Archive for the ‘Uncategorized’ Category

  • Planning to Hire Local? Be Aware of Employment Laws.

    As local authorities begin drafting and, in certain circumstances even finalizing, local ordinances for cannabis licensing, prospective licensees are faced with a number of considerations about how to structure their company so as to optimize the likelihood of obtaining a license. One factor several jurisdictions, such as Sonoma County, have proposed or adopted is giving priority licensing to companies that intend to “hire local.”

    Many cannabis companies instinctively adopt a “local-first” ethos as part of their core values. However, when structuring business operations, companies must keep in mind the myriad local, state, and federal employment laws that affect the way in which it may operate.

    Federal law prohibits companies from denying employment to an individual if the denial is based on certain criteria that are unrelated to one’s ability to perform the job at hand. The federal criteria includes: age, disability, genetic information, harassment, national origin, pregnancy, race or color, religion, and sex.

    However, some states, and even some municipalities, have their own laws that offer even broader protection. California, for example, has additional protected classes upon which an employer may not discriminate in the hiring process. In California, protected categories include: race or color, ancestry or national origin (including language use restrictions), religion or creed, age, mental or physical disabilities, medical condition, genetic information, sex or gender (including pregnancy, childbirth, breastfeeding or related medical conditions), marital status, sexual orientation, gender identity or gender expression, or military and veteran status.

    While the federal and state lists inevitably overlap to a certain extent, a company must comply with the most restrictive set of laws applicable to its location. Moreover, the intent of the employer is not the deciding factor when determining whether improper discrimination has occurred. Rather, the fact that a particular practice has the effect of discrimination is sufficient to create a legal issue. This means that even a company with the best of intentions can run afoul of employment laws if otherwise valid practices have the effect of discrimination.

    This issue sometimes arises with respect to local-preference hiring practices.  By way of an example, say a company has adopted a hiring practice whereby they give preference to individuals who live in the same city as the company is headquartered in and that city happens to have a population that is skewed to a particular demographic; the applicant pool is therefore also going to be skewed towards that disproportionate demographic. In such a scenario, if that demographic is skewed with regards to race or ethnicity, for example, the company’s hiring practice has the effect of discriminating based on race and ethnicity. This is true, even if done without the intention to discriminate based on race or ethnicity, but rather to simply benefit “locals,” without regard to race or ethnicity.

    For example, according to the 2010 United States Census, 66.1 percent of Sonoma County residents self-identified as “White alone, not Hispanic or Latino”, whereas 40.1 percent of Californians self-identified as “White alone, not Hispanic or Latino.”  On the other hand, 3.8 percent of Sonoma County residents self-identified as “Asian alone”, whereas 13.0 percent of Californians self-identified as “Asian alone.”  Similarly, 1.6 percent of Sonoma County residents self-identified as “Black or African American alone”, whereas 6.2 percent of Californians self-identified as “Black or African American alone.”  In other words, compared to the State of California as a whole, Sonoma County has a greater percentage of individuals self-identifying as  “White alone, not Hispanic or Latino” and a smaller percentage of individuals self-identifying as “Asian alone” or “Black or African American alone.”  Because of these demographic disparities, a hiring plan that favors local applicants (Sonoma County residents) may have the effect of discriminating based on race or ethnicity, even if done without the intention to discriminate.

    When the effect of discrimination arises, an employer may yet avoid liability if it can prove that the hiring criterion was job-related and consistent with business necessity; however, this is a fairly difficult standard of review, especially if reasonable alternatives with a less discriminatory effect exist. As such, companies looking at licensing in areas that have a less-than-varied demographic with regards to any of the protected classes should be wary of a local preference hiring plan and consult with an attorney prior to implementation.

    For more information, visit the California Department of Fair Employment & Housing’s website.

  • Court Update from San Diego in Case of Lawyer Jessica McElfresh

    Court update from the San Diego hearing in the Jessica McElfresh case, which took place on July 7, 2017 in Department 36 on the third floor of the Main Courthouse located at 220 West Broadway, before the Honorable Laura Halgren.

     

    BACKGROUND

    Jessica McElfresh is a well-known San Diego lawyer who has practiced cannabis law for years. She is facing several cannabis-related felony charges, filed by Jorge Del Portillo of the San Diego County District Attorney’s Office after Ms. McElfresh helped secure a tremendous appellate victory in an asset forfeiture case unsuccessfully prosecuted by the same Jorge Del Portillo of the San Diego County District Attorney’s Office. At issue was whether legal documents and digital data seized from attorney McElfresh’s home and office pursuant to the search warrant were protected under the attorney-client privilege.

     

    TAKEAWAY

    The good news is that Judge Halgren will not rely on the federal prohibition on cannabis in deciding claims of privilege, contrary to the prosecution’s position that the federal prohibition on cannabis means that the crime-fraud exception controls. Judge Halgren stated that no further argument is needed on the federal prohibition, as the search warrant was based on purported violations of state law, not federal law, and probable cause was based on an analysis of state and local law. This was a relief to many lawyers present, who were concerned that the Court would go along with the prosecution’s overreaching contention that the crime-fraud exception to attorney-client privilege swallowed the privilege entirely because, well, because federal law.

    The Court declined to issue a final ruling on the motions until the special master’s report came in. (A special master is a court-appointed adjudicator of time-consuming issues, in this case, deciding claims of privilege with respect to voluminous documents and electronic files.

    The Court noted that it had not been presented with a declaration from Ms. McElfresh showing that the accused attorney has an immediate need for the return of seized items in order to conduct her law business, hinting that if the Court were to be presented with such a declaration, the Court may be inclined to make a ruling favorable to the defense.

    The next hearing will take place in two weeks, on July 21 at 2:30 p.m. in Department 36 on the third floor of the Main Courthouse located at 220 West Broadway, before the Honorable Laura Halgren.

     

    DETAILED DESCRIPTION OF HEARING (FOR LAW GEEKS)

    Defendant Jessica McElfresh was represented by the mighty Eugene Iredale, and the prosecution was represented by Jorge Del Portillo.

    You can compare their listings on the State Bar web site:

    http://members.calbar.ca.gov/fal/Member/Detail/75292

    http://members.calbar.ca.gov/fal/Member/Detail/241474

    The matter was set for a hearing on the accused’s Motions for Return of Property, Narrowing Scope of Search Warrant, Return of Illegally Seized Items, Return of Privileged Material, and Sealing Pending In Camera Review.

    The hearing commenced with about a dozen lawyers entering appearances on behalf of their current clients (clients formerly represented by Jessica McElfresh) to assert the attorney-client privilege. Mr. Iredale agreed to provide the court with a comprehensive list of counsel and clients asserting privilege.

    Judge Halgren noted she is in trial and only had until 10 a.m. She said she did not want to hear more about the timing of the search warrant in relation to the court order issued by Judge Ipema (to return funds seized from co-defendant Slatic in an asset forfeiture proceeding), meaning, she did not want to hear about retaliatory and vindictive prosecution. There was no more discussion of this topic during the hearing.

    Judge Halgren stated that no further argument was needed on the federal prohibition, as the search warrant was based on purported violations of state law, not federal law, and probable cause was based on an analysis of state and local law. This was a relief to many lawyers present, who were concerned that the Court would go along with the prosecution’s overreaching contention that the crime-fraud exception to attorney-client privilege swallowed the privilege entirely simply “because federal law.”

    Judge Halgren did issue a tentative ruling in favor of the defense with respect to medical records pertaining to Ms. McElfresh and her father, who passed away years ago. She said medical records of patients are protected by a right of privacy in the California Constitution, that the search warrant does not encompass such medical records, that there is no basis for overcoming their confidentiality, and that the defense should expect the records to be returned.

    The prosecutor, Mr. Del Portillo, argued that if Ms. McElfresh has a medical marijuana recommendation, or is in possession of recommendations, that is evidence either of an affirmative defense (a reference to the medical cannabis defense, which technically is a limited immunity from prosecution rather than an affirmative defense) or evidence of her joining a criminal conspiracy.

    If Ms. McElfresh is part of a collective, argued Del Portillo, she is part of a conspiracy. Judge Halgren stated that the Court does not see the search warrant as authorizing a search of medical records for defendant’s medical marijuana recommendation, but that the Court will not issue a final ruling until it obtains the special master’s report.

    With regard to the defense challenge to the overbreadth of the search warrant with respect to electronic searches, Judge Halgren stated that the Court did not view the search warrant as authorizing an electronic search term for Ms. McElfresh’s name (and thereby a search of each and every document containing Ms. McElfresh’s name), but rather clarified that the search is to be focused on Ms. McElfresh in connection with the legal entities the Court “found probable cause for.”

    The prosecution gave a status update on the electronic search: the items should be imaged and the originals ready to return by the end of next week, but had yet to be analyzed.   Defense counsel Iredale requested that, before any search takes place, the defense be given a list of search terms, so there is an opportunity for correction “before the bell that cannot be unrung is rung.” The Court ordered the prosecution and defense to meet and confer to try to narrow the execution of the search warrant so that the search does not exceed the scope of the search warrant (interpreted in light of the court’s clarifying statements.)

    Judge Halgren noted that she had not been presented with a declaration from Ms. McElfresh showing that the accused attorney has an immediate need for the return of seized items in order to conduct her law business, hinting that if the Court were to be presented with such a declaration, the Court may be inclined to make a ruling favorable to the defense.

    A discussion ensued about verifying the authenticity of imaged copies of seized digital materials, and the Court suggested that the prosecution should keep the original electronic items and provide an imaged copy to the defense.

    Defense counsel Iredale requested to be given a copy of the special master report in advance of its publication to the prosecution so that the defense would have an opportunity to object to the inadvertent or unintentional disclosure of privileged information in the report (for example, if the special master itemizes a file in a way that discloses the nature of a privileged communication.) The Court suggested the parties meet and confer with the special master, Mr. Martin.

    Mr. Iredale previewed an issue that he wanted to brief more thoroughly: the special master is not allowed to review the contents of seized material, but only to peruse the material in order to categorize it. Prosecutor Mr. Del Portillo said the prosecution disagreed with that position, and argued that when the attorney is a target of a criminal investigation, no special master is required, and that the prosecution had gone above and beyond the call of duty by having a special master. The defense disagreed, of course.

    Judge Halgren stated the Court needed to hear from the special master, Mr. Martin at the next hearing; the Court did not want to guess. At the status hearing on July 21, the Court also wanted to hear from the computer lab about its timetable.

    The Court further stated that — contrary to the prosecution’s position that the crime-fraud exception applies to any attorney-client communications that could be used as evidence of a violation of 11379.6(a) (Manufacturing by means of ethanol extraction) — the search warrant does not allow examination of all client files to see if there’s evidence of criminal activity.

    Finally, Judge Halgren granted Ms. McElfresh permission to travel freely out of state, but would need to obtain a travel order in order to leave the country.

    The next hearing will take place in two weeks, on July 21 at 2:30 p.m. in Department 36 on the third floor of the Main Courthouse located at 220 West Broadway, before the Honorable Laura Halgren.

     

  • City of Santa Rosa Releases Draft Comprehensive Cannabis Policy

    Santa Rosa released their draft comprehensive cannabis ordinance on June 30, 2017. The draft is more permissive than most in the North Coast area, and indicates Santa Rosa’s desire to become a hub for Northern California cannabis activity. (See here for a draft land use policy chart.)

    The draft ordinance would allow for all license types under MAUCRSA except for “microbusiness.” There is no separate Processor, Packaging & Labeling, or Infused Product Manufacturing permits, which will likely be types of state licenses based on the draft regulations that were proposed earlier this year. Adult use cannabis businesses would still be prohibited within the city of Santa Rosa. There would be standards imposed on all types of medical cannabis businesses related to security, inventory and tracking, building and fire permits, odor control, lighting, and noise.

    The ordinance would allow both volatile (“Level 1”) and non-volatile (“Level 2”) manufacturing. Level 1 manufacturing would be permitted with a Zoning Clearance in the BP, IL, and IG industrial zones, and Level 2 manufacturing would be permitted with a Conditional Use Permit in the IL and IG industrial zones. Manufacturers of edible cannabis products must obtain state certification as a food handler and a Sonoma County Health Permit.

    Testing laboratories would be permitted in the CO commercial zone with a Minor Conditional Use Permit, and in the BP, IL and IG industrial zones with a Zoning Clearance. Commercial cannabis cultivation would only be permitted in indoor or mixed-light environments, in a fully-enclosed space. Depending on the size of the facility, either a Conditional Use Permit (for sites 5,001 square feet and larger) or a Minor Conditional Use Permit (for sites up to 5,000 square feet) would be required.

    Medical cannabis retail facilities will be allowed in most commercial and industrial zones, and will require a Conditional Use Permit. Only medical cannabis retail facilities with a storefront that is open to the public would be able to conduct deliveries. Sales cannot be conducted exclusively by delivery under the draft ordinance. (This is in contrast with MAUCRSA, which states that medical cannabis retail licensees may conduct sales exclusively by delivery and do not have to have their storefront open to the public.) Drive-through or walk-up sales would also be prohibited. Medical cannabis retail facilities must be at least 600 feet from schools, at least 1000 feet from another medical cannabis retail facility, and can stay open between 9AM and 9PM seven days a week unless the review authority imposes more restrictive hours.

    On-site consumption would be allowed under certain circumstances if permitted by both local and state law. The Conditional Use Permit application for the cannabis business must state whether the use will include on-site consumption by patients, in addition to including other information. Employees of a medical cannabis retail facility who are qualified patients would also be able to consume on-site within designated spaces, provided it is in accordance with the local smoking ordinance and state law.

    Under the draft ordinance, commercial medical cannabis cultivation cannot take place outdoors, but rather must occur in a fully enclosed space. Depending on the size of the facility, either a Conditional Use Permit or a Minor Conditional Use Permit would be required. Commercial medical cannabis cultivators will have to abide by all applicable regulations governing the use of pesticides.

    Personal cultivation of both medical and adult-use cannabis would be permitted in all residential districts, but a Zoning Clearance would be required. For medical cannabis, a maximum of 100 square feet of cultivation space per patient would be allowed per residence, regardless of the number of patients living at the residence. For caregivers, a maximum of 500 square feet of cultivation space would be allowed (which shall correspond to no more than five qualified patients, who each get 100 square feet). Based on the California Supreme Court’s holding in People v. Kelly (2010) 47 Cal. 4th 1008, these limits are subject to challenge, since patients are legally permitted to cultivate and possess as much as their medical needs require. For adult use cannabis, no more than 6 plants may be grown per residence regardless of the number of adults living there. A number of other requirements also apply to personal cultivation including adherence to the Best Management Practices for Cannabis Cultivation issued by the County Agricultural Commissioner.

    The draft ordinance would require permittees to pursue state licenses and comply with state licensing requirements. There would then be a distinction created between “operators in good standing,” who receive land use permit approval within 10 months of the date the state begins issuing licenses; and “new operators,” who receive land use permits after the 10-month transition period.

    The ordinance would allow multiple permits per site if this was allowed by both local and state law. Operators issued licenses for the same physical address shall maintain a clear separation between license types unless otherwise authorized by local and state law. Transfer of ownership or operational control of a permitted cannabis business would be possible with a zoning clearance. Special event permits would also be possible.

    The City of Santa Rosa will hold a community meeting on the draft ordinance on July 17 from 6-8PM at the City Hall Council Chamber (100 Santa Rosa Ave., Santa Rosa, CA). For more information, visit www.srcity.org/404/Cannabis-Program.

  • Bank of America Named as Defendant in Oregon Civil RICO Litigation

    Bank of America has been named as a defendant in the civil RICO (“Racketeer Influenced and Corrupt Organizations Act”) lawsuit filed in federal court in Oregon in June of 2017. This will send shock waves through the financial and insurance industries:

    “Defendant Bank of America, N.A. (“Defendant Bank of America”) is a nationally chartered banking association with its principal place of business in North Carolina. Defendant Bank of America does business in Oregon and holds a mortgage on the Beddow Property. As further described herein, Defendant Bank of America knowingly allowed the Beddow Property to be used for the production and processing of marijuana, and profited from such use.”

     

     

    The complaint goes on to state:

    “Defendant Bank of America holds the mortgage on the Beddow Property. As the mortgagee of the Beddow Property, Defendant Bank of America controls the Beddow Property. In November 2015, Bank of America received written notice that the Beddow Defendants, the mortgagors, were leasing the Beddow Property to Defendant Hidden Acres for the purpose of producing and processing marijuana, that marijuana was being produced and processed on the Beddow Property, and that the Beddow Defendants were investors in the marijuana production and processing operation. In violation of 18 U.S.C. § 856(a)(2), since November 2015, Defendant Bank of America has knowingly permitted the production and processing of marijuana to continue on the Beddow Property, and derived a profit from such activity via the monthly mortgage payments it received. Since November 2015, in violation of 21 U.S.C. § 843(b), Defendant Bank of America has communicated via mail with the Beddow Defendants to facilitate use of the Beddow Property in violation of 18 U.S.C. § 856(a)(2).”

    The plaintiffs are seeking treble damages, costs, and “other and further relief as the Court shall deem equitable.”  Interestingly, one of the two plaintiffs, Rachel McCart, is a lawyer and is representing herself and her sister.  There is no request for attorney’s fees.

    Oregon RICO complaint

    Oregon RICO docket

  • Cannabis Codes of California: An Instant Classic!

    North Bay Bohemian

    (Original article here) When I worked in New Orleans as an online reporter most of my work was in the criminal justice arena—police, the courts, the notorious Orleans Parish Prison. It was intense and difficult work at times and as a newcomer to that city around 2009 I arrived in the aftermath of Hurricane Katrina, and all the horrible police-related stuff that went on after the storm. There was a built-in bloc of institutional and historical knowledge that I had to get up to speed on, and quick. The work was intense and difficult but it was never intimidating.

    That was not the case when I was doing some freelance work down in New Orleans for the local daily, and got assigned to cover the annual Satchmo Festival in the French Quarter, the celebration of Louis Armstrong.

    And let me tell you that I never felt, as a reporter, anything approaching the angst I felt when I sat down to write the fateful words, “Louis Armstrong” for publication for the first time, in a town where every other person is an armchair Armstrong scholar ready to pounce on any mis-reported fact about the jazz great. And the other person is a trumpet player or some other jazzbo steeped in the living history of New Orleans jazz.

    I confess that I feel the same way any time I sit down to write a story in the Bohemian about cannabis in California (despite the fact that it’s a fact that Satchmo was a total pothead): I feel totally intimidated. I am going to screw this up.

    Why this horrible feeling? Same reason: There are thousands upon thousands of people in the state, many in the North Bay, with lots of deep history and knowledge in this area, and given the complicated and intersecting medical- and recreational-use laws now on the books—it’s hard to keep up! With so many moving parts and competing and/or complementary cannabis constituencies, it can be hard to get out of the weeds to see the weeds for the trees for the forest, to figure out what the news hook is—or something like that.

    As with the Satchmo scholars, people in the North Bay are invested, and often heavily so, and for decades, in their chosen field of study and celebration. Every time I report one of these pot stories, I feel that same terror of being exposed as a canna-fraud should I misrepresent some crucial fact or bollix some niggling detail about a particular strain and who is responsible for it.

    But not anymore! Enter Omar Figueora, Sebastopol cannabis lawyer and the recent author of the hardcover instant classic, Cannabis Codes of California.

    With this handy, exhaustive and essential guide to cannabis-related law in the state, I’m no longer intimidated at the thought of reporting on the latest update on cannabis taxation, or distribution, or the black market, or the medical-community’s concerns, the mom-and-pop growers, the Big Cannabis operators—etc. I’ve got Omar’s comprehensive Codes to see me through.

    Cannabis Codes of California isn’t a novel but it does have a built-in plot-line that lays out the law at various junctures in California social and political history. Omar gives a brief upfront history of cannabis in the state and the various moments where legislators weighed in on some aspect or another of the industry: For example, the 1996 landmark medical-use act, is reprinted in its (short but revolutionary) entirety, along with relevant penal codes, fish and wildlife code, health and safety, taxation—et al.

    This is a dense and delightful legal-reference book whose content is delivered in a nice, big fat font size for ease of reading among elders of the cannabis community. It’s a timely and useful guide, a greatly informative cover-to-cover read (or casual flip-through) for anyone, myself included, who is intent on having a working, if not expert, knowledge of this fascinating and ground-breaking American experiment in cannabis freedom—and without fear of hearing from some know-it-all canna-crank from NORML if I screw something up in reporting on the latest twist and turn in the law. I got the law, or at least this estimable legal guide, on my side now—and you can, too. Cannabis Codes of California is available on Amazon.com.

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  • Pot-sniffing dogs’ jobs haven’t gone up in smoke

    San Francisco Chronicle

    Photo: Santiago Mejia, The Chronicle

    Legal marijuana is in the air across California, but local and state law enforcement agencies say they won’t retire their pot-sniffing narcotics dogs anytime soon.

    At first, it might seem like California’s legalization of recreational pot would render canine units’ weed-sensitive noses obsolete. Indeed, some dogs are being pulled from routine patrols, and new ones are sometimes not trained on pot. But police agencies say their drug-trained dogs still have plenty of value, especially when it comes to taking down large-scale drug operations.

     “While laws regarding marijuana have changed, certain activities are still considered crimes,” said Giselle Talkoff, spokeswoman for the San Francisco Police Department. “Laws and regulations still govern sales, possession and transport, (and) there are times when the illegal possession of marijuana can coincide with other crimes.”

    Most of California’s drug-trained police dogs go through an intensive training program where they learn to bark or sit when they smell heroin, cocaine, methamphetamine or marijuana. The California Highway Patrol, which employs 42 drug-sniffing dogs, trains them for 440 hours before they go out into the field, according to CHP spokesman Mike Martis Jr.

    When Colorado legalized recreational marijuana in 2012, police departments there began talking about what to do with their narcotics canines. Some agencies were worried that the dogs would wind up calling unnecessary attention to legal weed, but Denver’s four police dogs have continued to be a key part of the force, said Denver Police Capt. James Henning.

    Rather than retire expensive animals, “we decided to keep them — and it was a good thing, because the illegal marijuana trade is booming in Colorado,” Henning said. “Legalization has almost made it more necessary to have good marijuana dogs, which is something nobody ever expected.”

    The San Francisco and San Jose police departments have no plans to retire or retrain their dogs. The Alameda County Sheriff’s Office, which uses narcotics canines on patrol and at Oakland International Airport and lends pooches to Oakland on occasion, is also hanging onto its current contingent, said its spokesman and former dog trainer, Ray Kelly.

    Those decisions could pose legal problems, both for police and for anyone these dogs call out, according to Lauren Mendelsohn, a criminal defense attorney who specializes in cannabis law.

    “Drug dogs are trained to smell four different drugs. They’re not taught to differentiate between them,” Mendelsohn said. “Having a dog indicate they smell something gives an officer probable cause to obtain a warrant.”

    However, Prop. 64, which made it legal for individuals to use marijuana and grow it for personal use, specifically states that legal amounts of marijuana and cannabis products don’t create the basis for a search, detention or arrest. A dog that alerts on marijuana could taint an otherwise lawful search that turns up illegal guns or other contraband. “There’s a strong argument that if one of these four-odor dogs smells something, it violates the statute,” she said. “It will be interesting to see how it plays out in court.”

    The Law Enforcement Action Partnership, a national group of current and former police officers who support an end to the War on Drugs, agrees that the use of drug-trained dogs can create legal problems. Rusty White, a spokesman for the partnership and a former canine trainer, said some police departments cut corners by training their own dogs, and those dogs’ noses might not meet legal standards.

    “If anyone is stopped, the first thing you ask is: Is the dog proven; is the handler proven in a court of law?” White said.

    The U.S. Police Canine Association — a national organization for police departments that work with these dogs — isn’t offering guidance on what to do when states legalize pot. “It will be up to those agencies to develop a policy that’s best for their community,” said David Ferland, the association’s executive director.

    Seattle Police Department spokesman Sean Whitcomb said it is possible to retrain drug-sensitive dogs to ignore marijuana. That’s what his agency did when Washington legalized pot in 2013. Officers have retrained the dogs by not rewarding them for finding pot. “Imagine you’re in an orchestra and you can play the violin, viola and cello. Now imagine you stop playing cello — you’re going to lose your skill,” Whitcomb said.

    Most trainers agree that the dogs can be retrained, said Bill Lewis II, a spokesman for the California Narcotics Canine Association. However, many say it’s too expensive and time-consuming to bother, he said.

    Local and state police agencies say they’ll work around the legal issues by leaving behind narcotics dogs when out on patrol. Instead, they’ll be brought out once a large-scale grow or trafficking operation is suspected.

    “Think of the dog as a specialized unit or investigator,” Talkoff said.

    And, even though canines cost plenty to train, Kelly of the Alameda County Sheriff’s office says they save about 1,000 officer hours each year searching for drugs, weapons and other contraband, and good ones wind up paying for themselves many times over, because of asset forfeiture in drug cases. One retired canine found $70 million in drugs, he said.

    The use of these dogs is evolving as drug laws change, but the dogs are irreplaceable, Kelly said. “There’s no technology yet developed that can replace the nose and ability of a dog. The need for dogs is more and more every year, and the work they do is tremendous.”

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  • Santa Rosa Approves Cannabis Business Tax

    Last week, Santa Rosa voters approved a cannabis business tax (“Measure D”) that applies to commercial medical cannabis businesses within the city. The measure received nearly 78% of the vote, indicating that Santa Rosa residents see the value that the cannabis industry brings to the city. Santa Rosa officials cited a need to offset the cost of regulating the cannabis industry, which has been growing steadily in the city over the past few years, as the need for the tax. The City does not yet have an estimate of how much revenue the tax will generate.

    The tax ordinance imposes taxes on the following commercial medical cannabis activities: cultivation (including nurseries), manufacturing, distribution and dispensaries. The tax is a general tax, meaning the city can use it for any purpose, as opposed to dedicating the revenue to specific items like cannabis enforcement. Cannabis businesses paying the special cannabis tax would be exempt from the city’s general business tax, which costs up to $3,000 per year.

    For commercial cultivation, the maximum rate is $25 per square foot (the initial rate will likely be much lower), adjusted annually by CPI, or 8% of gross receipts. For commercial manufacturers, distributors, and dispensaries, the maximum rate is 8% of gross receipts. The City Council may increase or decrease the current rates by resolution, provided that the cap is not exceeded. Rates shall be set for a minimum of two years. The initial rates will be set by resolution by the City Council, at which time the tax will go into effect.

    Under the tax ordinance, cannabis businesses must register each year and pay a $100 annual registration fee. Tax payments are due each quarter, and there are penalties for failure to pay. Additionally, violation of the tax ordinance can be deemed a misdemeanor. Finally, simply paying the cannabis business tax will not authorize an unlawful business.

     

    Resources:

    http://srcity.org/2511/Cannabis-Business-Tax

    http://srcity.org/DocumentCenter/View/14264

    http://srcity.org/DocumentCenter/View/14390

  • Proposition 65’s Warning Requirements and Cannabis Businesses

     

    WARNING: New Proposition 65 Notice Requirements Coming Soon!

    OVERVIEW

    California’s Proposition 65, a voter initiative passed in 1986, created the Safe Drinking Water and Toxic Enforcement Act (Health & Safety Code § 25249.5 et seq.), which requires that the seller of a product that contains chemical(s) known by the State of California to cause cancer or reproductive harm must provide a warning to anyone who buys the product, unless there is already a clear and sufficient warning printed on the label or package. Warnings must also be given if there is a possibility of environmental exposure to a chemical on the list of substances that cause cancer or reproductive harm. Penalties for violating Proposition 65’s warning requirement can be as high as $2,500 per day.

    The Proposition 65 list can be found at https://oehha.ca.gov/proposition-65/proposition-65-list.

    Proposition 65 is enforced by the California Attorney General’s office; however, the law also gives a private right of action to individuals acting in the public interest, who may file a lawsuit alleging that a business is in violation of the law. Many private attorneys are involved in filing these notices, and the attorney fees awarded are usually significant.

    The warning required under Proposition 65 must be “reasonably calculated” to be available to an individual prior to exposure, and must clearly communicate that the chemical in question is known to cause cancer or reproductive harm. “Exposure” in this context is defined as: “to cause to ingest, inhale, contact via body surfaces or otherwise come into contact with a listed chemical,” and can occur through use of consumer products as well as through the environment.

    For products, the warning must be “prominently placed upon a product’s label or other labeling or displayed at the retail outlet with such conspicuousness, as compared with other words, statements, designs, or devices in the label, labeling or display as to render it likely to be read and understood by an ordinary individual under customary conditions of purchase or use.” A system of signs, a public advertising system, or any other system that provides clear and reasonable warnings is also sufficient. This could include a warning printed on each customer receipt, or included as part of a membership agreement, if one exists, depending on the circumstances. For environmental exposure, in addition to the warning methods mentioned above, warnings can also be provided by a mailed or delivered notice to each occupant of the affected area at least once every three months, or via public media announcements targeted to the affected area at least once every three months.

    Currently, the consumer product warning for a carcinogen must include the following language:

    “WARNING: This product contains a chemical known to the State of California to cause cancer.”

    The current environmental exposure warning for a carcinogen must include the following language:

    “WARNING: This area contains a chemical known to the State of California to cause cancer.”

    The required warnings for chemicals known to cause reproductive harm are identical, except the word “cancer” is replaced with “birth defects or other reproductive harm.”

     

    NEW RULES COMING

    California’s Office of Environmental Health Hazard Assessment (OEHHA), the agency that oversees Proposition 65 enforcement, issued new warning regulations in late 2016 that will go into effect on August 30, 2018. The new regulations are designed to provide consumers with more specific notice of the chemicals contained in products sold within the state. Between now and August 30, 2018, businesses can choose to continue following the existing regulations or to begin following the new regulations immediately. (For a side-by-side comparison of the current and new reasonable warning regulations, go to https://oehha.ca.gov/media/downloads/crnr/side-sidearticle6090116.pdf.)

    The new regulations place the burden to warn on manufacturers and distributors rather than on retailers, though there are instances when a warning by the retail seller is required. Additionally, as long as the consumer ultimately receives an adequate warning, an arrangement may be reached between a retail seller and a manufacturer, producer, packager, importer, supplier, or distributor to allocate legal responsibility for providing the warning.

    Warnings under the new regulations must be provided via signs and/or product labeling as applicable. For warning signs in retail establishments, the new regulations still require the warnings to be prominently displayed with conspicuous signage, so as to render them likely to be read and understood by an ordinary customer. Regarding additions to the warning, the warning may contain supplemental information “only to the extent that it identifies the source of the exposure or provides information on how to avoid or reduce exposure to the identified chemical or chemicals,” and any such supplemental information is not a substitute for the required warning.

    The new exposure warning messages must include the following:

    (1) A symbol consisting of a black exclamation point in a yellow equilateral triangle with a bold black outline. Where the sign, label or shelf tag for the product is not printed using the color yellow, the symbol may be printed in black and white. The symbol shall be placed to the left of the text of the warning, in a size no smaller than the height of the word “WARNING”.

    (2) The word “WARNING” in all capital letters and bold print, and:

    (A) For exposures to listed carcinogens, the words, “This product can expose you to chemicals including [name of one or more chemicals], which is [are] known to the State of California to cause cancer. For more information go to www.P65Warnings.ca.gov.”

    Additionally, on-product warnings for products containing a known cancer-causing agent require the symbol required in §25603(a)(1), the word “WARNING” in bold capital letters, and the following words: “Cancer – www.P65Warnings.ca.gov.” The name of the listed chemical is not required to be printed on a product warning label.

    The major differences between the current and the new “clear and reasonable” warning regulations are: (i) that the current regulations do not require that the specific listed chemical be identified, whereas the new regulations do; (ii) a change in the appearance of the warning sign, which will now require a yellow (or black-and-white) triangle with an exclamation point; and (iii) a clear preference for placing the burden to warn on manufacturers and packagers rather than retail sellers where possible, while also providing a mechanism to allocate legal responsibility for providing such warnings.

     

    EXCEPTIONS

     Businesses that employ nine or fewer employees are exempt from the reasonable warning requirement. Additionally, only marijuana smoke is included on the Prop. 65 list of cancer-causing substances, so warnings may not be required for edible or topical marijuana products, provided they do not contain another chemical on the Prop. 65 list, such as certain pesticides. A warning still may be required on some marijuana products that can be vaporized, since certain chemicals used in vapor products may be included on this list.

     

    APPLICATION TO CANNABIS BUSINESSES

    Marijuana smoke was added to the list of substances known by the State of California to cause cancer in 2009. Recently, a number of medical cannabis dispensaries throughout the state have received 60-day notices of allegedly violating the clear and reasonable warning requirement. Therefore, medical marijuana dispensary operators should provide a warning, since some products being sold (i.e., any marijuana intended for use by combustion or vaporization) can be used in a way that, according to the State of California, could expose the user to a cancer-causing agent. This is not required if all such products already have clear warnings on their packages or labels. Additionally, dispensaries that permit smoking or vaporizing on-site should provide a warning for environmental exposure. These warnings must be placed in a location where an average customer is likely to see them.

    Under the new regulations, which go into effect in August 2018, the burden placed on retailers will be minimized. Retailers of cannabis will not be responsible for providing the required warnings unless: (i) the retailer is responsible for introducing a listed chemical into a product; (ii) the retailer agrees to take on this responsibility; (iii) the retailer is selling the product under a brand or trademark that is owned or licensed by the retailer or an affiliated agency; (iv) the retailer obscured or did not conspicuously display warning labels or signage that were provided; or (v) the retailer has actual knowledge of potential consumer exposure that would require a warning, and there is no manufacturer, producer, packager, importer, supplier, or distributor of the product who is a “person in the course of doing business” and has designated an agent for service of process in California or has a place of business in California.

    Retailers are explicitly authorized to enter into arrangements with providers of packaged smokeable or vaporizable marijuana products to allocate legal responsibility for providing Prop. 65 warnings. However, the providers of the packaged products have the option of including the required warning directly on the product label or providing an accompanying written warning to the retailer along with the product. If the latter method is chosen, then the notice must be renewed every six months and the retailer is responsible for the placement and maintenance of the warning materials.

    Below are examples of warnings that comply with the new regulations, which go into effect on August 30, 2018:

     

    WARNING: This product can expose you to marijuana smoke, which is known to the State of California to cause cancer. For more information, go to www.P65Warnings.ca.gov.

     

     

     

    WARNING: Entering this area can expose you to marijuana smoke. Marijuana smoke is known to the State of California to cause cancer. For more information, go to www.P65Warnings.ca.gov.

     

    As noted, Proposition 65 can be enforced by both a public and private right of action, so individuals can serve businesses who they allege to be in violation of the Act with a 60-Day Notice of Violation and can then file a civil lawsuit against the alleged violator if an agreement to resolve the violation is not reached. A number of medical marijuana dispensaries have been targeted in this manner over the past years. Apparently, all of these cases resulted in either a settlement or a consent judgment.

    Moreover, marijuana smoke is not the only chemical known to the State of California to cause cancer that a dispensary might encounter: pesticides such as myclobutanil and carbaryl are on the Proposition 65 list, and a number of medical cannabis dispensaries throughout California have recently received 60-Day Notices for edible cannabis products allegedly containing myclobutanil or carbaryl.

    To view the Attorney General’s database of marijuana-smoke-related Prop. 65 60-Day Notices, visit https://oag.ca.gov/prop65/60-day-notice-search and search for “Marijuana smoke” in the “Chemical” box.

    Searches for “Marijuana smoke“, “Myclobutanil“, and “Carbaryl” reveal that dozens of 60-Day Notices have been reportedly served on California medical cannabis businesses throughout the state.

    Because marijuana smoke and other pesticides which may be found in cannabis products are currently listed as cancer-causing substances by the OEHHA, and because several dispensaries have been targeted for not providing such warnings, it is advised that medical cannabis dispensaries provide the warnings called for under Proposition 65, despite some evidence suggesting that marijuana may actually help treat cancer. It is also advised that packagers of cannabis products start preparing to include Proposition 65 warnings on their labels or to provide these warnings to retailers, or to make agreements with retailers as to who will take on this responsibility.

    There is nothing that prevents a cannabis dispensary from including additional signage that states the facility disagrees with the required warnings.

    For more information on Proposition 65, go to https://oehha.ca.gov/proposition-65/.

     

    Remember: laws, rules, and regulations are constantly changing.  The above information is not intended as legal advice; please contact the Law Offices of Omar Figueroa for legal advice on how to comply with Proposition 65 at (415) 489-0420 or (707) 829-0215.

  • Challenging Proposed Regulations for Lack of Necessity

    One way to challenge California’s proposed medical cannabis regulations is to argue that the record of rule making fails to establish the need for a particular regulation.


    California Government Code § 11349(a) defines necessity in the context of proposed regulations:
    “‘Necessity’ means the record of the rulemaking proceeding demonstrates by substantial evidence the need for a regulation to effectuate the purpose of the statute, court decision, or other provision of law that the regulation implements, interprets, or makes specific, taking into account the totality of the record. For purposes of this standard, evidence includes, but is not limited to, facts, studies, and expert opinion.”

    In other words, if the record of the rule making proceeding fails to show, by substantial evidence, the need for a particular regulation, that regulation is susceptible to a necessity challenge.

    For an example of a proposed California medical cannabis regulation which may be susceptible to a necessity challenge, the manufacturing ISOR does little to establish the necessity of the categorical prohibition on cannabis-infused caffeine products set forth in proposed Section 40300. The ISOR states:


    “The recommendation that caffeine not be allowed as an additive comes from the FDA determination that caffeine (stimulant) in certain alcoholic (depressant) beverages is an “unsafe food additive” due to the unpredictable negative effects of the two substances. The mixing of stimulants with depressants may lead to dangerous cardiac events. A similar lack of definitive information exists as well for the safety of caffeine as an additive to cannabis.”

    The ISOR cites no facts, studies, or expert opinions to establish the necessity of the ban on caffeine, and the record of the rule making proceeding at this juncture appears insufficient to establish by substantial evidence the necessity of a categorical prohibition on caffeine.

    You can easily find Section 40300 of the regulations proposed by the Office of Manufactured Cannabis Safety as well as the corresponding ISOR on the Regulations page of the Law Offices of Omar Figueroa web site:
    http://californiacannabisregulations.com
    http://http://www.omarfigueroa.com/wp-content/uploads/2012/07/OMCSCombined.pdf

    The California Office of Administrative Law has a very informative web site collecting written decisions disapproving of agency regulatory actions.  These decision identify proposed regulations which were rejected as defective. An example of a recent Disapproval Decision is the disapproval of the Department of Alcoholic Beverage Control’s proposed regulatory action for “failure to comply with the “necessity” and “clarity” standards of Government Code section 11349.1 and failure to follow all required procedures under the California Administrative Procedure Act (APA).”

    http://www.oal.ca.gov/publications/disapproval_decisions/

    https://oal.blogs.ca.gov/files/2017/04/2017-0213-01S_ABC_Disapproval-Decision.pdf

     

    The above information is provided for informational purposes only and is not intended as legal advice.  Please contact a lawyer for legal counsel.

    If you would like legal assistance in advocating for changes to the proposed regulations, please get in touch with us at (707) 829-0215 or at (415) 489-0420.

  • Draft Regs: Potential Issues Related to “Ownership”

     

    The proposed medical cannabis regulations released by California’s medical cannabis regulatory agencies — the Bureau of Medical Cannabis Regulation (BMCR), the Department of Food and Agriculture (CDFA), and the Department of Public Health (CDPH) — would require licensees to submit a new application any time there is a change in ownership or organizational structure.

    This is potentially problematic for cannabis companies for two reasons. First, the definition of “owner” is very broad, and it includes the following: 

    For public companies, an owner is anyone holding 5% or more interest in the company.
    For private companies an owner is any of the following:
    Someone holding an aggregate ownership interest (other than a security interest, lien, or encumbrance) of 20% or more interest in the cannabis business;
    The CEO and all members of the board of directors of any entity that holds an aggregate ownership interest of 20% or more in the cannabis business; or
    Any other person who participates in the direction, control or management of the commercial cannabis business.

    (BMCR § 5004; similar provisions are contained in CDFA’s and CDPH’s proposed regulations.) All individuals and entities considered to be “owners” must disclose personal and financial information about themselves. 

    Each individual named on this list shall submit the following information:
    (A) The full name of the owner.
    (B) The owner’s title within the applicant entity.
    (C) The owner’s date of birth and place of birth.
    (D) The owner’s social security number or individual taxpayer identification number.
    (E) The owner’s home address.
    (F) The owner’s telephone number. This may include a number for the owner’s home, business, or mobile telephone.
    (G) The owner’s email address.
    (H) The date the owner acquired an ownership interest in the applicant entity.
    (I) The percentage of the ownership interest held in the applicant entity by the owner.
    (J) If applicable, the number of shares in the applicant entity that the owner holds.
    (K) Whether the owner has a financial interest in any other licensee under the Act. For purposes of this section “financial interest” means an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.
    (L) A copy of the owner’s government-issued identification. Acceptable forms of identification are a document issued by a federal, state, county, or municipal government that includes the name, date of birth, physical description, and picture of the person, such as a driver license.
    (M) A detailed description of the owner’s convictions. A conviction within the meaning of this section means a plea or verdict of guilty or a conviction following a plea of nolo contendere. Convictions dismissed under Penal Code section 1203.4 or equivalent non-California law must be disclosed. Juvenile adjudications and traffic infractions under $300 that did not involve alcohol, dangerous drugs, or controlled substances do not need to be included. For each conviction, the owner shall provide the following:
    (i) The date of conviction.
    (ii) Dates of incarceration if applicable.
    (iii) Dates of probation if applicable.
    (iv) Dates of parole if applicable.
    (v) A detailed description of the offense for which the owner was convicted.
    (vi) A statement of rehabilitation for each conviction. The statement of rehabilitation is to be written by the owner and shall contain all evidence that the owner would like the bureau to consider that demonstrates the owner’s fitness for licensure. Supporting evidence may be attached to the statement of rehabilitation and may include, but is not limited to, a certificate of rehabilitation under Penal Code section 4852.01, and dated letters of reference from employers, instructors, or professional counselors that contain valid contact information for the individual providing the reference.
    (N) A copy of the owner’s completed application for electronic fingerprint images submitted to the Department of Justice.
    (O) Attestation to the following statement: Under penalty of perjury, I hereby declare that the information contained within and submitted with the application is complete, true, and accurate. I understand that a misrepresentation of fact is cause for rejection of this application, denial of the license, or revocation of a license issued.
    (P) The following information regarding an individual with a community property interest in the commercial cannabis business under Family Code section 760 shall be provided by the owner:
    (i) The full name of the individual.
    (ii) The individual’s date of birth and place of birth.
    (iii) The individual’s social security number or individual taxpayer identification number.
    (iv) The individual’s mailing address.
    (v) The individual’s telephone number. This may include a number for the owner’s home, business, or mobile telephone.
    (vi) Whether the individual has a financial interest in any other licensee under the Act. For purposes of this section “financial interest” means an investment into a commercial cannabis business, a loan provided to a commercial cannabis business, or any other equity interest in a commercial cannabis business.

    (BMCR § 5006; similar provisions are contained in CDFA’s and CDPH’s proposed regulations.) As noted, the draft regulations would require submitting a new license application any time the ownership of a cannabis business changed. It seems excessive to require a new license to be obtained whenever a single individual who may be considered an “owner” is added to or removed from the company. For example, let’s say an LLC held a 25% interest in another company that has a commercial cannabis license. If one member of the LLC’s board of directors changed, then the other company would have to re-apply for an entirely new license to continue operating the way it had been, even though its board may not have changed and even though the LLC still holds a 25% interest.

    Second, the requirement that a new application be submitted whenever there is a change in the organizational structure of a commercial cannabis business is troubling. For  years in California, many medical cannabis businesses have structured their entities as nonprofit mutual benefit corporations (MBCs) or nonprofit cooperatives. This is because Senate Bill 420 stated it did not authorize “any individual or group to cultivate or distribute marijuana for profit,” and that qualified patients and primary caregivers who “collectively or cooperatively cultivate cannabis for medical purposes, shall not solely on the basis of that fact be subject to state criminal sanctions under Section 11357, 11358, 11359, 11360, 11366, 11366.5, or 11570.” In 2008, California’s state Attorney General Edmund Brown issued “Guidelines for the Security and Non-Diversion of Marijuana Grown for Medical Use” which talked about statutory cooperatives (agricultural and consumer) and non-statutory collectives as being two types of options for medical cannabis patients and caregivers to “collectively or cooperatively” grow cannabis.

    Now, however, the tide has shifted. Under the Medical Cannabis Regulation and Safety Act (MCRSA), a “person” is defined as an individual or corporate entity, and it is implied that medical cannabis businesses may no longer have to operate on a not-for-profit basis under this new regulatory scheme. To clear this up, there is a bill pending in the state legislature, AB64, which would explicitly state that medical cannabis licensees may lawfully operate on a for-profit basis. (AB 64 would do a number of other things as well, such as allow for cannabis-specific state trademarks and place certain restrictions on cannabis advertising.) Thus, the need for nonprofit cooperatives and collectives will be largely gone soon (not to mention the collective and cooperative provision, Health & Safety Code § 11362.775, has a sunset clause which will likely take effect in early January of 2019, 12 months after the state licenses are issued), and many of these existing cannabis companies that are set up as MBCs or statutory cooperatives will likely want to restructure their entity in a way that makes sense for their business. It seems unnecessary and overly burdensome to require a cannabis company to submit a new license application whenever its organizational structure changes, especially since licensees are already required to notify their licensing agency when there is a change in any item listed in the application, which would include the list of owners and entity structure.

    This could also create problems between local jurisdictions and the state. If the state requires one to obtain a new license every time ownership changes, then the local permit that was issued to the company before its change in ownership may no longer be valid, triggering the need to go back and get a new local permit as well. However, a local jurisdiction may not be issuing any new cannabis permits, meaning the company that previously had a local permit and state license would suddenly be without a valid local permit or authorization, simply due to what could be a minor change in ownership or entity structure.

    Additionally, the proposed regulations explicitly do not allow for the transfer of licenses, and the requirement that a new license be obtained whenever there is a change in ownership or organizational structure effectively prohibits the transfer of licenses as well. For example, let’s say Dispensary A is licensed. Mr. B wants to buy Dispensary A, because he wants a licensed dispensary. Mr. B makes the arrangements and buys Dispensary A, but Dispensary A’s license becomes invalid as soon as the transaction is complete since there is now a new owner who must apply for a new license. This is likely not how most investors and operators in the cannabis industry envisioned an industry-friendly license transfer process.

    If you have concerns with any of the proposed regulations, please make sure your comments are submitted by 5:00pm on June 13/14/20 (depending on which license type), 2017. Information about submitting a public comment can be found here: BMCR, CDPH, CDFA. You can comment in writing or in person at one of the scheduled public hearings.

     

    The above information is for informational purposes only, may become outdated, and is not intended as legal advice.  Please consult with a lawyer for legal counsel.  Please contact the Law Offices of Omar Figueroa if you have questions about the regulatory process or would like the assistance of counsel in advocating for changes to the proposed regulations.