Archive for the ‘Uncategorized’ Category

  • Unintended Partnerships: The Accidental Business Entity

    As the California cannabis industry comes out of the shadows and into the light, it is not surprising that technical details of California’s business laws have not traditionally been on a cannabis company’s radar. As the industry matures, however, laws that a business partner would never have before thought to enforce against another business partner will now become viable options in settling business disputes.

    On October 6, 2017, Governor Brown signed AB 1159 into law. The bill states that “commercial activity relating to medicinal cannabis or adult-use cannabis conducted in compliance with California law and any applicable local standards, requirements, and regulations shall be deemed to be: (1) A lawful object of a contract; (2) Not contrary to, an express provision of law, any policy of express law, or good morals; and (3) Not against public policy.”  In short, the California courts will enforce contracts for commercial activity relating to medicinal cannabis or adult-use cannabis.  It is only a matter of time then, before an agreement regarding commercial cannabis activity is hauled into the California courts and enforced to the same degree as an identical contract regarding any other industry.

    But given the “handshake mentality” that the cannabis industry in California has operated on, admittedly by necessity, for so long, many such contracts will not be in a signed writing. It is vital, however, that cannabis companies be aware that a signed writing is not always required for a contract to be enforceable. And that rule extends not only to small one-off agreements, such as a contract to sell some farming equipment or a promise to buy cannabis flowers next season, but also to an agreement regarding the very existence of a “business.”

    Cannabis companies often form business entities, such as corporations and limited liability companies, to protect their owners from personal liability for the vast array of liabilities that can arise when manufacturing and selling goods. Previously, most cannabis companies created informal alliances and partnerships in order to pool capital and resources with little regard to traditional business and even employment structures; it is expected that many cannabis companies will likely continue to operate in this fashion. Different entity types have different rules and many of the rules arise by default whether the business owners wish them to or no. Sometimes such rules can be waived if the proper corporate formalities are adhered to and business partners are encouraged to consult with an attorney to ensure that the business entity they choose to operate their business meets their expectations.  Critically, a business can arise based purely on the agreement of two or more people whether any corporate formalities (such as registering the business with the Secretary of State) are adhered to or not.

    Specifically, a partnership is considered a separate business entity from that of its owners and has its own special corporate rules that arise by default unless the partners take proper action. The question of whether a partnership was formed, and thus a business entity created, is decided based entirely on the conduct of the parties and it is immaterial that the parties may not have considered themselves to be creating a partnership. In fact, a partnership may be found to exist even if the parties expressly declared the contrary.[1]

    While parties must actually express their mutual intent to form a partnership, the word “partnership” or even “partners” is not required to be said at any point. Namely, if the arrangement the parties describe and agree to is what the law considers a partnership, then a partnership will be considered to have been created.[2] The key is whether the parties intended to “carry on as coowners a business for profit.”[3]

    An essential element of a partnership is the right of joint participation in the management and control of the business.[4] There are, of course, other factors to be considered as well though, including:

    • Sharing of profits;
    • Use of a fictitious business name statement (also known as a DBA (doing business as));
    • The maintenance of partnership books;
    • Written or oral declarations by one alleged to be a member of a partnership are admissible against the declarant to prove the partnership’s existence;[5]
    • Conduct of the parties;[6]
    • How title to real property is taken or held; and
    • Representation regarding partnership to third parties.[7]

    Whether a partnership has been formed is important for a multitude of reasons. Not only does status as a partnership affect one’s taxes, for example, but it also gives one’s partners the ability to demand accountings and hold one’s fellow partners to a high level of fiduciary duties in all business undertakings. Fiduciary duties include a duty of loyalty to the business (and therefore the other partner), a duty to avoid self-dealing (ie. to a certain extent, not to compete with the partnership), and so forth. Fiduciary duties are very easy to breach if one is not careful, and especially so if the actor is not aware that fiduciary duties apply.

    In its simplest form – parties who act as partners in conducting their business will likely be treated as partners for legal purposes, whether or not they formalize their relationship with a signed written partnership agreement. Cannabis companies should thus enter business relationships with great care and, whenever possible, with detailed written agreements expressly outlining the rights and obligations of each party.

    [1] Universal Sales Corp. v California Press Mfg. Co. (1942) 20 C2d 751.

    [2] There are multiple types of partnerships, rules for formation of a general partnership are set out in California Corporations Code §16202 and for a limited partnership in California Corporations Code §15902.01.

    [3] California Corporations Code §16202(a)).

    [4] See Spier v Lang (1935) 4 C2d 711, 716; Fritz v Gilbert (1936) 8 C2d 68; see also Zorich v Petroff (1957) 152 CA2d 806.

    [5] Blumenthal v Greenberg (1900) 130 C 384.

    [6] Weiner v Fleischman (1991) 54 C3d 476, 482; see also In re Marriage of Geraci (2006) 144 CA4th 1278, 1292; Love v The Mail on Sunday (CD Cal 2007) 489 F Supp 2d 1100.

    [7] Individuals may be subject to partnership liability and treated as “ostensible partners” as a result of misrepresentations to third parties that suggest that they are partners in a partnership. See California Corporations Code §16308 (regarding purported partnerships). Partners who consent to such nonpartner misrepresentations may also be bound by them. For further discussion of ostensible partnerships, in which the court states the requirements necessary to establish liability under that doctrine, see Armato v Baden (1999) 71 CA4th 885.

  • Sebastopol Issues Zoning Code Interpretation; Will Allow Delivery-Only Retail (and Other Medical Uses)

    On October 24, the Sebastopol Planning Commission approved a Zoning Code Interpretation (hereafter, the “Interpretation”) that allows certain commercial medical cannabis uses to exist in zones of the city where similar uses are already allowed to operate. Sebastopol’s Planning Director, Kenyon Webster, authored the Interpretation. The Law Offices of Omar Figueroa offered guidance in the form of emails and letters to staff and the Planning Commission suggesting the Zoning Code Interpretation.

    Sebastopol is a small, progressive city in Western Sonoma County, in California’s North Bay region.   It is the home of SPARC (formerly known as Peace in Medicine) one of the state’s premier medical cannabis dispensaries.  It happens to be where the Law Offices of Omar Figueroa is located, and where most of our staff resides. In contrast to most other jurisdictions throughout the state that are limiting their regulatory discussion to commercial medical cannabis activity, many members of the Planning Commission wanted to include adult use activities in the Interpretation as well. However, the Commission decided that a decision such as that would best be left to City Council.

    City staff is currently drafting a comprehensive ordinance–which could be heard as soon as November 25–that would include new regulations for both medical and adult use cannabis businesses within Sebastopol. The new Interpretation is an interim measure that was designed with the approaching state licensing process in mind.

    The Interpretation went into effect immediately once adopted. Under the Interpretation, the following medical cannabis businesses would be able to apply to the city of Sebastopol for a local permit: testing laboratories, non-volatile manufacturers, infused product manufacturers, delivery-only retailers, distributors, processors, and packagers & labelers. Such uses are either permitted in certain zones or are subject to a Use Permit.

    Sebastopol is one of the few cities across the state to issue permits for non-storefront medical retailers (i.e., “delivery-only” dispensaries). Most other jurisdictions that allow delivery require that it be attached to a storefront dispensary. Under the new Interpretation, an office for a delivery-only retailer is a permitted use in non-residential zones throughout the city. This is good news for many delivery operators who have been looking for somewhere to locate and get permitted.

    Sebastopol already has an ordinance regulating storefront dispensaries and has two such storefront dispensaries currently in existence. The Planning Commission asked the City Council to consider adopting an urgency ordinance that would allow the existing medical cannabis dispensaries to apply for adult use retail licenses.

    For more information, including application submittal requirements and the required forms, or for assistance obtaining a commercial cannabis permit in Sebastopol in order to be eligible for state licensing, please contact the Law Offices of Omar Figueroa at (707) 829-0215 or (415) 489-0420.

     

    The above information is provided as a public service. It is not intended as legal advice. For answers to your legal questions or legal assistance, including obtaining commercial cannabis permits and licenses in California, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

  • Cannabis Trade Secrets in California: Protecting Your Intellectual Property

    Trade secrets are valuable business assets that many cannabis companies have, perhaps without knowing that they are trade secrets.  For example, a cultivator may have developed proprietary cloning and tissue culture techniques, or proprietary growing methods, or proprietary drying and curing processes, blissfully unaware that California law may provide meaningful protection to valuable intellectual property so long as it is not generally known to the public and reasonable efforts are made to maintain its secrecy.

    Critically, the confidentiality of a trade secret must be protected in order to maintain its value. The State of California actually defines a trade secret as information that: (1) has economic value; (2) is not generally known to the public; and (3) subject to reasonable efforts to maintain its secrecy.

    Trade secrets are granted legal protection because they are valuable assets; indeed, the technological innovations of the modern era would not exist if the law did not recognize trade secrets, as there would be no incentive for organizations to pour tremendous resources into research and development if the law failed to provide sufficient protection.

    That is not to say that trade secrets cannot be shared with anyone—part of the value inherent in a trade secret is the ability to license its use to others for a fee or royalty. That said, care must be taken in all situations where a trade secret is made available to individuals or entities other than the secret’s owner if trade secret status is to be preserved.  Even accidental disclosures of trade secret information can destroy the “trade secret status” of that information.

    Trade secret status is important because it allows a company to take legal action in the event someone wrongfully gains access to its trade secrets. Moreover, some information does not qualify for any other form of intellectual property protection and is thus only protectable as a trade secret – for example, recipes (including “recipes” for soils, compost teas, fertilizers, etc.). Under the California Uniform Trade Secrets Act (“UTSA”), the owner of a trade secret that has been misappropriated can obtain an injunction (the right to stop the opposing party from taking certain actions, such as using a particular trade secret or from sharing such secret further) as well as monetary damages. While monetary damages are generally limited to the amount a party has actually suffered, in trade secret cases the court has discretion to award treble damages (i.e. an amount up to three times higher than the actual damages incurred). Attorneys’ fees and costs are also generally available to the prevailing party, including reasonable fees for independent experts. In certain cases, imprisonment or fines may also be imposed on the trade secret misappropriator. While cannabis companies tend to prefer state court, for obvious reasons, trade secrets are also actionable under federal law. For cases that arise after May 11, 2016, the Defend Trade Secrets Act (“DTSA”) is a federal statute that provides damages and injunctive relief comparable to California’s UTSA.

    While trade secrets are protectable, many businesses struggle with the requirement of treating the information as secret. A certain amount of disclosure is inevitable when using information as part of a business – especially to employees, but also when attracting potential investors – yet if a business fails to take reasonable steps to protect the information, the remedies outlined above will not be available. Thus, companies that have developed valuable information should also develop a trade secret plan for protecting that information. Having a written trade secret plan not only enables the company to better protect its secrets, but also acts as evidence in and of itself that reasonable efforts to protect the information have been implemented. (Merely having a trade secret plan will not be dispositive; the plan should, of course, be implemented and adhered to).

    Noted attorney James Pooley, author of the legal treatise “Trade Secrets”, has written that a trade secret protection plan should be based on four principles: inventory, simplicity, responsibility, and review.
    • Inventory – a company must, at the onset, know what it is the company wants to protect in sufficient detail to identify threats to its secrecy as well as establish its value.
    • Simplicity – an effective trade secret plan must not be complicated or overly burdensome, otherwise the plan is likely to be ignored by ownership and employees alike.
    • Responsibility – Pooley recommends that a specified individual or individuals be responsible for implementing every aspect of the trade secret protection program, including audits for effectiveness.
    • Review – as noted above, trade secret plans should be audited and reviewed to ensure that the plan is being consistently implemented and the trade secrets actually protected.

    An effective trade secret plan identifies the manner in which trade secrets are most likely to be compromised and creates protection policies accordingly. Consider the following situations and whether the proprietary information is adequately protected:

    • Employee Mobility – Non-competition clauses are not enforceable in the State of California; thus, one’s employees are generally free to leave one’s employment and work for a direct competitor at any time. Do employees know what information in their possession is considered confidential, proprietary, and/or a trade secret? Do they know what they are and are not allowed to do with that information when they leave your employment? If you have established a duty of confidentiality, both during and after employment, was it in writing?
    • Site Visitors (especially investors) – Potential investors, as well as other visitors, are also threats to a trade secret. When giving tours and explaining how your facility maintains a competitive edge, do you unwittingly reveal your processes? Are novel inventions capable of being observed during site visits by outsiders? Giving a facility tour without requiring Non Disclosure Agreements (NDA’s) presents a grave risk to successfully asserting the confidentiality of a trade secret in the future.
    • Lack of Document Security – Many businesses write out trade secrets during development and following so that they can be accessed, reviewed, and perfected; such may even be a necessity. Think of supplier lists, fertilizer recipes, customer lists, and so forth. Where do you store these documents containing trade secrets? Are they accessible by site visitors? Are they lying out in the open? Can all employees access them or only those employees who have a need to know the information? Are they stored in a locked area when not in use?
    • Lack of Electronic Security – In the same manner that many individuals write out trade secret information on physical paper, many individuals prefer electronic documentation. If there is a computer at your business location containing such documents, is it password protected? If so, do all employees know that password and have access to that computer, or only those that need to know the information to perform their job duties?
    • Government Submissions – Cannabis companies are required to submit a wealth of information about their business operations to both local and state governments in order to obtain a license for cannabis-related activities and portions of information requested by the government agency during an application process may well constitute a trade secret. Have you taken any steps during the application process to communicate to the government agency that you consider portions of the application to be a trade secret that needs to be protected from disclosure to non-regulators?

    In sum, by taking reasonably appropriate steps to protect its valuable trade secrets, a California cannabis company can protect critical segments of its intellectual property portfolio.

    The above information is provided as a public service. It is not intended as legal advice.

    For answers to your legal questions or legal assistance, including with establishing and implementing a trade secrets protection plan, please contact the Law Offices of Omar Figueroa at (707) 829-0215 to schedule a confidential legal consultation.

  • Summary of Local Ordinances Released by Bureau of Cannabis Control

    The Bureau of Cannabis Control (Bureau), formerly named the Bureau of Medical Cannabis Regulation, is working on regulations pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to establish a licensing and enforcement program for commercial cannabis distributors, retailers, testing laboratories, and microbusinesses.

    As lead agency under the California Environmental Quality Act (CEQA), the Bureau has prepared an Initial Study/Proposed Negative Declaration (IS/ND).  The entire document can be downloaded by clicking the image below.

    The Initial Study/Proposed Negative Declaration (IS/ND) is huge at 491 pages; however, it contains three very helpful summaries.  These summaries have been extracted for your convenience and can be downloaded by clicking the image below or here.

    The summaries are:

    Table C-1: Summary of County Ordinances (as of August 17, 2017)

    Table C-2. Summary of Ordinances in the Ten Largest California Cities (by population) (as of August 17. 2017)

    Table C-3. Summary of Regulations in Other States that Have Passed Legislation Authorizing Adult Use of Cannabis (as of August 17, 2017)

    These official summaries provide helpful information to: 1) regulators seeking guidance from other local jurisdictions, 2) entrepreneurs looking for cannabis-friendly local jurisdictions issuing local permits, and 3) those who seek to understand cannabis policy in California and other states that have passed legislation authorizing the adult use of cannabis.

    NOTE: Ordinances, laws, and regulations are in a state of evolution, and change from day to day.  The official summaries are current as of August 17, 2017, meaning they are probably already out of date.  We cannot guarantee the accuracy of these official summaries, which are provided for informational purposes.

    Please check directly with the local jurisdiction (the city for activity within city limits, or the county for activity within the unincorporated area of the county) to find the latest ordinances pertaining to cannabis.

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    The above information is provided as a public service.  It is not intended as legal advice.

    For answers to your legal questions, or legal assistance in obtaining local permits and/or state licenses, please contact the Law Offices of Omar Figueroa at (707) 829-0215 or (415) 489-0420 to schedule a confidential legal consultation.

  • Summary of Expected Emergency MAUCRSA Regulations Released

    The Bureau of Cannabis Control (Bureau), formerly named the Bureau of Medical Cannabis Regulation, is developing regulations pursuant to the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) to establish a regulatory licensing and enforcement program for commercial cannabis distributors, retailers, testing laboratories, and microbusinesses. As lead agency under the California Environmental Quality Act (CEQA), the Bureau has prepared an Initial Study/Proposed Negative Declaration (IS/ND).  The entire document can be downloaded by clicking the image below.

    The Initial Study/Proposed Negative Declaration (IS/ND) is huge at 491 pages; however, it contains a very helpful Summary of Expected Emergency MAUCRSA Regulations.  The official summary can be downloaded by clicking the image below.

    The Summary of Expected Emergency MAUCRSA Regulations can also be downloaded here.  This official summary provides a helpful preview to those who want to plan to comply with the anticipated MAUCRSA regulations.

    Highlights of the expected regs:

    Applicants will be required to submit identifying information for every owner.  Applicants will also be required to provide information regarding their funding sources and owners’ criminal conviction histories.

    In the regulations, the Bureau will specify the types of records that licensees must keep, including financial, personnel, and security records; training records; contracts; and permits, licenses, and local business authorizations. The regulations will require that these records can be produced when requested by the Bureau.

    Licensees and persons acting for or employed by a licensee must display photo identification badges while engaging in any commercial cannabis activity. isitors to any licensed premises will be required to be escorted by an employee when visiting limited‐access areas of the premises.

    All licensees will be required to install and maintain a video surveillance system to record all entries and exits, as well as all areas where cannabis is received, processed, and stored, as well as security rooms. Retailers will also be required to record all point‐of‐sale areas and areas where cannabis is displayed for sale. Cameras must record 24 hours per day, and recordings must be kept for a specified period of time.

    Licensed premises will have an alarm system that is monitored and maintained by a licensed alarm company.

    Distributors are also the only license type that can transport commercial cannabis goods. Distributors may act as wholesalers or may charge other licensees a fee for conducting distribution on their behalf.

     

    The regulations will provide that distributors may package and label or repackage and relabel cannabis in the form of dried flower on behalf of a cultivator or another distributor. Distributors may not package, repackage, label, or relabel manufactured cannabis goods.

    Cannabis goods will be required to be transported inside commercial vehicles or trailers. Transportation may not be done by aircraft, watercraft, rail, drones, human powered vehicles, or unmanned vehicles.

    Vehicles used for transporting cannabis goods must contain a box that can be locked and that is secured to the inside of the vehicle or trailer. Cannabis goods must be locked in the box during transport.

    After taking physical possession of a cannabis batch, a distributor will contact a licensed testing laboratory to arrange for testing, unless the distributor plans to sell the batch to another distributor. At that point, a laboratory agent will come to the distributor’s licensed premises to take a sample. The sample selection will be recorded on video, and both the distributor and the laboratory agent must witness and attest to the sample selection.

    After the sample has been tested, the testing laboratory will provide the distributor with a certificate of analysis. If a sample passes testing, the distributor may transport the cannabis goods to one or more retailers for sale. If a harvest batch fails testing, it can be remediated for use in a manufactured product, if doing so would not result in harm to consumers.

    Cannabis goods may be displayed only in the retail area, and only during business operating hours. Cannabis goods may not be displayed where visible from outside the premises.

    Retailers may not provide free samples to anyone or allow representatives of other companies or organizations to provide free samples on the licensed premises.

    Retailers must receive cannabis goods only from licensed distributors. Cannabis goods must be packaged and labeled for final sale at the time the retailer receives them.

    Following a sale, the retailer must place cannabis goods in an opaque exit package before the customer leaves the retailer premises.

    Delivery employees may not consume cannabis during delivery.

    Vehicles used for delivery must have a dedicated, active GPS device that enables the dispensary to identify the geographic location of the vehicle during delivery.

    Retailers may receive shipments of inventory only from licensed distributors.

    Retailers must keep records of all sales transactions, including the names of the sales employee and the customer, the list and quantity of products sold and their price, and the date and time of the transaction.

    The Bureau’s regulations will include a grace period for compliance with packaging and testing requirements. During the grace period, retailers may package and sell cannabis goods that have not been packaged by a cultivator or distributor. In addition, during the same time frame, retailers may sell untested cannabis if they place a label on the package with the date of purchase and the statement, “This product has not been tested under the Medicinal and Adult‐Use Cannabis Regulation and Safety Act.”

    Laboratories will be required to test samples for cannabinoid content. The cannabinoids that are required to be tested for are tetrahydrocannabinol (THC), tetrahydrocannabinolic acid (THCA), cannabidiol (CBD), cannabidiolic acid (CBDA), cannabigerol (CBG), and cannabinol (CBN). For each of these cannabinoids, laboratories must report the concentration. They may also test for other cannabinoids at the election of the test requester.

    Laboratories will be required to analyze samples of manufactured cannabis goods for residual solvents and processing chemicals. Dried flower, kief, and hashish need not be analyzed for residual solvents.

    Testing laboratories will be required to test samples for residual pesticides.

    Laboratories will be required to test samples of cannabis and cannabis products for microbiological impurities, which will include Shiga toxin producing Escherichia coli and Salmonella spp. Laboratories must also test for the pathogenic species Aspergillus funigatus, A. flavus, A. niger, and A. terreus in all cannabis goods intended for consumption by inhalation, including dried flower, kief, hashish, oil, and waxes.

    Testing laboratories will be required to analyze samples for mycotoxins.

    Testing laboratories will analyze dried flower harvest batch samples for water activity and moisture content.

    Testing laboratories will be required to test samples for filth and foreign material. This includes, but is not limited to, mold, hair, insects, feces, packaging contaminants, and manufacturing waste and byproducts. Samples that contain these contaminants above the specified action levels will fail laboratory testing.

    Laboratories may be required to analyze samples for concentrations of heavy metals.

    After completion of testing, the testing laboratory will issue a certificate of analysis that details the results of each test. The certificate of analysis will also report whether the laboratory detected any unknown or unidentified substances or materials during analysis of a sample. If the laboratory finds a contaminant that is not listed in these regulations that could be injurious to human health at the levels detected, the laboratory must notify the Bureau within 24 hours. Samples found to contain synthetic cannabinoids will fail testing.

    A batch may not be retested unless it has undergone a remediation process. Before a batch can be retested, the distributor must provide a document to the laboratory specifying how the product was remediated.

    Testing laboratories will be required to develop and implement a laboratory quality assurance program

    A microbusiness license allows the licensee to cultivate cannabis in an area of less than 10,000 square feet and to act as a licensed distributor, Level 1 (nonvolatile solvent) manufacturer, and retailer. (Bus. Prof. Code §26070.) For both medicinal and adult‐use cannabis operations, CDFA is the licensing authority for stand‐alone cannabis cultivation activities and CDPH is the licensing authority for stand‐alone cannabis manufacturing activities.

    With regard to distribution and retail sale, the regulations applicable to those activities are anticipated to be the same for a microbusiness as for a standalone business. For cultivation activities, it is expected that applicants will be required to follow applicable provisions of the cultivation regulations that will be adopted by CDFA for cannabis cultivation, and CDFA is anticipated to provide assistance to the Bureau related to cultivation by a microbusiness. Similarly, it is expected that microbusiness applicants conducting manufacturing activities will be required to follow CDPH manufacturing regulations, and CDPH is anticipated to provide assistance to the Bureau related to manufacturing by a microbusiness.

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    Provided for informational purposes only; this is not intended as legal advice.  Please contact the Law Offices of Omar Figueroa for legal counsel or assistance regarding the Expected Emergency MAUCRSA Regulations, or other legal issues, at (707) 829-0215, at (415) 489-0420, or at info@omarfigueroa.com.

  • Marin County Releases Draft Ordinance for Medicinal Cannabis Delivery-Only Retailer (MCDORe) licenses

    Marin County has released its draft ordinance for issuing Medicinal Cannabis Delivery-Only Retailer (MCDORe) licenses.

    Highlights of the draft delivery-only ordinance:

    • “The MCDORe license is more restrictive than a State Retailer license because it requires the retailer’s premises to be closed to the public and to conduct sales exclusively by delivery.” Section 6.86.030, License Requirements.
    • Up to four MCDORe licenses may be issued for “premises within the unincorporated areas of Marin County for a medicinal cannabis retailer which is closed to the public and conducts sales exclusively by delivery.”  Section 6.86.032, Limitation on number of licenses.
    • A MCDORe “may only be located in the C1, CP, AP, OP, and IP” zoning districts.  One can look up zoning information for a particular location in unincorporated Marin County by clicking here.
    • A MCDORe must not be within a 600-foot radius of a playground, tobacco store, school, day care center, youth center, or “another cannabis retailer.”  Section 6.86.033, Limitation on location.
    • License applications will go through multiple phases: prescreening, lottery (if there are more than four applicants; lottery winners win the opportunity to continue to compete for a license), application pre-submittal, and application review based on a 100 point scale.  Section 6.86.041, Review of Applications.

    A public workshop and Question & Answer session is scheduled for Sep. 19 at 6:30 p.m. in the Marin County Board of Supervisors chamber, Suite 330, 3501 Civic Center Drive, in San Rafael.  The draft ordinance is set for a first reading by the Board of Supervisors on Sep. 26 and could be adopted as soon as October 10, 2017.

    The draft ordinance can be downloaded below.

    Marin County Draft Delivery-Only Ordinance

    More information about the draft ordinance is available at:
    http://www.marincounty.org/main/medicalcannabis

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    If you are interested in applying for a Marin County Medicinal Cannabis Delivery-Only Retailer (MCDORe) license, please contact the Law Offices of Omar Figueroa at (415) 489-0420 or (707) 829-0215. Due to the limited number of licenses, we are only able to represent one applicant for a Marin County Medicinal Cannabis Delivery-Only Retailer (MCDORe) license. Lawyer up quick!

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  • Amicus Brief Filed on Behalf of National Cannabis Bar Association

    You may have heard about the ongoing case involving a San Diego cannabis lawyer who is facing felony charges in what amounts to a vindictive prosecution from the local District Attorney’s office (which is notoriously unfriendly to cannabis).
    Today, we just filed an amicus curiae brief on behalf of the National Cannabis Bar Association and other amici in support of the defendant-lawyer, our esteemed colleague Jessica McElfresh, arguing about the far-reaching implications of this case not only on the cannabis industry, but also on the legal profession and the public at large.

    Download PDF version of Amicus Brief Here

  • Federal Registration of Cannabis Trademarks™ and the Natural Zone of Expansion

    Federal trademarks registered with the United States Patent and Trademark Office (“USPTO”) are valuable business assets that, if possible, should be cultivated and protected.  The ® registration symbol can be used in conjunction with a trade or service mark if, and only if, the mark has been granted federal registration.

    If a mark has not been granted federal registration, it is unlawful to use the ® registration symbol, so the less prestigious ™ symbol is generally used instead. The ™ symbol can indicate various possibilities: 1) the mark is being used to distinguish goods, and the owner of the mark has common law rights, but no registration application has been filed at either the state or federal level, or; 2) a state registration has been filed (and has been granted or is pending), or; 3) a federal trademark application has been filed and is pending but not yet granted.

    Trademark law, at its heart, is built upon the principle of first use – generally, the strongest rights to use a given mark will be granted to the first entity to have actually used it. However, “use” must meet a variety of requirements in order to be considered valid for trademarking purposes. To begin, the use must be within the “ordinary course of trade” for the given industry.[1] Moreover, the use must be “bona fide,” or to put it another way, done in good faith – the applicant must be using the trademark because it has a good faith intention of being recognized by the public as the source of particular goods or services. Token use of a trademark done solely to gain rights in a trademark that the applicant has no or only illusory intentions of using are not sufficient (i.e., think of it as trademark “squatting”). In addition, in order for the USPTO to have authority to issue a federal registration, the use must be “in interstate commerce.” Interstate commerce generally means that the goods or services physically cross state lines; however, there are certain uses that are deemed inherently affecting interstate commerce and therefore eligible for trademark registration.

    Cannabis companies face an added difficulty because the USPTO also requires that use of a trademark be “lawful.”[2] To that end, the USPTO will currently not issue trademark registrations for cannabis and related products or paraphernalia under the rationale that, as a matter of law, the necessary use of such goods in interstate commerce violates the federal Controlled Substances Act (“CSA”) and is thereby inherently unlawful. The legality of the use under state law is considered inapposite for purposes of gaining a federal trademark.

    Given the USPTO’s refusal to issue trademark registrations for cannabis goods, many applicants have endeavored to gain the value of a trademark by simply applying for a trademark on a broad category of goods, generically described, with the hopes that cannabis will be able to implicitly hide inside that category. This tactic has not met with much success, however – namely, the USPTO inevitably discovers that the goods were described in an overbroad manner (which warrants rejection of the application in its own right) and the only goods on which it is used are deemed “unlawful” (and thus again not entitled to registration). A trademark application is required to identify the goods and services on which the mark is used with a reasonable amount of specificity. Applicants frequently use very broad terms to identify their goods and services in an application, but if an applicant’s actual use is in fact limited only to a much smaller subclass of goods or services, and one which is capable of being easily described for application purposes, the application will be denied unless the goods and services listed are narrowed accordingly – and that is a rule that applies no matter the type of goods being applied for.

    That said, many companies do in fact use a mark on a variety of goods within a broad category. An application using the broader category will be accepted in such instances.[3] If the USPTO deems a description of goods to be overbroad, however, the application will be rejected unless amended to narrow the scope of goods claimed.

    This is important because the USPTO has discretion to investigate the actual use of a trademark to ensure that it is used in the manner described by the application (as well as in compliance with trademark law, meaning the claimed goods are described with sufficient specificity and that the use is “lawful”). To this end, many examiners at the USPTO look at an applicant’s website and social media pages to see how the applied-for mark is being used. For cannabis companies, such research generally indicates that the trademark is used solely or primarily with regards to cannabis products and thus, the application is rejected on two counts: first, that the goods were described in an overbroad manner and, second, that the use is unlawful. Ordinarily, an application can be amended to narrow the goods being claimed and thus still gain approval, but for cannabis companies, narrowing the scope to identify cannabis products specifically still fails the lawful use requirement.

    Yet, there is another approach to consider that has met with success on at least a few occasions. Rather than attempting to protect cannabis products directly by filing for a broad category of goods with the hope that cannabis hides implicitly within the scope of that broad category, protection can be gained by filing for related goods. If cannabis is explicitly disclaimed from the goods being registered, the application on its face does not violate the CSA and should be entitled to registration. While disclaiming desired goods may seem counterintuitive, holding a mark for a specified class of goods or services can still sometimes be used to prevent (and therefore protect against) confusingly similar trademarks on other goods and services, including the desired goods, despite their not having been listed in the original application.

    Trademarks are filed, as noted above, for specific goods and services. But the law recognizes that companies frequently start with a limited number of goods and then expand their offerings to include other goods within the same general category – these new goods are considered part of the company’s “natural zone of expansion.” Thus, a registration for “clothing” (Class 25) will act as a block for “leather goods” (Class 18) because the USPTO has recognized that clothing companies often expand their line of goods such that they act as a source for items from both categories. Thus, the goods are deemed within each other’s natural zone of expansion – in other words, since clothing manufacturers (shirts, pants, etc.) frequently branch out to also manufacture leather goods (belts, etc.), both categories will be examined when competing trademarks are to be filed in either category.

    Similarly, the law accounts for the fact that some goods are so “related” (even if they happen to be filed in different classes) that confusion may be likely among consumers if the same or similar marks were used on both, despite the fact that manufacturers of one do not ordinarily evolve to manufacture both. For example, beer exists within Class 32 while wine and spirits exist in Class 33. Despite being different goods in different classes, a mark that has been registered for beer in Class 32 will generally act as a block to any mark that is confusingly similar being registered on wine, vodka, whiskey, etc., even though such goods exist in an entirely separate class. This is true irrespective of the fact that breweries rarely evolve to manufacture wine or vice versa.[4]

    With regards to cannabis, both principles can be leveraged to gain a zone of protection that will surround a cannabis mark and protect the mark from being filed by a competing user now or in the future. By identifying classes of goods and services that fall within the natural zone of expansion or “related goods,” cannabis products can be afforded protection, despite not being listed in the application. Essentially, one wants to imagine which class their goods would be filed in once cannabis becomes eligible for trademark protection in its own right, and file in that class (or an adjacent class) to create a reserved space ahead of time.

    Depending on the goods and services that a given cannabis company will offer, there are obviously a number of classes in which that company may wish to file. There is no limit to the number of categories a company is allowed to apply for so long as the mark will be used on those goods and services. However, as indicated above, the mark must be actually used on such goods and services and the use must be within the ordinary course of trade, thus a single sale of such goods or services will not be sufficient – an ongoing business effort must be implemented.

    Above, it was noted that an applicant must show use of the mark on the applied-for goods in order to apply for a trademark. This can be problematic given that, as also noted above, priority is given to the first user of a given mark. The former rule means that, ideally speaking, a company will use and apply for a mark as soon as possible. Luckily, there is a limited exception to the use necessity in the form of an Intent-to-Use application. Intent-to-Use applications allow a company or individual to file for a trademark before they have used the mark on the applied-for goods, so as to save their “space in line” chronologically speaking. As such, it allows an applicant to reserve rights in a mark while, for example, they are still in the formative stages of their business or waiting on a crop to be harvested. When filing an Intent-to-Use application, the applicant has six months from the date the application is approved in order to actually use the mark. If that six-month period is not enough time, up to five extensions may be filed; in other words, an applicant will have up to three years to actually use the mark. The Intent-to-Use application does involve additional paperwork, and thus additional expense, but it allows companies to reserve a mark without fear that a competitor will beat them to market in a given industry.

    If you have further questions about trademarks or would like to move forward with trademark clearance and registration, please contact the Law Offices of Omar Figueroa at 707-829-0215.

     

    *******

     

    ENDNOTES

    [1] Trademark Manual of Examining Procedure (TMEP) 901.02

    [2] See In re Brown, 119 USPQ2d 1350, 1351 (TTAB 2016); John W. Carson Found. v. Toilets.com, Inc., 94 USPQ2d 1942, 1948 (TTAB 2010); In re Midwest Tennis & Track Co., 29 USPQ2d at 1386 n.2 (TTAB 1993); Clorox Co. v. Armour-Dial, Inc., 214 USPQ 850, 851 (TTAB 1982); In re Stellar Int’l, Inc., 159 USPQ 48, 50-51 (TTAB 1968).

    [3] By way of an example, an application claiming a mark for “baked goods” will be deemed overbroad if the applicant only actually makes one or two specific baked goods, say cookies. If, however, the applicant makes cookies, brownies, cupcakes, pies, croissants, and bread, the application may be accepted as described.

    [4] These rules are not absolute of course, and every application is examined on a case-by-case basis. Many factors go into whether two marks are similar enough to be confusing and thus whether the prior user can reserve the secondary space (i.e., block a newer user from using the similar mark).

  • SB-162 Would Bar Cannabis Licensees from Using Branded Merchandise (and is Probably Unconstitutional)

    California Cannabis Industry Alert!

    Senate Bill 162 (hereafter “SB162”), currently making its way through the state legislature, would impose draconian restrictions on cannabis marketing. Specifically, it would prevent cannabis licensees from advertising or marketing cannabis products using merchandise, such as clothing, hats, t-shirts, or other items branded with the name or logo of the product. The bill already passed through the California Senate unanimously, but its constitutionality is questionable.

    The bill is intended to limit marketing of cannabis products in ways that were already conceptually prohibited by AUMA in that a licensee may not advertise a cannabis product in a way intended to encourage people under 21 years of age to consume or purchase cannabis. However, the bill goes beyond just requiring that merchandise may not be made attractive to children and bars, presumably, any branded merchandise.

    The language of the proposed law is extremely broad.  SB162 would amend Section 26152 of the Business and Professions Code to read:

    26152. A licensee shall not do any of the following:

    (a) Advertise or market in a manner that is false or untrue in any material particular, or that, irrespective of falsity, directly, or by ambiguity, omission, or inference, or by the addition of irrelevant, scientific, or technical matter, tends to create a misleading impression.

    (b) Publish or disseminate advertising or marketing containing any statement concerning a brand or product that is inconsistent with any statement on the labeling thereof.

    (c) Publish or disseminate advertising or marketing containing any statement, design, device, or representation which tends to create the impression that the cannabis originated in a particular place or region, unless the label of the advertised product bears an appellation of origin, and such appellation of origin appears in the advertisement.

    (d) Advertise or market on a billboard or similar advertising device located on an Interstate Highway or on a State Highway which crosses the California border.

    (e) Advertise or market cannabis or cannabis products in a manner intended to encourage persons under 21 years of age to consume cannabis or cannabis products. This prohibition includes all advertising of cannabis or cannabis products through the use of branded merchandise, including, but not limited to, clothing, hats, or other merchandise with the name or logo of the product.

    (f) Publish or disseminate advertising or marketing that is attractive to children.

    (g) Advertise or market cannabis or cannabis products on an advertising sign within 1,000 feet of a day care center, school providing instruction in kindergarten or any grades 1 through 12, playground, or youth center.

    (Emphasis added.)  The entire bill is available on the Legislature’s web site, at:

    https://leginfo.legislature.ca.gov/faces/billCompareClient.xhtml?bill_id=201720180SB162

    As of August 1, 2017, the Legislative Counsel’s Digest for the bill states, “This bill would specify that advertising or marketing cannabis or cannabis products in a manner intended to encourage persons under 21 years of age to consume cannabis or cannabis products includes all advertising of cannabis or cannabis products through the use of branded merchandise, including, but not limited to, clothing, hats, or other merchandise with the name or logo of the product.”

    You read that right—if this becomes law, then cannabis licensees would be prohibited from advertising their brands on any merchandise, even if it was not designed to appeal to minors or even made available to people under the age of 21. The bill cites a case related to tobacco advertising restrictions (Commonwealth Brands, Inc. v. United States, 678 F.Supp.2d 512 (2010)) in support of the legislature’s position that such a restriction on speech for cannabis would be constitutional. However, there are problems with that comparison.

    First, Commonwealth Brands dealt with a federal law that placed restrictions on advertising, whereas AUMA is a state law. The federal district court’s holding in Commonwealth Brands is not binding on courts in California.

    Second, tobacco and cannabis are not the same thing, nor do they have the same effect on the human body. The court in Commonwealth Brands made only passing references to the government interest being served by the federal law at issue in that case citing the Act’s aim as being “to curb tobacco use by adolescents” (at 519) and reducing tobacco use by minors” (at 522). However, even interests that some may consider intuitively worthy are not self-validating under the law. Rather, the government must prove that the interest is substantial (or, in some cases, compelling). In this instance, the interest put forth in tobacco regulations is substantial because it has been widely accepted, through substantiation of numerous studies, that tobacco use is inherently dangerous in its causation of cancer, heart disease, and other serious health effects. This interest is explicitly referenced in the act regulating the tobacco advertising at issue and therefore implicitly accepted by the court in Commonwealth Brands. That said, there is simply no evidence that the potential harm and therefore the same interest in curbing cannabis use. The government lacks the same or even comparable body of evidence demonstrating that cannabis is carcinogenic or otherwise harmful to one’s health. In fact, a number of recent studies comparing tobacco smokers and cannabis smokers found that cannabis smokers had better long-term health and were less likely to suffer from cancer than tobacco users.

    In addition, unlike in Commonwealth Brands, where the government provided “extensive documentation” to show that marketing of tobacco products had a causal connection on consumer behavior of children, the legislature does not provide any proof that restricting advertising of cannabis products will affect youth behavior. Rather, the current version of SB162 simply states:

    Research by The RAND Corporation indicates that adolescents who are exposed to advertising of cannabis were more likely to report using cannabis or say they planned to use the substance in the future. The American College of Pediatricians’ research has found that cannabis has adverse effects on the adolescent brain and is associated with psychiatric illness and negative social outcomes.

     The bill does not provide any specific studies from either the RAND Corporation or the American College of Pediatricians to support this position, or to demonstrate that restricting speech in this broad way will achieve the desired outcome. Failure to provide the studies presumably demonstrating the government’s interest not only leaves the public in the dark as to what the government posits its substantial interest to be, but also creates a lack of accountability in the manner such interest was substantiated should the public infer or otherwise guess at what the interest might be.

     

    Commercial v. Non-Commercial Speech

    The First Amendment prohibits the government from making any law abridging the freedom of speech. Commercial speech is speech where the speaker is more likely to be engaged in commerce, where the audience consists of actual or potential customers, and where the content of the message is commercial in nature. Admittedly, commercial speech is afforded less protection by the First Amendment than non-commercial speech.

    The test to see whether a restriction on commercial speech violates the First Amendment is outlined by the U.S. Supreme Court’s decision in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S. 557 (1980). First, in order to be protected by the First Amendment, commercial speech must be truthful and not misleading. If the answer is yes, the speech can only be constitutionally regulated if (i) the government has a substantial interest in regulating the speech; (ii) the regulation directly advances the governmental interest asserted; and (iii) the regulation is not more extensive than is necessary to serve that interest. Central Hudson at 565.

    Additionally, any regulation of speech is void if it is vague, meaning it does not give reasonable notice of what is prohibited, or overbroad, meaning it regulates substantially more speech than is necessary to serve the government interest at stake.

    The government has the burden of demonstrating that the challenged regulation advances its interest in a direct and material way; mere speculation or conjecture that the regulation may serve the interest is not sufficient. There must be a “reasonable fit between the legislature’s ends and the means chosen to accomplish those ends, a means narrowly tailored to achieve the desired objective.” Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 561 (2001).

    The Commonwealth Brands case seems to rely on the idea that branded merchandise when utilized by the public, even if only those members of the public aged over 21 years, such individuals become walking advertisements to which minors will be inevitably exposed.  While there is some logic to the concept, if taken to its logical conclusion, absolutely no brand affiliated products intended for adults should be visible in the public domain given the likelihood that a minor might encounter them – this ban would include not only tobacco, cannabis, and alcohol, but also to clearly illogical extremes such as pharmaceuticals, cars (which are not to be driven except by individuals aged 16 and older), military careers, and more. Certain, more conservative, portions of the population may well include many more items to such a list.

    In either event, even if such items may seem easily forgone by some, the Supreme Court has already rejected such logic, not only with substantial interests but even the higher bar of compelling interests, and for good reason.  In Lorillard, the Court held that even retailers and manufacturers of adult-oriented products have an interest in conveying truthful information about their products to adults, and adults have a corresponding interest in receiving truthful information about such products. Lorillard at 564. In fact, the Court has reiterated several times that the level of discourse reaching the public simply cannot be limited to that which would be suitable for a sandbox, despite the presence of minors and their inevitable exposure to such discourse. To hold otherwise would be to reduce the adult population to reading only what is fit for children. Id (citing Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 74 (1983) and Butler v. Michigan, 352 U.S. 380,  383 (1957)).

    Purely political speech is given the full protection of the First Amendment, and restrictions on political speech are judged using strict scrutiny, which is the most difficult burden for the government to uphold. There must be a compelling government interest at stake and the government restriction on speech must be narrowly tailored to achieve that interest. A law is not narrowly tailored if it is over-inclusive, meaning it restricts even speech that does not implicate the government’s interest, or if there is a less restrictive means available to serve the government’s interest. Additionally, government restrictions on the content of speech are judged using this strict scrutiny analysis.

    The constitutionality of non-commercial, content-neutral restrictions of speech are assessed using intermediate scrutiny. This means that the law or restriction must advance an important government interest, and the means chosen must be substantially related to that interest. As is the case with content-based, purely political, or commercial speech, the law cannot be vague or overbroad.

    Additionally, there can’t be what’s called a “prior restraint” on speech, which is a governmental action that prevents speech or expression before it occurs. Prior restraints are typically found to be unconstitutional.

     

    Prohibition on Cannabis Advertising of Bands

    Cannabis companies advertising their brands or products on merchandise would likely fall under the purview of commercial speech, though certain messages could be construed to be non-commercial or even purely political given the fact that the legality of cannabis is currently a topic of political discussion.

    Yet, even if a court were to find that cannabis and cannabis product advertising on merchandise was commercial speech, the restriction would not withstand Central Hudson review. Specifically, the government would not be able to meet the first and final prongs of the test—that the government have a substantial interest to be served and the regulation be not more extensive than necessary to achieve that interest. Here, the State of California may well posit an interest in ensuring that children do not have access to cannabis products made for adults in much the same way that the State has an interest in ensuring youth do not have access to alcoholic beverages; however, the scientific data is entirely lacking to put cannabis on par with tobacco given the severe and undisputed health effects associated with the latter but not the former.

    In addition, prohibiting all cannabis licensees from advertising their company or products on branded merchandise is more extensive than is necessary to serve that interest given the plethora of valid and easily implemented alternatives. There is not a “reasonable fit” here between the objective and the means chosen. Instead, the legislature could restrict marketing that is specifically designed to be attractive to children, or could prohibit cannabis licensees from distributing branded merchandise at locations where children are present. Additionally, self-regulation of the industry is also an option. This method works quite well in the beer industry, where industry-created guidelines exist for branding and marketing by brewers and have thus far prevented the need for outside, legislative restrictions.

    Interestingly, the prohibition on advertising cannabis or cannabis products through branded merchandise would only apply to licensees. This means that someone without a state-issued cannabis license, such as a headshop or unpermitted operator, both of which are more easily accessible by someone under the age of 21, could advertise cannabis products through branded merchandise without repercussion, but someone with a license would be in violation of the law if they did so. This does not seem equitable or in line with the goal of reducing child exposure to branded cannabis merchandise.

    Lastly, the restriction on speech in SB162 is overbroad, as it would regulate substantially more speech than is necessary to achieve the government’s interest in restricting advertisements to minors. Speech that is not targeted in any way towards children, is not sold or distributed in places where children are present, and is not attractive to children would be included in the prohibition. This would impede the ability of cannabis companies to engage in constitutionally protected truthful commercial speech.

    If you’re concerned about this, we encourage you to contact your state assembly member today and tell your representative to vote “NO” on SB 162 unless amended.

    Please contact the Law Offices of Omar Figueroa to learn more about proposed restrictions on cannabis branded products and constitutional challenges thereto.

  • 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% of Sonoma County residents self-identified as “White alone, not Hispanic or Latino”, whereas 40.1% of Californians self-identified as “White alone, not Hispanic or Latino.”  On the other hand, 3.% of Sonoma County residents self-identified as “Asian alone”, whereas 13.0% of Californians self-identified as “Asian alone.”  Similarly, 1.6% of Sonoma County residents self-identified as “Black or African American alone”, whereas 6.2% 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.