Learn the secrets of how to keep your garden pest-free with Kannabia Seed Company and their top pest resistant seeds.
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Rights begin April 1.
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Arguably one of the most surprising states to legalize recreational cannabis in the recent past is Arizona. During the tumultuous 2020 election, Proposition 207 was passed by a very considerable 20 percent margin, with more than 650,000 votes in favor of the measure. Not only was the passing vote of the bill itself and its very progressive language surprising, but an almost landslide margin vote in a state with such previously strict cannabis laws certainly wasn’t as expected as New Jersey legalizing cannabis on the same night.
Given the unforgettable fact that the State of Arizona has produced such barbaric law enforcement officers such as former Maricopa County Sheriff Joe Arpaio who was responsible for the arrest, imprisonment, and subjugation of thousands on cannabis charges, the passing of Proposition 207 showed that the Grand Canyon State could move away from strict prohibition.
In fact, when it came to medical marijuana, Arizona was a relatively early adopter in 2010 – unlike a host of other states that took years longer to adopt medical marijuana programs. While the first attempt at recreational cannabis in Arizona failed by a single-digit margin in 2016, the late Senator John McCain, who famously served as a Senator for Arizona for a historic 31 years, voiced support for medical cannabis reform and the 10th Amendment approach of letting the states decide their own cannabis policies.
When Proposition 207 passed in 2020, the state added even further reformative measures such as an extensive and very promising social equity program for the many communities who’ve been impacted by prior prohibitionist policies.
“The Social Equity Ownership Program was designed to promote the ownership and operation of licensed Marijuana Establishments by individuals from communities disproportionately impacted by the enforcement of previous marijuana laws”, the Arizona Department of Health Services explains on its website. The department was so definitively certain of the social equity program’s possibilities and opportunities for those most impacted by previous cannabis laws that it posted a glowing review of the program in May of 2022, with then-Deputy Director for Planning and Operations Don Herrington referring to the program as “a model among states that have created them.”
“According to the law,” Herrington wrote, “awarding social equity licenses should promote the ownership and operation of establishments by individuals from communities disproportionately impacted by enforcement of previous marijuana laws.”
The inclusion of those from communities so horribly devastated by cannabis prohibition into the legal market is absolutely a net positive and a program that could provide tremendous and likely lucrative opportunities for those individuals. However, in a very similar way to other states, such as Illinois, the implementation and arduous licensing process has not been without issue.
A common complaint about Arizona’s social equity program is that many of the 26 different licenses available for potential applicants was acquired by large corporate companies or investor groups. And according to many commentators, these are the entities furthest from being considered “social equity applicants” have control over an overwhelming majority of those licenses.
In July 2023, the Arizona Center for Investigative Journalism released a very damning report highlighting these exact complaints. By then, at least 11 of the 26 licenses were alleged to be in the hands of corporate interests distantly removed from anything resembling social equity applicants. Furthermore, seven of those 26 licenses were tied to a confusing web of convoluted shell LLC companies that obscure the true ownership of these licenses.
To combat these widespread issues, Republican State Senator Sonny Borrelli introduced Senate Bill 1262, a bill that he claims would restore the licenses to actual social equity applicants and professionals. It would also allow the Attorney General to pursue legal action against those who’ve caused legitimate social equity applicants to enter into allegedly predatory agreements.
“What we have here is an injustice that needs to be fixed,” Borrelli mentioned during a Arizona Senate hearing in February. “We now have here in Arizona a situation where 24 of 26 of these social equity licenses are now fully controlled by companies or people who do not belong in these special groups to get this license.”
SB 1262 seems initially promising, as it did pass a Senate Health and Human Services Committee with unanimous bipartisan support. That said, three quarters of the House and Senate will need to approve the measure before it’s signed into law. If the bill passes both chambers of the Arizona Legislature and ends up on Governor Katie Hobbs’ desk, she is almost certainly going to be inclined to sign it into law and significantly change the cannabis regime in Arizona.
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The top seeds, strains, brands, and trends of Spannabis 2024.
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Cannabis businesses often use letters of intent (LOIs) to get agreed deal terms in writing before spending time and money negotiating the definitive written contract. LOIs can be a big help, especially with a complicated deal. But they are easy to botch, and can lead to some pretty devastating consequences if not done right.
In the majority of situations, parties to an LOI want them to be fully or partially non-binding. These LOIs are intended only to be outlines of a deal that the parties can use in negotiating finer points. Some provisions may end up being binding, like confidentiality or exclusivity provisions. But the majority of terms are often left to be fleshed out.
The problem is that some LOIs do a pretty bad job of clarifying what is and is not binding. This leads to two pretty bad potential outcomes. First, a provision intended to be binding could be construed as non-binding. Imagine the buyer in a deal wanted the seller locked in to an exclusivity obligation for 60 days after signing, but the LOI didn’t clearly specify that this was a binding obligation (as opposed to just some kind of expectation). It’s possible that the seller could then shop the deal around without any recourse on the buyer’s part.
The second potential problem is possibly a lot worse – an LOI could be deemed binding where it was intended not to be binding. I’ll get into this in greater detail in the next part.
From time to time, people want fully binding LOIs. In almost all cases, I think these are a bad idea. Because binding LOIs are, by definition, binding, they must contain a LOT more detail than your average non-binding LOI which may be as short as a page or two. With more detail comes more negotiation, and more time. So in most cases, if parties want a binding document, it makes a lot more sense to just proceed to the definitive contract and not waste time on a binding LOI that will precede it.
As an aside, there are some limited contexts where a binding LOI makes sense despite these concerns. For example, imagine a deal with a lot of different contracts to be drafted and executed at different times over a long period of time, but where the parties are nevertheless willing to spend a bit of time up front negotiating terms. In that case, it may make sense to have a binding LOI, or some kind of other binding agreement to flesh out these contractual obligations.
In any event, where binding LOIs can be problematic is where the negotiating parties fail to include sufficient detail and basically treat them as binding versions of non-binding LOIs. And insufficiently detailed LOIs can lead to a host of issues. I’ve seen plenty of situations where one party would have wanted to include more protective provisions in a full-length definitive, but the other party knows that the LOI is binding and refuses to negotiate anything else. It can be a terrible outcome.
A lot of businesses will issue press releases after inking LOIs, for marketing purposes but also to drum up investments – especially so for public cannabis companies. As you can imagine, there can be a lot of shenanigans here as well. Some cannabis companies will enter into a huge amount of LOIs with little intent to consummate the transactions. This is obviously bad news for their prospective business partner who may have not only wasted time and money on getting the LOI done, but also passed on other deals. And it can lead to even more problems for the company issuing the press release if they don’t represent the proposed deal’s context accurately.
There are some pretty easy solutions to these problems. For example, even a non-binding term sheet can contain restrictions on publicity that are binding (though careful wording is required!). Or one or both parties could carve out exclusivity obligations or allow for LOI termination in the event the other party isn’t taking the deal seriously or it becomes clear that the other side is trying to fundraise off the LOI.
People think that because LOIs are not binding and intended to serve as an outline, lawyers are unnecessary. The problem with this train of thought is that it could be incredibly easy for non-lawyers to write an LOI that was intended to be non-binding, but fail to actually make it non-binding. Or they could draft an intentionally binding LOI that fails to include sufficient detail. Or they could make a hundred other types of mistakes that could have been avoided.
As I wrote a few years ago, “Getting a lawyer involved in the term sheet process can be key. This is especially true on complicated or expensive deals, or where one party knows it has less leverage in a deal to request changes at a later date. It’s even more true where the other side or their lawyers are going to be tough negotiators.”
To flesh that out a bit more, as a deal outline, the LOI will be the one of the key things that lawyers look to when negotiating a contract for the life of the negotiation. I can’t tell you how many times I’ve heard lawyers complain that something was “not in the LOI” or “different from what’s in the LOI” during negotiations, even when the LOI was clearly not binding. And in a lot of cases, parties will simply agree to stick to what the original intent was.
All of this is to say that an LOI is an incredibly important investment. Good lawyers don’t need to charge an arm and a leg on them, and a good LOI can save a ton of headache down the road. This is especially the case in a highly regulated industry where one or both of the parties to a deal may be less familiar with regulatory intricacies when negotiating the LOI.
The post How LOIs Can Go Horribly Wrong appeared first on Harris Sliwoski LLP.
If you missed our February 2024 “Cannabis Loans and Investments” Webinar, we have published a full recording and transcript here.
Harris Sliwoski partners Vince Sliwoski, Griffen Thorne, and Aaron Pelley focused on a constellation of important factors for both cannabis industry investors and businesses in 2024:
Enjoy!
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It looks like a permanent Oregon cannabis license moratorium will finally take effect. I say “looks like” because key contingencies are still in play and, although things look promising, it could also get dicey as of March 31st— or even sooner.
In this post, I’ll explain what’s going on with House Bill 4121, which is certainly more than advertised, both in content and in progress. And I’ll explain what it all means for the Oregon cannabis industry.
On February 6th, 2024, I ran our annual legislative forecast and report on the proposed Oregon cannabis laws. We only had one significant cannabis bill in play, which made the 2024 session different than any year going back to 2015. The bill at issue for 2024 is HB 4121.
The enrolled version of HB 4121 is not significantly different than the introduced version previewed in my February 6th blog post. I’ll therefore dispense with another fulsome commentary, except to note that HB 4121 is generally sold as a pro-industry moratorium bill. HB 4121 is much more than that, however– especially when it comes to two big topics: law enforcement and hemp products.
The bill is probably going to pass, but it matters very much when the Governor signs.
It was a relief to see the OLIS website updated on March 13th, three days after the session ended, showing that the Speaker of the House signed the bill. The Senate President, Rob Wagner, needs to sign next, and then Governor Tina Kotek. At this point, OLIS would normally show that the bill is awaiting signature by Wagner. For whatever reason the website doesn’t reflect this status, as it normally would; but I’m told by drafters of the bill that it’s headed to Wagner’s desk, and then Kotek’s. Both are expected to sign.
If the Governor signs HB 4121, it will become law immediately, based on its text. If the Governor vetoes HB 4121, it will not become law. And if she neither signs nor vetoes, HB 4121 will become law 30 days after its passage, which would be April 12 or thereabouts. That last scenario presents a problem for OLCC and the cannabis industry. This is because the current marijuana license moratorium expires on March 31, 2024.
In a “no sign and no veto” scenario, we could be looking at a gap of 12 days or so when OLCC is forced to take applications. A similar situation occurred back on May 31st, 2018, when OLCC announced a June 15th “pause” of application processing. Over 1,000 new applications flooded the portal in a two-week period. This exacerbated an already significant OLCC bottleneck; and, while many of those applications fell away, others made it through. We had several clients make a pretty penny reselling those landgrab licenses.
On Friday, March 15th, I was told by HB 4121 architects that OLCC has alerted the Governor’s staff to the timing exigency. This informs my comments up top that “things look promising.” If and when HB 4121 passes, though, please remember that we are in for more than a license moratorium. The law enforcement component of this bill is prominent. Further, Oregon is set to move ahead with a restrictive, outlying regime for hemp and hemp-derived products.
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