Recreational Cannabis

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Green California Vector IllustrationIn an Alert published Thursday, Fox partner Tracy Gallegos and associate Lynnel Reyes examined new emergency regulations recently proposed by the California Department of Public Health to allow Type 6, 7, or N cannabis licensed manufacturers to register their facility as a “shared-use” facility. The regulations also provide for a new license, the Type S license, which would allow licensees to create infusions, package and label cannabis products and conduct extractions with butter or food grade oils (provided that the extract or concentrate produced may only be used in infused products manufactured by that licensee.) The regulations are expected to be approved by tomorrow, April 13, 2018.

Tracy and Lynnel outline the details of the proposed regulations and the new Type S license, including its benefits, associated concerns and the application process.

To read their full discussion, please visit the Fox Rothschild website.

Jack Praetzellis writes:

Green California Vector IllustrationCalifornia law requires all contracts to have a “lawful object”.  Previously, this posed a problem for contracts involving cannabis since cannabis-related contracts are largely unlawful under federal law.  On January 1, 2018, California enacted Civil Code Section 1550.5. That Code Section explicitly states that cannabis-related contracts have a lawful object under California law.

California’s new law provides that commercial activity relating to adult-use cannabis conducted in compliance with California law is deemed to be the lawful object of a contract.  Section 1550.5 means that cannabis businesses can enter into and enforce contracts knowing that courts will not (or at least, should not) find their contracts invalid for lack of a lawful object.

Businesses in the cannabis industry should draft their contracts to take advantage of this change in the law and there are at least two immediate implications.  First, choice of law provisions should require application of California law (e.g., this contract shall be governed by California law).  Second, forum selection clauses should be used to make it mandatory that any claims relating to the contract be brought in California State Courts and not in any United States District Court (e.g., any action relating to this contract shall be decided by the Superior Court for the City and County of San Francisco).

Jack Praetzellis is an associate in the Litigation Department, resident in the San Francisco office.

Jack Praetzellis writes:

Sunset at Manhattan Beach and Pier in Southern California, Los Angeles.California Governor Jerry Brown signed an amendment to California Evidence Code Section 956 ominously known as the “crime-fraud exception”.  The newly-revised Code Section attempts to address the tension between state and federal law governing cannabis.

Under normal circumstances, California’s attorney-client privilege makes confidential communications among an attorney and a client exempt from disclosure.  Essentially, neither a lawyer nor a client can be compelled to testify about the substance of their communications.

The crime-fraud exception punctures the attorney-client privilege.  It provides that if a client used the services of a lawyer to commit a crime or a fraud, then the attorney-client privilege doesn’t apply.  The conflict between state and federal laws governing cannabis raises the specter of whether or not legal advice about cannabis falls into the crime-fraud exception.

Under California’s newly enacted Evidence Code Section 956(b), so long as an attorney “advises the client on conflicts with respect to federal law,” the crime-fraud exception won’t impact the attorney-client privilege where the advice is “rendered in compliance on state and local laws on medical cannabis or adult-use cannabis.”

Before celebrating, however, be mindful of Federal Rule of Evidence 501.  Where federal law governs a claim, federal courts do not apply state law privileges and therefore will not apply Evidence Code Section 956(b).  And obviously no similar special exception has been written in to federal law.

What’s the takeaway?  If you are providing or receiving advice about cannabis in California, be sure that some of the advice concerns conflicts with respect to federal law.  While it’s not guaranteed to preserve the attorney-client privilege under all circumstances (see Federal Rule of Evidence 501), it’s undoubtedly better than nothing.

Jack Praetzellis is an associate in the Litigation Department, resident in the San Francisco office.

Las Vegas Strip, Las Vegas, Nevada

Approximately 43 million tourists visit Las Vegas annually, and of those tourists, some undoubtedly consume marijuana during their visits.

There is just one major issue: There is no place for the tourists to consume it. Pursuant to Nevada recreational use regulations, consumption is to be done privately, not publicly. Recreational use in gaming establishments, hotels, or concerts is strictly prohibited.

However, the City Council of Las Vegas has drafted a proposed ordinance to permit the operation of marijuana consumption lounges. Here are several key takeaways from the proposed ordinance:

  • Employees are prohibited from consuming marijuana in the establishment during business hours
  • Employees of the marijuana consumption lounge must be at least 21 years of age
  • Visitors of the marijuana consumption lounge must be at least 21 years of age
  • The establishment must be appropriately concealed as to not allow viewing by the general public
  • The establishment may obtain a nightclub license for live entertainment to be performed on the premises
  • The licensee must obtain a special use permit for the establishment to operate specific commercial, industrial, or hybrid commercial/industrial zoning districts.

The proposed regulation could take effect by March or April of 2018. Sooner rather than later, tourists and residents may be able to enjoy the consumption of marijuana in a more social setting. If the proposed ordinance passes, Las Vegas may experience an increase in annual tourists as a result.

After California voted in favor of allowing the recreational use of marijuana, the entrepreneurial bug bit many California residents. Consequently, three licensing agencies were tasked with creating emergency cannabis regulations prior to the issuance of any commercial cannabis licenses.

Sunset at Manhattan Beach and Pier in Southern California, Los Angeles.The Bureau of Cannabis Control (BCC) licenses microbusinesses, distributors, testing laboratories, and retailers. The California Department of Public Health’s “Manufactured Cannabis Safety Branch” licenses the manufacture of cannabis edibles. The California Department of Food and Agriculture (CDFA) licenses cannabis cultivators and has been tasked with implementing a statewide track-and-trace system to account for the distribution of cannabis from the point of seed-to-sale.

On December 15, 2017, the BCC issued its first twenty commercial cannabis temporary licenses. The temporary licenses are valid for 120 days. Temporary licenses may be extended for additional 90-day periods; provided, however that an application for permanent licensure has been filed and is pending with the appropriate licensing agency. The process of obtaining a cannabis license is robust because of dual-licensing requirements – attaining city and or county approval is one of the conditions to obtaining licensing approval by the state.

Additionally, on December 18, 2017, the CDFA opened its portal to begin accepting applications for cultivation licenses.

The licensing agencies are ramping up for distribution of more licenses post January 1, 2018 when recreational use of marijuana takes effect.

Yesterday, U.S. Senator Cory Booker (D-NJ) introduced the Marijuana Justice Act of 2017.  The bill, which Senator Booker first announced on Twitter and then described more fully on Facebook Live, aims to end the federal prohibition on cannabis with a multi-faceted approach.  First, the bill seeks to amend the Controlled Substances Act to declassify marijuana as a controlled substance under Schedule I of that Act.  Presently, marijuana is in the same category as heroin.

U.S. Capitol Building
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Although Senator Booker describes the legalization of marijuana at the federal level as “first and foremost,” he describes the declassification as “just the beginning.”  As written, the legislation is retroactive, requiring each federal court to issue an order expunging each conviction for a marijuana use or possession offense entered by the court before the date of enactment.  The bill would provide individuals presently incarcerated for marijuana-related offenses with an opportunity have their sentences reviewed as though the Act was in effect at the time the offense was committed.

In addition to the shift in federal law, the legislation incentivizes states to become more flexible in their criminalization of marijuana.  Under the proposed legislation, states would be ineligible for certain funding if they disproportionately arrest or incarcerate “low-income individuals” or “minority individuals,” as those terms are defined in the bill, for marijuana-related offenses.

Finally, the bill creates a “Community Investment Fund” of $500 million for communities that Senator Booker describes as having been “disproportionately impacted” by the enforcement of current laws.  Senator Booker would have the community investment fund available to finance job training, reentry services, expenses related to expungement of marijuana-related convictions, community centers, and libraries.

Although the bill has been described as a “long shot” in the Republican-controlled Congress, given the ever-increasing presence of the legal cannabis industry, it is one worth following.  You can learn more about the bill in the press release on Senator Booker’s website, and watch the Facebook Live video of Senator Booker discussing the bill:

In advance of a Senate Judiciary Committee hearing held June 19, 2017, New Jersey State Senator Nick Scutari released the text of Senate, No. 3195, or SB 3195, the long-awaited bill legalizing cannabis in New Jersey. In a statement announcing the bill in mid-May, Senator Scutari, the bill’s sponsor, stated, “Now is the time to begin shaping New Jersey’s recreational marijuana program. We will have a new governor next year and we should be prepared to move forward with a program that ends the prohibition on marijuana and that treats our residents fairly and humanely.”

New Jersey map outline
Copyright: adamgolabek / 123RF Stock Photo

Governor Chris Christie, an ardent opponent of legalization, once famously remarked that tax revenue generated by legalization of marijuana should be considered “blood money.” As a result, the legislature is not expected to vote on the bill until 2018, when Governor Christie is out of office.

Senator Scutari and other New Jersey legislators took trips to Colorado to see their legalization framework firsthand. The effect is a bill that closely resembles Colorado’s version. SB 3195 proposes the following:

  • Legalizing the possession of one ounce of marijuana flower, seven ounces of concentrate, 16 ounces of edible products infused with cannabis, seven grams of cannabis concentrate, and 72 ounces of infused liquid for adults over 21 years of age
  • Elimination of sales tax on medical cannabis purchases and installing a staggered sales tax schedule on recreational purchases. The tax rate the first year is proposed to be 7%, 10% in year two, and then increase by 5% each year after that until reaching 25%
  • Expunging criminal charges related to possession of marijuana
  • Creating a new division within the Office of the Attorney General that would be specifically charged with overseeing the legalization program

As drafted, SB 3195 prohibits home cultivation of cannabis. While stating that he would be open to negotiating that element of the bill, Senator Scutari noted the difficulties that Colorado and other states have experienced in regulating and controlling home cultivation. Those states impose limits on home cultivation, but enforcement of those limits has proven challenging.

A study by New Jersey Policy Perspective and New Jersey United for Marijuana Reform estimated that legalizing cannabis could bring $300 million in new tax revenue in year one.

Cannabis and the law
Copyright: jirkaejc / 123RF Stock Photo

A temporary restraining order granted to a group of alcohol distributors may delay the sale of recreational marijuana in Nevada, which was scheduled to begin on July 1. On May 30, 2017, the First Judicial District Court of Nevada issued the temporary restraining order, which essentially prohibits the Nevada Department of Taxation from enforcing a May 31 deadline for submitting recreational marijuana license applications.

The plaintiff alcohol distributors have alleged that the ballot measure to legalize recreational marijuana provided, among other things, that for a period of eighteen months after the implementation of recreational marijuana licensing regulations, only holders of wholesale liquor licenses could apply to be marijuana distributors in the state. However, the ballot measure also allowed the Department to open up the application process to others if the number of wholesale liquor applicants would result in an insufficient number of marijuana distributors. The Department determined that there was insufficient interest from liquor licensees and opened up the application process to others, including current holders of medical marijuana licenses, provided that their licenses are in good standing.

State officials have stated that by one day prior to the May 31 deadline for license applications, only one liquor licensee had applied for a marijuana distribution license. The alcohol distributors contend that this is not accurate and that more applications were submitted by liquor licensees. State officials expect that another hearing will be held on the temporary restraining order within the next few weeks. Until then, the stay on the issuance of recreational licenses will remain in place.

 

Effective today, retail shops and medical marijuana dispensaries in the City of Denver will have the right to remain open until 10:00 PM. Under Colorado law local jurisdictions have the authority to regulate the time, place, manner and number of marijuana stores, or prohibit their operation altogether.

16403223 - open late neon window sign
Copyright: phaseout / 123RF Stock Photo

Previously, Denver’s ordinances permitted stores to remain open until 7:00 PM.

Earlier versions of the bill contemplated 12:00 AM midnight as the new closing time.  The Council’s passage of Denver’s bill was in part motivated by the City’s desire to compete with adjacent municipalities such as Commerce City and Aurora, which requires stores to close at 10.

Girl holding marijuana leaf
Copyright: atomazul / 123RF Stock Photo

Despite uncertainty concerning the Trump Administration’s stance on recreational cannabis and its willingness to adhere to the Cole Memorandum, legislation was recently introduced in Illinois to legalize cannabis for recreational purposes (medical cannabis is already legal in Illinois). Senate Bill 316 and House Bill 2353 would make it legal for adults 21 and older to possess, cultivate, sell, purchase, and consume limited amounts of cannabis.[1] The bills were sponsored by Senator Heather Steans (D-Chicago) and State Representative Kelly Cassidy (D-Chicago).

Based on usage rates and retail sales of recreational cannabis in Colorado, the Marijuana Policy Project, a national advocacy group, estimates that regulated cannabis sales in Illinois could generate $350 million to $700 million in new revenue per year.[2]

Senator Steans and Representative Cassidy indicated they do not plan to call the bill for a vote this session, but will hold hearings to determine if enough support can be generated for a legalization bill next year.[3] The bills propose to allow current medical cannabis dispensaries to be able to sell cannabis for recreational purposes for up to one year before any new establishments receive licenses to sell cannabis for recreational use.[4]

If passed, Illinois would join 8 other states (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, and Washington) and the District of Columbia that have passed laws allowing the recreational use of cannabis.

[1] 720 ILCS 550/3.5.

[2] https://www.mpp.org/news/press/illinois-general-assembly-consider-ending-marijuana-prohibition-regulating-taxing-marijuana-adult-use/

[3] http://www.chicagotribune.com/news/local/breaking/ct-illinois-marijuana-legalization-proposal-met-20170322-story.html

[4] 410 ILCS 130/115(g).