Maybe, just maybe, sanity will surface in our nation’s capital — at least with respect to states’ rights in the cannabis space. Pressure from Colorado Republican Senator Cory Gardner seems to have convinced Donald Trump that he can’t sit by while Attorney General Sessions threatens the industry, at least in those states where cannabis has been legalized.

On June 7, 2018, a supermajority of the Washington Legislature blessed financial institutions and accountants providing services for the licensed marijuana industry.[1]

The new law is comfort legislation for a special class in Washington. It is also a protest against impressions about the threat of federal prosecution. But what comfort is the legislation for persons falling outside the protected group? Does it provide any comfort or is it the proverbial cold comfort? The answer may be economics and politics (limited funds to target violent crime, federal/state relations and votes) should reduce the threat of prosecution, regardless of the new legislation.


The new state law had broad support; supermajorities passed the law, 81 percent in the senate and 85 percent in the house.[2]

Public safety and other policies. The law targets the public safety problem caused when licensed businesses move cash in 80-pound duffel bags and thieves drill through roofs to steal the stored cash. Overlapping policies support the law:

  • The adage (less cash, less crime);
  • The elimination of the black market;
  • The promotion of transparency and traceability of funds; and
  • The promotion of access to banking and regulated financial services.

Public testimony and lawmakers’ statements.[3] Who supports the Comfort legislation? The support was wide spread.  The Northwest Credit Union Association supported the law. Three credit unions serve the industry and provide almost $1 billion in safe banking. The testimony emphasized the public policies listed above along with the stringent compliance requirements and due diligence for each transaction, and the risk of prosecution for money laundering. Additional policies were the promotion of small marijuana businesses, health research, the protection of employees of the licensed marijuana businesses to have bank accounts and credit cards rather than cash, especially the young, entry-level workers who may be unfamiliar with the financial services world.

Washington Association of Sheriffs and Police Chiefs supported the law as amended. Their support rested on the “incredible public safety issue” stemming from the amount of cash from the industry that was not safeguarded in a financial institution.

The staff summary of the public testimony was:

Washington needs to shut down the black market for marijuana and get cash out of the marijuana market. Having financial services that are traceable would improve the regulation of the industry. Previously, there was federal guidance for financial institutions interacting with the regulated marijuana industry. However, recent guidance by the federal government has caused uncertainty regarding providing financial services to the marijuana industry.[4]

The sound bites from the hearings included:

  • Important first step.
  • Step in the right direction.
  • Can’t wait for the feds to act.
  • Position for time when action is taken by Congress.
  • Eliminate some of the uncertainty resulting from the Sessions memo.

Testimony alluded to one bank stopping services to the industry after the Sessions memo.

But why did the lawmakers feel the need to adopt special legislation when the number of financial institutions nationally reporting that they served state licensed marijuana businesses rose from 340 to 400 by September 2017?[5]

Continue Reading 2018 Washington State <em>Comfort Legislation</em> for the Financial Industry and Accountants Dealing With Licensed Marijuana Businesses

Josephine County responded aggressively to a recent adverse decision by the Oregon Land Use Board of Appeals (LUBA), bringing suit against the State of Oregon to invalidate the state’s marijuana laws.  The complaint, filed April 3, 2018, argues that the federal Controlled Substances Act (CSA) preempts Oregon’s recreational and medical marijuana schemes.

The LUBA decision remanded a Josephine County ordinance that would have restricted marijuana production on significant portions of land in the county.  The decision was made on procedural grounds and left open several substantive challenges, one of which dealt with the county’s authority (or lack thereof) to retroactively prohibit marijuana production.  The county seeks to resolve this issue outside of LUBA by addressing ORS 215.130(5)—which protects existing land uses that were “lawful” when started—in its lawsuit.  The county asserts that ORS 215.130(5) does not apply to marijuana production, which is prohibited by the CSA.

The county asserts that the state requires it to “allow,” “facilitate,” and “accommodate” marijuana production in violation of the CSA.  Measure 91, which legalized recreational marijuana in Oregon, allowed local jurisdictions to opt out so long as 55% or more of local voters voted the measure down.  Voters in Josephine County voted no by a very narrow margin (17,313 to 17,311), making the county unable to opt out.

The county’s preemption arguments could have broad impact, implicating both recreational and marijuana legalization schemes throughout the nation

Attached is an interview in the recently issued Royal Society of Arts Journal with the distinguished and controversial UK psychiatrist and neuropsychopharmacologist Professor David Nutt, currently the Edmond J. Safra chair in Neuropsychopharmacology at Imperial College London. Professor Nutt, Cambridge and Oxford trained, has held significant positions in the UK and the USA, including being a National Institute of Health Section Chief in Maryland for two years. He was the Chairman of the UK Advisory Council on the Misuse of Drugs and, in 2009, was fired from that position by the Home Secretary for his stated position, in The Lancelot, that the harm of certain drugs, including marijuana, has been exaggerated. In any event, this is an interesting interview that will likely be little seen in the US.

In Cossins v. Josephine County, issued March 14, 2018, the Oregon Land Use Board of Appeals (LUBA) remanded a recently adopted ordinance to Josephine County.  The ordinance, No. 2017-002, would have restricted marijuana production on land zoned Rural Residential to lots and parcels larger than five acres, effectively prohibiting marijuana production on anything less than a double lot on much of Josephine County’s Rural Residential land.  The ordinance was also intended to apply retroactively, putting existing producers out of business.

Several producers petitioned LUBA to review the ordinance, raising procedural and substantive challenges.   LUBA held that the ordinance met the statutory definition of “rezoning,” which required advance, individual, written notice to affected landowners, and which notice the county failed to provide.  LUBA remanded the ordinance to the county with instructions to provide the required notice and to conduct at least one additional hearing after such notice.

The producers also argued that the ordinance was “unreasonable” and in violation of ORS 215.130(5), which prohibits land use ordinances from having retroactive effect.  In light of the procedural error, LUBA did not reach these two substantive issues.

LUBA has exclusive jurisdiction to review all governmental land use decisions in the state of Oregon.  This is its second opinion addressing a marijuana-related land use decision since the legalization of recreational marijuana.  In its first, Diesel v. Jackson County (2016), LUBA found a complete ban on marijuana production on land zoned Rural Residential to be “reasonable” because more than a million acres in the county were still available for marijuana production.  Various statutes allow local governments to place “reasonable” conditions on the manner that marijuana is produced and “reasonable” limitations on the location of marijuana production.

These decisions highlight the evolving nature of marijuana-related land use regulation and illustrate the need to review the local political climate in addition to any land use regulations already in effect.

Marijuana Perception and Legalization

 Once upon a time, Americans viewed marijuana as a dangerous drug leading to serious addiction and crime. According to the 1936 cult classic movie Reefer Madness, “women cry for it and men die for it.” Over time, the perception that marijuana is a dangerous gateway drug has changed dramatically, notwithstanding Attorney General Jeff Session’s views to the contrary. According to a Pew Research Center survey conducted in October 2017, 61 percent (about six-in-ten) of Americans believe marijuana should be legalized. According to that same survey, 56 percent of Baby Boomers (those 54 to 72 years of age) support marijuana legalization. This same group will soon be populating senior housing and care communities. In fact, in Oregon, the majority of the medical marijuana users are between 60 to 64 years of age.

The legalization trend is also on the rise. As of January 2018, recreational and medical marijuana is legal in eight states — Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington — plus the District of Columbia, and 22 states have legalized medical marijuana.[1]

Marijuana and Senior Care and Housing

Marijuana use in senior housing, such as assisted living communities and nursing homes, poses unique challenges. First, allowing marijuana use in facilities and communities could subject owners and operators to serious enforcement remedies under the Controlled Substances Act (CSA), which classifies marijuana as a Schedule 1 Drug (the same classification as substances like heroin and LSD). Second, nursing homes and assisted living communities also face complex risk-management issues when they allow marijuana use. Some of which we discuss below.

Nursing homes are particularly at risk as they are regulated by both federal and state law.  Because marijuana remains illegal under federal law, nursing homes that permit marijuana use and storage on its premises could be exposed to significant enforcement actions. Under CSA, anyone who knowingly possesses marijuana, leases, rents or controls a place where marijuana is used can be subject to criminal prosecution, forfeiture of assets, such as vehicles, real property and leasehold interests. Furthermore, if the nursing home accepts Medicare, it must comply with certain federal requirements necessary to continue its participation under Medicare. One of those requirements is compliance with federal law. By permitting marijuana use, a nursing facility risks losing its Medicare certification — often its primary source of reimbursement. Consequently, most nursing home operators do not permit any marijuana use on its premises.

While assisted living communities are also subject to CSA, many in Oregon, Washington, Colorado, California and other states where marijuana is legal, do permit the use of medical or recreational marijuana. Often these communities view the use of marijuana as a resident-right issue, and some states, such as California and Colorado actually provide state regulatory guidance on use of marijuana in communities.

Risk Management Issues

If an assisted living community is planning to or already does allow marijuana use, it should be wary of the following issues.

Storage and AdministrationUnder state regulations, assisted living communities are required to store and administer medications to residents, or if self-administered, must confirm that residents can safely store and consume medications. Medical marijuana comes in various forms and there is no standardized dosing. Communities should at minimum, evaluate a resident’s ability to consume/ingest marijuana and ensure others cannot access the marijuana by providing locked storage units.

Primary Caregivers. Some medical marijuana laws (such as those in Oregon and Washington) permit a medical marijuana patient to designate a primary caregiver who can possess and store marijuana on behalf of the patient. A primary caregiver can be owners and staff members of an assisted living community.  Due to the risk of theft, loss and possible enforcement action, we recommend communities have clear written policies for both staff and residents that no assisted living community employee shall serve as a primary caregiver.

Care Planning. Developing and regularly updating an individualized resident care plan is at the heart of assisted living. Because marijuana may affect judgment, interfere with medications, lead to loss of balance/coordination, increase appetite or have other side effects, a community must have robust protocols to assess marijuana use in residents. Failure to do so could lead to significant regulatory citations and even malpractice liability.

 Usage Areas. Most laws legalizing marijuana ban use in public places, including hallways, community areas or visible locations. Clean-air laws also ban smoking or vaping inside public buildings or places of employment. A community should either develop policies limiting where a resident can use marijuana or, to help avoid potential liability, simply ban smoking or vaping of marijuana.

Mobility Devices. Mobility devices can pose difficult challenges on their own, adding marijuana impairment exacerbates that challenge. At a minimum, communities should require residents who use mobility devices to inform the communities if the residents plan to consume marijuana.  The community should assess interventions to reduce the risk of harm to the residents and others. These may include removing electric scooters or wheelchairs until such residents are no longer impaired.  

Best Practices

 Some best practices include:

  • Inform residents at or before admission about your marijuana policies. Surprises are not good in this industry;
  • Assess a resident before use of marijuana to establish a baseline. Care planning is key to minimizing your risk. Consider whether you need a negotiated risk agreement;
  • If a medical marijuana patient, obtain proof of registry card;
  • Inform your staff and residents that you do not permit staff to act as designated caregivers;
  • Do not permit your staff to administer or store useable marijuana, unless required by state law;
  • Do not permit residents to store marijuana plants at your community; and
  • If you allow marijuana, provide state informational brochures about safe and legal marijuana use.

Regardless of whether your community or facility permits marijuana use, it should have robust written policies and procedures addressing the use and storage of marijuana and take into account the risk management issues discussed above. For more information, including additional best practices, please do not hesitate to contact us.

Postscript: Gabi Sanchez provides additional thoughts on the topic in Senior Housing News’ April 19 post titled “Senior Living Providers Can No Longer Blow Off Pot Policies.”

[1]Marijuana Legalization by the Numbers,” CNN (January 4, 2018)

The Washington Court of Appeals Division II has ruled that Clark County can lawfully ban the retail sale of marijuana within its unincorporated areas. In a unanimous decision issued on March 13 in Emerald Enterprises, LLC v. Clark County, the court rejected arguments that the Washington Uniform Controlled Substances Act (USCA) preempts a Clark County ordinance banning the retail sale of recreational marijuana in unincorporated areas so long as the federal government listed marijuana as a controlled substance. The USCA codified Initiative 502 and legalized the limited production, processing, and sale of recreational marijuana in Washington. The court said the USCA does not grant retailers an affirmative right to sell marijuana, it does not authorize retail stores in the unincorporated areas of every county, and it does not prevent a county from prohibiting retail recreational marijuana sales.

The court’s ruling is the first appellate decision in Washington state on this issue and follows an earlier Washington Attorney General’s opinion that the USCA does not preempt local government action and that local governments retain the authority to enact bans on marijuana sales. The decision also is consistent with the Washington State Liquor and Cannabis Board’s regulations that explicitly provide for local governments to retain zoning authority.

In addition to Clark County, four other Washington counties (Franklin, Klickitat, Walla Walla, and Yakima) and 77 cities prohibit retail marijuana sales.

In our last installment, we discussed the reasons why Oregon’s cannabis sales tax should not apply to cannabis seeds. So what do you do if you believe that a retailer wrongfully charged you sales tax on seeds or any other cannabis item? There’s a law for that!

Oregon Revised Statute (ORS) 475B.740 requires that cannabis retailers return taxes imposed on a sale that is not taxable upon written notice from the Oregon Department of Revenue (ODOR). The relevant ORS on the refund process is not clear or easy to follow. However, the Oregon Legislature granted ODOR broad authority to establish rules and procedures regarding the cannabis sales tax — and it did just that.

ODOR created Oregon Administrative Rule (OAR) 150-475-2060, which provides the relevant how-to of the specific process a consumer must follow for obtaining a refund of excess taxes paid, as follows:

  1. Within 30 days from date of sale, the consumer requests a refund in writing to the retailer by mail or hand delivery. The request must include the retailers (i) name, (ii) the nature of the excess tax paid, (iii) the remedy requested, and (iv) the receipt clearly identifying the date of purchase and proof of payment.
  2. If within 60 days of the request the retailer does not return the excess tax paid, then the consumer may appeal to ODOR within 120 days of the date of the original request for a refund.
  3. ODOR must refund excess cannabis sales taxes upon satisfactory proof that (a) the consumer paid an excess tax to the retailer, (b) the excess tax was not refunded, and (c) the consumer made a timely request for a refund.

One small problem: ODOR believes the sales tax equally applies to seeds and immature plants, (i.e., ODOR concluded the sales tax on seeds is legal). So don’t hold your breath waiting for ODOR to voluntarily send you a check.

Once you’ve exhausted these options, you are left with the Oregon Tax Court. The Tax Court is the sole, exclusive, and final judicial authority for questions of law and fact in Oregon. The Tax Court is broken into two separate divisions — the magistrate and the regular divisions. Cases typically start at the magistrate division and may later be appealed to the regular division. A taxpayer that is unhappy with a regular division decision may appeal to the Oregon Supreme Court.

A taxpayer appeals the failure of ODOR to issue a refund by filing a complaint against ODOR with the Tax Court no later than 90 days following the decision to deny the request for refund. With any luck, the Tax Court will agree with our position that the cannabis sales tax does not apply to seeds. As the saying goes, there are only two certainties in life — death and taxes.

One more thing. Even if you win, you’ve probably lost. ORS 305.490 requires that taxpayers pay a filing fee for each complaint or petition. The current filing fee is $265. The statute also provides for the recovery of costs and reasonable attorney’s fees in limited circumstances. However, those circumstances are generally limited to situations involving an individual’s request for a refund for a tax measured on net income and property tax matters. Costs and reasonable attorney’s fees are not recoverable in sales tax matters.

Takeaway for Consumers

ODOR probably got it wrong in concluding that the cannabis sales tax applies to cannabis seeds. Anticipating a challenge to their weak position, ODOR has created a number of onerous obstacles for anyone willing to challenge their authority.  Fighting ODOR on this issue is probably not worth the cost. A consumer spending $100 on seeds this spring will generally pay $20 in sales tax. Getting that sales tax refunded requires that you jump through the hoops noted above. If the retailer and ODOR refuse to make the refund, then you’re stuck paying $265 to recover $20 — creating a loss of at least $245, because the $265 cannot be recovered under current law. This doesn’t begin to account for the time and effort involved jumping through all of these hoops. The only way we’ll ever know if ODOR got it wrong is if someone is willing to take up the fight on principal. Even then, a win in Tax Court probably means the Oregon Legislature will “fix” the law in a future legislative session. If this happens, we can only hope that the Legislature will be kind enough to expand recovery of costs and reasonable attorney’s fees to sales tax matters.

Takeaway for Seed Retailers

Be wary of refunding any taxes to your customers because you can be held liable for not collecting and remitting the tax.

The Oregon Department of Revenue (ODOR) recently issued a permanent administrative rule relating to the retail sales tax imposed on certain marijuana items. OAR 150-475-2100. The rule itself provides guidance to retailers on how certain types of marijuana items should be classified and how such items should be subject to the retail sales tax imposed on them. However, the administrative rule reaches beyond the statutory language adopted by the Oregon Legislature to suggest that, somehow, cannabis seeds are subject to the retail sales tax. Prepare yourself for a bit of legal analysis and simple logic. Let’s take a look at how ODOR got it wrong.

The Law

The Oregon Revised Statutes (ORS) cannabis tax rules are codified in ORS 475B.700 through ORS 475B.760. ORS 475B.700 contains the relevant definitions for the cannabis tax. The provision includes definitions for the terms “cannabinoid product,” “immature marijuana plant” and “useable marijuana.” Each of these terms are defined by reference to their definition under ORS 475B.015.

ORS 475B.705 contains the enabling language and the tax rates. It states that a tax is imposed on “the retail sale of marijuana items” in Oregon. The tax is imposed on the consumer, but withheld and remitted by the retailer. ORS 475B.705(2) imposes a 17-percent tax on the retail sales price of several marijuana items, including “immature marijuana plants” and cannabinoid products other than those intended to be used by applying the product to the skin or hair.

ODOR’s Administrative Rule

ODOR adopted Oregon Administrative Rule (OAR) 150-475-2100 regarding the retail sales tax imposed on certain cannabis items. The rule states that the definitions found in ORS 475B.015 apply the terms used in the rule and that “seeds” are taxed at the rate in ORS 475B.705(2)(c).

Getting It Wrong The Legal Analysis

The Oregon statute covering the retail sales tax begins by creating defined terms. There is nothing inherently wrong with doing this. In fact, ORS 475B.700 creates defined terms not otherwise used by chapter 475B. However, it fails to do something important. It fails to incorporate the many defined terms found in ORS 475B.015. The defined terms found in ORS 475B.015 only apply to ORS 475B.010 through 475B.545. Among the terms incorporated are cannabinoid product, immature marijuana plant, marijuana items and usable marijuana.

Let’s jump to the low hanging fruit. ORS 475B.015(24)(a) defines the term “marijuana seeds” to mean “the seeds of the plant Cannabis family Cannabaceae.” The definition of “marijuana seeds” is not carried over to the tax section by virtue of ORS 475B.700. It’s glaringly omitted. OAR 150-475-2100 attempts to remedy this by rule and adopting all defined terms in ORS 475B.015.

Next, the term “marijuana” is defined by ORS 475B.015(17)(a). It means “the plant Cannabis family Cannabaceae, any part of the plant Cannabis family Cannabaceae and marijuana seeds.” The definition of “marijuana” is not carried over to the tax section by virtue of ORS 475B.700. It’s also glaringly omitted. Again, the administrative rule attempts to remedy this by adopting all defined terms in ORS 475B.015.

One important term that is carried over to the tax section is the term “marijuana item.” The enabling language found in ORS 475B.705(1) states “a tax is hereby imposed on the retail sale of marijuana items in this state.” Marijuana items are defined by ORS 475B.015(19) to mean “marijuana, cannabinoid products, cannabinoid concentrates and cannabinoid extracts.” Cannabis seeds do not fall within the definition of cannabinoid products, cannabinoid concentrates or cannabis extracts. That only leaves “marijuana” as the potential category for cannabis seeds. If we assume that the defined terms in ORS 475B.015 carried over to the tax section, then it is clear that cannabis seeds are “marijuana” as that term is defined, and therefore, would be a “marijuana item.” However, we cannot make this assumption because ORS 475B.700 fails to incorporate the defined term “marijuana” from ORS 475B.015.

But wait, there’s more. ORS 475B.705(1) simply states that taxes are imposed on the retail sale of marijuana items. ORS 475B.705(2) sets the applicable tax rates — and this is where the Oregon Legislature really swung and missed. Tax rates are set for the following items:

  • Marijuana leaves,
  • Marijuana flowers,
  • Immature marijuana plants,
  • Cannabinoid edibles,
  • Cannabinoid concentrates,
  • Cannabinoid extracts,
  • Cannabinoid products intended to be applied to the skin or hair, and
  • Cannabinoid products not intended to be applied to the skin or hair.

Cannabis seeds do not fit within any of these. The only reasonable possibility is that they are cannabinoid products not intended to be applied to the skin or hair. So let’s take a look at the defined term “cannabinoid products.”

ORS 475B.015(5)(a) defines cannabinoid products to mean “a cannabinoid edible and any other product intended for human consumption or use, including a product intended to be applied to the skin or hair, that contains cannabinoids or dried marijuana leaves or flowers.” Cannabis seeds are not edibles, and they are not intended for human consumption. They are also not used for any cannabinoids that they may contain. Cannabis seeds are intended to be germinated, grown and harvested. ODOR may argue that this intent constitutes “use” within the meaning of ORS 475B.015(5)(a), but this should be a losing argument.

ODOR did not look to the cannabinoid product argument when making their permanent administrative rule. OAR 150-475-2100(2)(c) states that seeds are subject to the rate set by ORS 475B.705(2)(c). That section imposes a 17-percent tax on “immature marijuana plants.” It doesn’t impose a tax on seeds. A plant is not a seed. Therefore, the tax imposed by ORS 475B.705(2)(c) cannot apply to cannabis seeds.

You may recall our prior blog post on making a difference. We provided written comments to ODOR suggesting that they lacked statutory authority to tax seeds. They disagreed with our position. In their written response (PDF), ODOR makes two arguments. First, they argue cannabis seeds are a “marijuana item.” Second, they argue that there was legislative intent to tax all marijuana items, including seeds. Lastly, they believe it is appropriate to tax seeds at the rate imposed on immature plants in an attempt to comply with the statutory language.

The first argument fails a law school admissions test (LSAT) logic problem.  ODOR’s argument relies on the defined term “marijuana” found in ORS 475B.015(17)(a). The defined term “marijuana” does not apply to the tax statutes. The defined terms relevant to the retail sales tax on cannabis items are found in ORS 475B.700. Those terms do not include a definition for “marijuana.” Reliance on the definition found in ORS 475B.015(17)(a) is misguided.

Legislative intent is a tool used to interpret statutes, contracts and other items when an item is ambiguous. Legislative intent is not used when a document or statute is facially clear — meaning there is no ambiguity in the drafting. There is only one potential term that might be ambiguous. That term is the word “use” in the definition of cannabinoid product. My view is the term “use” is intended to mean utilizing and consuming the THC, CBD or other cannabinoids the product contains. It should not mean germinating a seed to create a seedling, immature plant, mature plant and finally useable marijuana.

Even if we lost the cannabinoid product argument, ODOR’s permanent administrative rule states that seeds are subject to the tax rate imposed on immature plants. Seeds and immature plants are separately defined terms — a seed is not a plant. Therefore, the tax rate imposed on immature plants should not be imposed on seeds.

What’s Next?

So what do you do if you’ve purchased seeds in Oregon and paid the sales tax ODOR says you must pay? Stay tuned for our next post on the fun hoops ODOR set out for you to request a refund!

Cannabiz & Company — a news and media service providing weekly broadcasts on cannabis business news — launched its inaugural post on January 31 with a guest appearance from our very own Justin Hobson. During the broadcast, the hosts discussed a recent Portland Business Journal article that chronicled the struggles that cannabis producers are facing in the Oregon market including intense competition and plunging prices. Justin commented on the state of the industry in Oregon, including an overview of the regulatory issues (e.g. Oregon has a free-market system), increasing industry consolidation and tips for how small cannabusinesses can compete. Check out the broadcast below — to see the update on Oregon and to hear Justin’s commentary skip to 7:00.

Cannabiz Connection…Creating Buzz Around Cannabis Business News

Join us for our weekly Cannabiz and Company broadcast LIVE on our Facebook page. Hosted by Jamie Cooper and Debra Borchardt and powered by Cannabiz Connection and Green Market Report.

Posted by Cannabiz and Company on Wednesday, January 31, 2018