The cannabis industry is growing explosively worldwide, and the Pacific Northwest continues to be fertile ground for cannabis market leaders. However, the industry is tightly regulated at the national, state, and local level. Knowing how to traverse these regulations is paramount to running a successful cannabis business. In order to know which regulations apply, recreational marijuana businesses need to first identify their desired product. Are you trying to grow cannabis, process raw product into a commodity, transport cannabis and cannabis related products, or sell cannabis products to end-user consumers? Each type of business has its own unique regulatory obstacles.
Prospective cannabis business professionals should be aware that recreational and even medical marijuana is illegal under the Controlled Substances Act at the national level. Every year the cannabis industry gets closer to national legalization, but until that happens cannabis businesses should be aware of the risk of serious civil and criminal penalty for violation of the Controlled Substances Act. And while the passage of the 2018 Farm Bill allows hemp businesses to grow, process, and sell cannabis product with less than 0.3% tetrahydrocannabinol (“THC”) without violating federal law, the bill did not legalize recreational marijuana. Nonetheless, many states, including Oregon, have developed a state regulatory system for medical and recreational marijuana despite federal prohibition.
Review the Oregon Administrative Rules
To begin a recreational marijuana business in Oregon, the business owner should carefully review the Oregon Administrative Rules, Chapter 845, Division 25, administered by the Oregon Liquor and Cannabis Commission (“OLCC”), which is the state body that regulates recreational marijuana. Most of the applicable rules are available here: https://secure.sos.state.or.us/oard/displayDivisionRules.action?selectedDivision=3873. The OLCC also publishes notices of proposed rule-making, updated rules, and enforcement activity on the OLCC website, located here: https://www.oregon.gov/olcc/marijuana/Pages/Recreational-Marijuana-Laws-and-Rules.aspx.
Due to the recent passage of Oregon’s SB 218, the OLCC is no longer accepting new applications for recreational marijuana producer licenses until 2022, but existing producers may use the application process to notify the OLCC of a business sale. Also, businesses that want to create extracts, concentrates, oils, distillates, foods, or other processed products from marijuana may still apply for a recreational marijuana processor license. Those who intend to buy and sell recreational marijuana and marijuana products between licensed Oregon recreational marijuana businesses may do so through a recreational marijuana wholesaler license. Retailer licenses are also available for businesses that want to sell or deliver recreational marijuana products to end-user consumers.
Proposed Operation Compliance
Before applying for a recreational marijuana license with the OLCC, a business should make sure its proposed operation will be in compliance with local rules. Many jurisdictions in Oregon do not allow certain license types within their city or county limits. The list of Oregon municipal- and county-wide bans on recreational marijuana types is located here: https://www.oregon.gov/olcc/marijuana/Documents/Cities_Counties_RMJOptOut.pdf. Notice certain cities may have rules contrary to their surrounding county; make sure your proposed property is actually within the jurisdiction that authorizes your recreational marijuana license type.
Local Land Use Regulations Compliance
The next step is to ensure compliance with local land use regulations; even jurisdictions that allow recreational marijuana businesses still restrict the time, place, and manner of marijuana business operations. In fact, as part of the OLCC’s license application process, applicants must submit a valid Land Use Compatibility Statement form (“LUCS”). The LUCS is the OLCC’s way of ensuring that each applicant has reviewed land use restrictions and received approval from the local county or city. Applicants will need to take the LUCS to their local planning department for signature, which will likely trigger the local planning department to inform you of a required land use application. The OLCC will not review an application that does not have a valid LUCS, so getting an approved land use application is a must.
Again, each jurisdiction has its own zoning and building development rules. For example, recreational marijuana wholesaling is often allowed on industrial type zones, but may not be allowed on rural residential property. Some zones may require a conditional use permit. Moreover, businesses intending to use butane or hexane for extraction purposes may need to adhere to specific fire protection codes. Note that the OLCC will not process an application that does not include a lease or proof of property ownership, so applicants will need to buy or lease property before applying. Therefore, it is advisable to jump as many land use hurdles as you can before actually entering into a lease or buying a property. Most jurisdictions have a planning department and building department capable of assisting you in deciding which regulations and land use applications apply, but even county and city officials make mistakes. Savvy marijuana business owners should always consult a land use attorney before investing in property that may not pass regulatory muster.
Finish the OLCC’s Applicable Forms
Assuming you have a lease or ownership of a property that meets local rules, and assuming you have a valid LUCS, you should complete the rest of the OLCC’s applicable forms, located here: https://www.oregon.gov/olcc/marijuana/Pages/Forms_Publications.aspx. It is critical to review each form carefully before finalizing the documents; false statements to the OLCC can be grounds for license application denial and in some circumstances can prevent applicants from applying with the OLCC in the future. The forms will ask specific questions about applicants, applicants’ spouses, and anyone who is “financially interested” in the recreational marijuana business. The OLCC’s definition of “financial interest” is sweeping, and will include investors, lenders, and sometimes landlords. You should expect the OLCC to research all financially interested parties’ criminal history, so be sure your disclosures are accurate.
Submit Adequate Floor Plans
At this stage, you will also notice that you must submit adequate floor plans, showing the layout of your business, including proposed locations where marijuana products will be stored, where each access point is, where your alarm sensors are located, and where your cameras are pointing. Security is of utmost importance to the OLCC, so be sure to review the forms and the Division 25 rules carefully. Wise applicants should also note the differences between the requirements listed on the forms and the requirements articulated in the Division 25 rules. The OLCC sometimes creates additional restrictions through its forms that do not exist in the law; it is always advisable to prepare for the most conservative restrictions to ensure a smooth application process.
Create an OLCC Account and Upload Documents
When you have the LUCS and other OLCC forms ready, you can create an account with the OLCC’s dashboard and begin uploading the application documents. The OLCC dashboard is available here: https://apps.oregon.gov/OLCC/Marijuana/elicense/. Follow the steps in the registration, including entering your business contact information. You may upload the OLCC forms through this portal. Be sure to review everything for accuracy before paying the nonrefundable application fee, then submit the application electronically. If the OLCC has initial questions about your application, or when an investigator is eventually assigned to do a thorough review, you will receive a notification through the email you used to register. Log in frequently to check your application status and pay close attention to communications with the OLCC – failure to comply with response deadlines to OLCC questions may result in a license application denial.
Prepare for an On-Site Inspection
Eventually, the OLCC will conduct an on-site inspection to be sure your security systems are installed and operational, proper signage is displayed, and that your floor plan matches what was submitted with your application (yes, you must complete the build-out of the operation before you actually receive your license, which is one more reason to make sure you have carefully vetted your investment). If all goes well, you will receive a notification from the OLCC that you may pay for your license fee, and you will receive a copy of the license. Be sure to display the license in a prominent area at your business.
You Are Now Ready to Start and Grow Your Business!
Once you are licensed, ongoing compliance is even more important than during the application process, so be sure you are following all of the Division 25 rules. If you have any questions along the way, contact Navigate Law Group for assistance.
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Trevor J. Cartales
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Every legal issue is very unique. Accordingly, the information in this blog is intended as general education material and not as legal advice. If you think you may have a legal issue you should consult an attorney.