Will hemp survive the new Farm Bill?

Plus, shifting state laws, and a 100 mg delta-8 gummy.

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ADR’s Vital Role in Cannabis Industry Disputes

As a mediator specializing in cannabis-related conflicts, I’ve witnessed firsthand the increasing need for Alternative Dispute Resolution (ADR) in this rapidly evolving industry. With three-quarters of Americans now living in states where recreational or medical marijuana use is legal, the landscape of potential disputes has expanded dramatically. Currently, 24 states and the District of Columbia have legalized recreational marijuana, while 14 states permit its use for medicinal purposes. Yet cannabis with more than .3 percent THC by dry weight remains illegal under federal law. This has created a complex legal environment, ripe for controversy.

Participants in the cannabis industry deal with a wide array of legal disputes. These include conflicts over intellectual property, mergers and acquisitions, and the ownership and management of cannabis farms, processing and distribution companies, and dispensaries. We’re seeing an increase in employee claims, personal injury cases, water rights disagreements, and land use and environmental regulation violations. Violations of the ADA and federal safety laws, local code enforcement targeting landlords, and conflicts between neighboring farmers over odors and pollen drift are all part of the growing list of legal issues in this sector.

The cannabis industry faces unique challenges when it comes to resolving disputes through traditional legal channels. Federal courts are generally unavailable due to cannabis’s status as a Schedule I drug under the Controlled Substances Act. State laws are often evolving and conflicting. Lingering stigma can affect litigation outcomes with state court judges and juries. And the cost and outcome of litigation can destroy cannabis companies, which typically have tight cash flow, limited assets, and a lot of debt.

Recent high-profile cases among competitors highlight these challenges. We’ve seen lawsuits accusing state-licensed labs of providing false, favorable test certifications to attract business. Disputes over dispensary licensing processes have emerged, often halting the entire procedure for all applicants.

Given these circumstances, ADR has become not just an option, but a necessity for the cannabis industry. ADR typically costs less than traditional litigation, offering a more economical path to resolution. Unlike public court proceedings, ADR provides a degree of confidentiality that appeals to cannabis investors wary of public scrutiny. As regulations and market dynamics evolve, mediation’s adaptability allows it to address novel disputes effectively. Neutrals with specific expertise with cannabis industry can help parties develop solutions that address the needs of all involved, often preserving business relationships and even laying the groundwork for future collaboration. Even in competitive situations, dispute resolution can help stabilize market and regulatory issues, benefiting all industry participants.

The best mediators for cannabis disputes are neutrals who truly know the business, its products and customers, the regulatory and financial milieu, and the plant itself. As I write this, we are seeing growing tension between those in the highly regulated and taxed state marijuana markets and those in the federally legal hemp market. Many disputes involve subjective judgments, such as the rejection of cannabis flower or oil based on quality, while others stem from objective testing and cannabinoid profiles. Having to educate a neutral about the subject matter during mediation is inefficient and dramatically reduces the prospect of settlement.

Experienced neutrals can guide parties toward innovative resolutions that may not involve monetary settlements. These creative solutions can potentially avoid insolvency or unsatisfiable judgments that might result from years of litigation. This approach is particularly valuable in an industry where traditional financial remedies may be exceedingly complicated or completely unavailable because of the law or the difficulty enforcing contracts.

As we move forward, several factors may impact dispute resolution in the cannabis industry. The potential rescheduling of cannabis containing significant quantities of THC to Schedule III by the federal government could improve the financial situation for cannabis businesses by allowing them to write off most business costs. However, this would not fully align state recreational cannabis laws with federal regulations. The evolving landscape of hemp-based products with chemically derived psychotropic properties may lead to unfair business practices claims between the licensed high-THC cannabis industry and the hemp industry.

In conclusion, as the cannabis industry continues to grow and face complex legal challenges, ADR stands out as an indispensable tool for resolving disputes efficiently, creatively, and with an eye toward the unique needs of this dynamic sector. Its flexibility and ability to provide tailored solutions make it particularly well-suited to navigate the complex and rapidly changing landscape of cannabis law and business. Those who effectively utilize alternative dispute resolution methods will be better positioned to address legal challenges efficiently and successfully. For cannabis entrepreneurs, investors, and legal professionals, understanding and leveraging ADR may well be the key to successfully navigating the complex legal terrain of this burgeoning industry.

Note: This post was first published October 17, 2024 on the Alger ADR Blog.

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Who is the cannabis breeder Barney’s Farm?

Learn about the notable Amsterdam breeder Barney's Farm.

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Eat, drink, and be merry with Donny Burger—December 2024’s Leafly HighLight

Donny Burger supports appetite, relaxation, and fooling around.

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Oregon Cannabis: Get Your OLCC Renewal or New Application in Before December 5th

As of this Thursday, December 5^th, Ballot Measure 119 requires all OLCC licensed retailers, processors and labs to provide a signed labor peace agreement (LPA) with a bona fide labor organization, to renew or apply for an OLCC license.

In the totally avoidable, unduly compressed timeline since BM 119 passed, we have been advising our Oregon cannabis clients to renew their license applications ahead of the December 5^th deadline if possible. Same deal for new applicants– get everything in before the deadline. This will allow qualifying businesses to avoid the LPA issue for another year (or maybe forever, if the courts get ahold of BM 119).

OLCC marijuana licensees are required to renew their licenses annually. Licensees are notified 90 days prior to their license expiration date that it’s time for license renewal. According to my wizard paralegal, this notice automatically posts in CAMP, which is the OLCC’s online licensing software. Specifically, a licensee will receive an “Actions Required” notification on their dashboard.

OLCC has confirmed that licenses set to expire after December 5^th, will not require an LPA submission until the following year’s renewal, provided that the license has been renewed prior to the December 5^th deadline. Same deal with any new license applicant. To that point, OLCC’s most recent BM 119 Bulletin is here. It answers some basic questions and contains no surprises.

OLCC also recently published its Labor Peace Agreement Attestation Form. This is a form that applicants may submit in lieu of actually filing their LPA with the Commission. Somebody asked me what the repercussions might be if they were to submit this form without having a signed LPA in place. The short answer is “don’t do that.” The longer answer is that there are many administrative rules dealing with “false statements”, “material false statements” and the submission of “false or misleading information” to OLCC. License revocation or non-renewal is a real possibility there.

For more information on this topic, the Cannabis Industry Alliance of Oregon has a guide here, and has been sending out helpful emails on its listserv (you can sign up for those here). The relevant OLCC materials are linked above, and I’ll provide links to our previous posts on this topic just below. For now, get those license renewals and applications in!

See also:

• New Rule, December 5: Oregon Cannabis Retailers, Processors and Labor Peace Agreements
• Oregon Cannabis Roundup: Fall 2024

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Attention, Canna Companies! CTA Filing Deadline this Month

For anyone that has not yet met their Corporate Transparency Act (CTA) filing requirements, now is the time! The deadline for entities created or registered before January 1, 2024, is less than a month away, on December 31, 2024.

In July, we published a blog post covering questions on the CTA. The full text of that post is included below.

____________________________

On January 1, 2024, the federal Corporate Transparency Act (CTA) took effect. The CTA requires a host of both domestic and foreign entities to disclose their beneficial ownership to the Treasury’s Financial Crimes Enforcement Network (FinCEN). Compliance with the CTA is required for all businesses, including those in the cannabis industry. In this post, I’ll overview some (but not all) key requirements of the CTA, and some of the implications for the cannabis industry.

What is the CTA?

The purpose of the CTA is to combat illegal activities like money laundering by disclosure of information concerning “beneficial owners” to FinCEN. Beneficial ownership essentially means the individuals who own or control a company (more on that below). FinCEN and other domestic governmental authorities can use this beneficial ownership information in certain contexts for law enforcement purposes. Detailed FAQs on the CTA are available here.

Who must report?

Corporations, limited liability companies, and other business entities are considered reporting companies for purposes of the CTA. Certain sole proprietors may not count as reporting companies, and CTA exempts 23 classes of entities, such as governmental bodies, banks, and certain large operating companies.

Figuring out whether a business qualifies for an exemption can in some cases be complicated, and businesses can flow in and out of exemptions over time. So it’s a good idea for businesses to confer with counsel to determine whether they are compliant.

When must reporting happen?

Reporting is done by submitting an initial beneficial ownership report (BOIR) with FinCEN via an electronic portal called the Beneficial Ownership Secure System, located at FinCEN.gov, free of charge. There are some key reporting deadlines, which change based on when a company was formed (for domestic companies) or registered in the US (for foreign companies) as follows:

• Entities created or registered before January 1, 2024, must submit their initial BOIR by January 1, 2025.
• Entities registered in 2024 are required to file within 90 calendar days of their registration becoming effective.
• For registrations from January 1, 2025, onwards, the deadline is 30 calendar days post-registration notice.

CTA also has requirements to periodically update beneficial ownership information after changes occur. Failure to comply with CTA can lead to monetary penalties and even criminal liability.

What must be reported?

Reporting companies must disclose individuals with substantial control or those owning at least 25% of the entity. Substantial control includes abilities like appointing or removing directors, making significant business decisions, or other forms of major influence. For example, question D8 on FinCEN’s FAQs addresses how management companies could be considered beneficial owners of a reporting company. Sound familiar?

Disclosure itself is not dissimilar to state-level cannabis regulatory disclosures. Beneficial owners must provide their legal name, date of birth, address, and an identifying number (e.g., SSN).

How will this affect the cannabis industry?

In case you were wondering, CTA applies to cannabis businesses. There is no exemption for reporting by state-legal cannabis companies.

A lot of cannabis companies will probably get squeamish at the thought of making detailed beneficial ownership disclosures. That’s especially the case where CTA by its terms allows FinCEN to share beneficial ownership information with other federal agencies engaged in law enforcement activities, or federal agencies that supervise financial institutions.

So, expect to see owners of cannabis businesses engage in all kinds of corporate changes to obscure beneficial ownership or reduce equity and control rights to get out of disclosures. In some cases, this will not work and people will face penalties.

Also expect to see a lot of cannabis companies (and non-cannabis companies for that matter) make a good-faith effort to comply with CTA initially but fail to update information as required by law. This is just going to happen, the way CTA is set up. Whether or not people are actually penalized for late disclosures or updates absent some kind of misfeasance remains to be seen.

Conclusion

CTA is complicated and has already been a headache for many businesses – so much so that at least one group of businesses brought a challenge to its constitutionality and won. Fortunately or unfortunately (depending on how you look at it) the court did not issue a nationwide injunction but only enjoined enforcement of CTA against the specific plaintiffs. It’s possible that in different litigation or future appeals, the law itself is enjoined on a nationwide level. But for the time being, it’s the law of the land.

The post Attention, Canna Companies! CTA Filing Deadline this Month appeared first on Harris Sliwoski LLP.

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Star signs and cannabis strains: December 2024 horoscopes

Happy December, Stargazers! The final month of the year harkens Sagittarius season and lights up the cosmos, bringing an adventurous and optimistic energy to guide us. The stars are full of celestial activity this month—let yourself reflect on the past year and dream big about the future. Lest we forget, we’re still in Mercury Retrograde […]

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