paths forward. Elizabeth Warren (D-Mass.) and Cory Gardner (R-Colo.) recently reintroduced the STATES Act, which would carve out state law-compliant cannabis activity from the Controlled Substances Act. Agreements of the kind contemplated by SB 582 could be legal if the STATES Act passes. Alternately, a Cole-like memorandum from the DOJ “allowing or tolerating” interstate commerce isn’t out of the question — U.S. Attorney General William Barr is on record favoring reform of federal cannabis laws.

As to the state issue, Oregon is the first to advance this kind of legislation this far. While others may follow, interstate commerce raises a host of issues affecting intrastate cannabis industries. As we’ve written about here, Oregon faces a significant oversupply of adult use cannabis, and would benefit from the ability to export it. Growers in other states might feel differently, and there could well be lobbying in the other direction as other states’ cannabis industries come online, mature and organize.

Stay tuned here for the latest, and as always, our Cannabis team is standing by.

The Washington State Legislature recently wrapped up its 2019 legislative session on April 28.  Before adjourning, the Legislature passed a number of cannabis bills.  Those bills included:

HB 1792: (Pending Governor’s signature.) Adds new crime. It would be a gross misdemeanor for a cannabis retail employee to knowingly sell cannabis products to a person under the age of 21 in the course of their employment. Existing law requires charging the employee with a felony or dismissing the charges.

HB 1794: (Pending Governor’s signature.) Expands permitted activities of a cannabis licensee to include licensing arrangements for trademarks protected by any state or foreign law. Current law is limited to trademarks protected by federal law or Washington State law.

The bill also expands permitted terms for IP licenses to include:

  1. Flat rates if the fee does not exceed 10 percent of the business’s gross sales of licensed products;
  2. Flat rates calculated based on time or milestones;
  3. Exclusivity or qualified exclusivity of the IP;
  4. Quality control and oversight provisions necessary to protect the IP;
  5. Enforcement obligations of the licensee;
  6. Covenants to use the IP; and
  7. Assignments of IP improvements made by the licensee to the licensor

IP arrangements that exclusively contain permitted provisions are exempt from the requirement that the licensor qualify for a cannabis business license, but such agreements must meet applicable regulatory recordkeeping requirements.

HB 2052: (Pending Governor’s signature.). Establishes cannabis science task force to consider lab standards and report to the Legislature no later than July 1, 2020. Clarifies testing lab accreditation requirements and delegates rulemaking authority to the LCB.  Shifts responsibility for lab accreditation requirements from the LCB to the Department of Ecology (starting in 2024). Gives the Department of Ecology authority to assess and collect fees to cover costs.

SB 5298(Pending Governor’s signature.) Labeling changes. Requires LCB to establish new labeling rules and criteria effective January 1, 2020. Requires labeling cannabis products with the disclaimer that certain claims or statements regarding the use of such cannabis product have “not been evaluated by the State of Washington. This product is not intended to diagnose, treat, cure, or prevent any disease.”

SB 5318: (Pending Governor’s signature.) Reforms compliance and enforcement of cannabis licensees.  Gives authority to the LCB to issue a “notice of correction” license compliance matters that have no direct or immediate threat to public safety.  Requires LCB to adopt and expand current compliance education programs.  Requires LCB to give substantial consideration, for purposes of mitigating any penalty, where a licensee develops training programs, internal controls that are designed to prevent such violations giving rise to the penalty, and the licensee has not ignored the violation or other similar violations in the past.  Gives administrative law judges authority to consider mitigating and aggravating factors when hearing contested cases, and gives them the authority to deviate from any penalty proscribed by rule.

HB 1094: (Signed into law.) Compassionate care for medical patients.  Permits remote medical examinations for medical cannabis patients meeting certain requirements.

HB 1095: (Signed into law.) Requires school districts to permit students that are medical cannabis patients to consume cannabis-infused products on school grounds, on school buses, or while attending school-sponsored events.  School policy must:

  1. Require the patient’s parent or guardian to administer the medical cannabis;
  2. Establish protocols for verifying student’s medical patient status, and
  3. Identify locations on school grounds where parents or guardians may administer medical cannabis.

Permits state superintendent of public instruction and schools to suspend implementation if implementation may reasonably jeopardize future federal education funding.

 

An amended version of Senate Bill 218 passed the Oregon Senate earlier this week by a vote of 18-10. SB 218 provides that the Oregon Liquor Control Commission (OLCC) may, “based on the supply and demand for marijuana, refuse to issue production licenses…for an amount of time that the commission determines necessary.” As we reported several weeks ago, a previous incarnation of SB 218 failed to pass the Senate, with Republican legislators decrying the bill as “socialism” and an attack on the free market.

SB 218’s advocates have apparently found a cure for socialism, in the form of a sunsetting amendment that automatically repeals SB 218 on January 2, 2022. Opposition remains, but the amendment was enough to win five additional votes, more than enough to pass the Senate. The bill now moves to the House for consideration. If it passes, Governor Kate Brown is expected to sign it.

How the OLCC would implement this ability is an open question. Per his testimony before the Senate Rules Committee, OLCC Director Steve Marks anticipated promulgating temporary rules whereby the OLCC would continue processing pending production licenses so long as they had already been assigned investigators. Unassigned applications would remain in the queue with the ability to be “processed in the future if circumstances change.” If executed as Director Marks proposed, this would have significant practical consequences for applications submitted in the days leading up to June 15, 2018. As of late April 2019, the OLCC was assigning applications received June 11, 2018. However, there were at least 100 applications submitted after this date. On the OLCC’s current timeline, some of these may not be assigned to an investigator until mid- to late-Summer. SB 218 may very well be implemented before then, putting many June 2018 applicants on uncertain ground.

We are monitoring SB 218’s progress through the Oregon legislature and will continue to provide updates and analysis. In the meantime, if you have questions about a pending application, our Cannabis Team can assist.

We are proud to announce that our Cannabis Team is one of 14 Lane Powell teams recognized in the 2019 edition of Chambers® USA: America’s Leading Lawyers for Business.

The team was described as a “pioneer in the cannabis industry,” and regarded as a “leader in regulatory matters and optimal business structures.” In granting Band 1 status (the highest tier of recognition), Chambers® noted that its sources commented: “the team is highly responsive, has extensive experience and expertise, is extremely proactive and efficient,” touting our team members as “true business partners” that add “long-term value at every level and area of our organization.” We are further recognized as a “high-class team in the Pacific Northwest” representing clients “who have emerged as cannabis industry leaders.” Leading individuals named in this area include our very own Ben Pirie in Oregon and Barry Abbott in Washington. We have continued our commitment to the cannabis industry since we participated in the submission process last year, with recent hires Josh Ashby and Sativa Rasmussen, and fully expect to see additional members named next year. Learn more about our team.

Today’s passage of Senate Bill 5276 marks an important milestone in hemp legislation for the state of Washington. The bill still requires additional signatures before taking effect, however, most view the remaining process as administrative rather than substantive at this point.

Below are a few highlights regarding the points of interest that seem to come up most frequently.

Hemp in Food, Including Extracts (e.g,. CBD)

The bill allows hemp to be used as food. The Washington State Department of Agriculture (WSDA) will have the authority to regulate the processing of hemp as a food ingredient. Although the final version of the bill did not include language that would have prohibited hemp being treated as an adulterant in food, fortunately, language that could have significantly impaired the production of hemp intended for food products also didn’t make it into the bill.

Seeds and Propagule Sourcing

Licensed producers will no longer be limited to Washington or foreign sources for either seeds, clones, or other propagules — an immediate practical effect is the ability of Washington state growers to buy seed from Oregon sellers.

Controlled Substance Exclusion for Hemp

Hemp is specifically excluded from the definition of a controlled substance, and, the definition of hemp includes the derivatives of hemp (e.g., CBD). This means that CBD extracted from hemp will not be a controlled substance under Washington law.

Replaces Industrial Hemp Research Program

The new bill takes effect immediately, however, the pilot program created under the 2014 Farm Bill, and anyone licensed under the pilot program, will have through January 1, 2020, to migrate to the new program. This timeline has not been particularly controversial but is faster than would otherwise be required under the 2018 Farm Bill, which extends state pilot programs up to 12 months following adoption of the new USDA default rules expected early next year.

WSDA Will Be the Regulating Authority

The new rules will be implemented and then administrated by the WSDA, not the Washington State Liquor and Cannabis Board.

New Bill Takes Effect Immediately

Not only will this legislation immediately take effect, but the WSDA is required to implement new regulations under the expedited rulemaking process. The anticipated timeline for new rules is expected to accommodate a 2019 harvest cycle.

Testing Procedures Using Reliable Methods

The WSDA will not be limited to post-decarboxylation — the practical effect will be to greatly expedite the WSDA’s capacity to analyze whether plants are in compliance with the 0.3 percent limit on delta-9 tetrahydrocannabinol (THC). The application of heat during the testing process would not be allowed.

 Cross-Pollination, Buffer Zone Eliminated

There will be no minimum required buffer zone between recreational marijuana producers and hemp growers. Instead, the WSDA will consider any credible scientific evidence that may be presented in the future or examples of specific instances of cross-contamination and respond accordingly. The bill specifically vests a first-in-time right with whichever operation was there first in the event that a conflict arises.

If you have any questions on the new bill, please do not hesitate to contact a member of our Cannabis Team.

 

There’s a lot of exciting news coming out of the cannabis industry today! First, the Washington State Legislature unanimously passed Senate Bill 5276, authorizing hemp production in conformance with the agriculture improvement act of 2018 (more on that coming soon). Then the U.S. Department of Agriculture (USDA) announced that the Plant Variety Protection Office (PVPO) — which provides intellectual property protection to breeders of new varieties of seeds and tubers — will begin accepting applications of seed-propagated hemp for plant variety protection. Applications can be submitted online through the PVPO’s application filing system by choosing “Hemp” in the “Crop Kind” dropdown box. To learn more about how to file an application, view the USDA’s announcement.

 

If cannabis licensees needed any reminder, Division Three of the Washington Court of Appeals has confirmed that the Washington Liquor & Cannabis Board (LCB) is not required to defer to local zoning laws when deciding whether to issue cannabis licenses. The issue arose from a petition to LCB by Kittitas County that argued the LCB’s licensing decisions are subject to local zoning regulations because LCB issues site-specific cannabis licenses. The LCB denied the petition, but the Kittitas County Superior Court had reversed and ordered the agency to only approve licenses that comply with local zoning. Division Three’s decision reversing the superior court’s ruling should clear up any uncertainty about LCB not making licensing decisions based on local zoning.

The appeal focused on the meaning and scope of the directive in the Growth Management Act (GMA) that state agencies are required to comply with local comprehensive plans and development regulations. Kittitas County argued the LCB is a state agency and, therefore, the GMA requires the LCB to adhere to local zoning restrictions. Several cities and counties joined in the petition because their experience indicated some cannabis license applicants do not understand that an LCB license does not override local zoning. At least one city said it spent more than $35,000 in legal fees to enforce a local zoning code against a cannabis business that received licenses in conflict with local zoning.

The LCB argued that the GMA restriction applies only to actions by a state agency in its proprietary capacity as a developer or operator of a public facility. The LCB argued its licensing decisions, including site-specific cannabis licenses, do not involve a state agency acting in its proprietary capacity. The LCB also argued that complying with the superior court order would result in an unprecedented involvement of the LCB in local land use regulations.

Division Three agreed with the LCB. The court said issuing cannabis licenses is not a siting activity because the licenses do not confer final authority to open a cannabis site. LCB regulations specify a license holder must comply with local laws, including zoning requirements before opening their doors. The court said, “Zoning restrictions remain in full force regardless of whether a license is issued. The [LCB]’s decision to issue a license in a zoning-restricted area may mean the license will have little utility. But nothing in the limited nature of the [LCB]’s license changes local development plans or undermines the GMA’s policy of coordinated development.”

Kittitas County also argued that LCB had to consider local zoning because the cannabis statute requires LCB to notify local governments of cannabis license applications and renewals, to allow an opportunity for input, and to give substantial weight to objections from local government authorities based on concerns regarding chronic illegal activity. The court said the statute requires only communication with local governments, but not compliance with local zoning laws. The court noted that while there is no statutory requirement to issue a cannabis license in conformance with local zoning restrictions, there also is no prohibition on the LCB doing so. Nevertheless, the court said that discretion is up to the LCB or the legislature, and is not for the courts.

This is not likely to be the last word on this issue. Although the LCB does not appear inclined to revise its regulations, the counties and cities probably are motivated to press the legislature for changes in either the GMA or the cannabis statute. In the meantime, cannabis licensees need to be aware that an LCB license does not override any local zoning restrictions.

On April 10, the Oregon Senate failed to pass Senate Bill 218, and instead referred it to the Rules Committee. As proposed, the bill would amend current law and delegate rulemaking authority to the Oregon Liquor Control Commission (OLCC). If the bill passes as written, the OLCC would obtain the authority to refuse to issue production licenses for an amount of time the OLCC deems “necessary.” The OLCC’s authority under the bill would not extend to a current licensee’s request for a change of location or to a “new” license application triggered by an ownership change.

Senate Minority Leader Herman Baertschiger Jr. decried the bill as “socialism” and “a stab at capitalism in pure form” to the Associated Press, and said that the state “should let the free market dictate prices.” Cannabis sits in a liminal space between its countercultural roots and its new incarnation as an agricultural commodity. The 17 “Nay” votes included 12 Republicans, Mr. Baertschiger among them, underscoring the strange bedfellows that this transition can sometimes create.

You might recall that during the spring of 2018, the OLCC announced it would “pause” review of new license applications starting June 15, 2018. This announcement created a rush for many would-be industry participants to submit applications prior to the OLCC’s deadline. Further, the pause applied to all license types — not just production license applications. The proposed bill, however, would only apply to production licenses and not extend other license types.

Executive Director of the OLCC, Steven Marks, claimed that a pause was necessary “to ensure that the OLCC is fulfilling its regulatory duties and providing timely responses to businesses in the industry.” Another argument for the pause was that “it takes significant staff time and resources to complete marijuana license renewals.” Unstated, but commonly understood, is that the OLCC recognized the misalignment of supply and demand in the Oregon cannabis market, and “paused” licensing to slow down the growth of new production canopy without exceeding their statutory authority. The intent of SB 218 is to give the OLCC this authority.

If SB 218 fails to become law, then we anticipate the OLCC will either reverse its prior decision to pause the processing of new applications or face legal challenges. The current statutory regime prohibits the OLCC from unreasonably delaying license review. ORS 475B.060(1). As noted above, the OLCC has no explicit statutory authority to cap the number of licensees. Current authority is limited to regulating aggregate canopy size under ORS 475B.085. If the bill fails, the OLCC could potentially grant new licenses, grandfather all existing licensees’ canopy size, and restrict all new licensees to a nominal (or zero) size.

The OLCC could also increase licensing fees or establish new fees to regulate supply. Nationally, the annual fee for a cannabis business license ranges from several thousand dollars to several hundred thousand dollars.  Oregon’s licensing fees are among the lowest in the country. While new or increased fees would likely face similar pushback as SB 218 from both industry stakeholders and Republican legislators, the OLCC is within its authority to do so. As noted above, both Executive Director Marks and the Oregon Secretary of State auditors are on record about the problems created by the OLCC having insufficient resources to effectively administer and oversee Oregon’s cannabis market.

In our March 15 post, we discussed the Secure and Fair Enforcement (SAFE) Banking Act of 2019 (H.R. 1595), which would, among other things,  limit federal banking regulators from taking action against banks providing services to cannabis businesses operating legally under state or tribal law. On March 28, the bill passed the House Financial Services Committee by a vote of 45-15 with three amendments added, the most important of which would apply the protections to insurers as well as to depository institutions. The bill now goes to the full House for a vote. While it is anticipated that the House will adopt the bill, there remains a relatively low chance to pass the Senate, although the environment there is subject to change.

In addition, the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act was reintroduced in both the House and the Senate of the 116th Congress on April 4. The bill, which appeared in the last Congress, would amend the Controlled Substances Act to protect people complying with state legal cannabis laws from federal intervention.

While there is bi-partisan support for both bills, whether they will proceed, and how quickly, especially in the Senate, remains unclear. It does appear that President Trump would be willing to sign one or both of the bills into law, if they passed, but this is likely something that will be subject to the final texts adopted.

 

Today, the Washington Hemp Law passed out of the Executive Committee on Commerce and Gaming with an industry-supported amendment regarding legal human consumption of hemp and hemp-derived products such as CBD. The amended language of the bill represents a significant step forward for the State of Washington in the emerging hemp industry.

Lane Powell Cannabis Team members authored and advocated for language specifically adopted into the bill.

Next steps for the bill include resolving language with the Senate version before it’s sent to the Governor’s desk for final signature. Many people in the industry will celebrate this as a significant step forward.