It’s been an eventful month in Oregon cannabis. Below are some early summer notes on three things we’ve been doing and watching and writing about.
The Chalice receivership
I covered this last month as the ship was going down. Today, the Oregon receivership is well underway and we’re getting regular notices. It hasn’t been smooth from my perspective. The receiver initially rejected a raft of leases, including one held by a landlord we represent. We opined that the receiver didn’t appreciate the regulatory implications of taking such action – in particular, the jeopardy caused to the OLCC retail licenses. The receiver eventually reversed course, and asked the Court to allow withdrawal of those lease rejection notices.
I spoke with another lawyer with skin in the game, who called that episode “a colossal waste and embarrassment…”, and other unprintable stuff. Let’s see if anyone objects to the receiver’s petition for any portion of his fees arising from that misfire, or anything else going on here (there’s more to pick at). Overall, we expect ongoing issues given the novelty of the proceeding: neither the Court nor OLCC, nor anyone, anywhere, has seen a court-supervised sell-off of cannabis assets at anything near this scale. (California’s Herbl will be next.)
The Chalice receiver is now soliciting bids for the Oregon businesses and their assets. That sale process is being coordinated with the CCCAA Canadian proceeding I blogged about last month. I’m pretty cynical. I expect most of the unpaid Chalice creditors won’t see a dime, while the receiver and his counsel will be shopping for boats when we’re through. The Canadian lawyers and architects of these proceedings could be shopping for airplanes… whether or not the Oregon assets actually sell.
The new OLCC tax rules
My colleague Jesse Mondry covered this last week on the blog. The higher-ups I’ve spoken with at OLCC dislike the scope of the Governor’s directive, and I agree with them. Yes, requiring cannabis retailers to certify compliance on marijuana tax payments makes sense. The rest is excessive: it smacks of overreaction by the Governor for taking money from a bad actor. We credit Sophie Peel and Willamette Week for dogged pursuit of the La Mota story, up to that chef’s kiss of a pickleball photo the paper wickedly loves to print. But the collateral damage from these new tax rules, stemming directly from the La Mota saga, will be felt by many in the industry.
Here are a few of the most common questions being batted around today, with respect to the recently adopted, temporary rules:
- Could a retailer lose its license because one minority owner (an “applicant'”), is behind on non-cannabis-related taxes? Potentially yes.
- In the example just above, could the temporary rule cause that valuable license to be unsaleable, damaging all owners of the business? Potentially yes.
- Will OLCC give clear guidance for licensees seeking renewal amid negotiations or disputes with the Department of Revenue? Unknown.
- Could the rule metastasize into “permanent” form this fall, covering all classes of OLCC licensees? Yes.
It’s a really unfortunate turn of events, and bad timing for this beleaguered industry.
Oregon’s new cannabis laws
I previewed the Oregon legislative session’s cannabis bills and activity back in January, as I’ve done for each of the past eight years. I mentioned that, more than any specific legislative ask, industry’s request was simply that the legislature “do no harm” in the session. Of primary concern was proposed SB 66, granting increased local marijuana sales tax authority; but a spate of law enforcement bills also raised concern.
The session went sideways in at the end of April, when Oregon Senate Republicans staged a walk-out over gun and abortion bills. The walk-out lasted six weeks, with our representatives re-opening for business on June 15th— just 10 days before sin die on June 25th (close of session). To be honest, though, most of the cannabis bills had lost steam by then— including SB 66, and one I actually liked on interstate commerce for certain products.
The exceptions here are three bills that passed: SB 326, HB 2763 and HB 2931.
SB 326 requires the owner of any property where cannabis had been manufactured unlawfully (i.e., outside of the OLCC program), to clean up waste from those operations if notified by law enforcement. SB 326 contains provisions for fines and penalties, and local government authorizations where needed to “abate public nuisance.” Overall, this bill shouldn’t impact regulated industry. As compared to several of the “cannabis policing” bills introduced at the session’s onset, SB 326 is benign.
HB 2763 creates the State Public Bank Task Force. The bill directs that task force to study and make recommendations regarding establishment of state public bank. A report is due September 1, 2024. A state public bank could be a real boon for licensed Oregon cannabis businesses. These businesses have a limited number of banking options, which come with limited institutional options, restricted account types and relatively high costs. That said, as someone who hails from the only State in the Union with a state-own banked, I’d be surprised if Oregon gets there. I’m more hopeful for relief via the Safe Banking Act— although I’d love for us to succeed where California failed. [EDITOR’S NOTE 08/18/23: This bill was vetoed by Governor Kotek prior to taking effect. See: Oregon Governor Vetoes Marijuana Banking Bill.]
HB 2931 merits more attention than the others. It directs the Oregon Department of Agriculture (ODA), in consultation with the Oregon Health Authority (OHA) and OLCC, to establish a “cannabis reference laboratory to support enforcement of cannabis regulation.” I wrote about the agencies’ push for a state-run reference lab last December. What I didn’t mention was the technical fix introduced in HB 2931, which brings OLCC licensed labs into the definition of OLCC cannabis “licensees” at ORS 475C.009. HB 2931 also prohibits those labs from holding any other type of OLCC license.
Why did everyone, including industry, feel a state cannabis reference lab was needed? First, for as long as the OLCC program has existed (and even before that, in the OHA medical program), agencies have fielded complaints from cannabis licensees around testing. Those complaints include allegations of labs spiking potency levels on test samples, and of labs falsifying failed test results. From there, you have the related concepts of “lab shopping” by licensees and “pay to play” testing with labs.
State agencies have argued that to properly regulate licensed labs, an independent mechanism to verify test results is needed. Audits have similarly recommended this. The newly created reference lab will provide: a) a neutral, third-party source for testing and re-testing; b) quality assurance review for licensed labs; and c) a mechanism to audit complaints from licensees about faulty lab testing. This is a positive development.
We expect the roll-out of HB 2931 to be fairly smooth. A testing lab for plants and food items already exists at ODA, after all. The OLCC’s proposed budget, found at SB 5519, would also transfer a portion of OLCC’s revenue from cannabis licensing to ODA to help establish this state reference lab. SB 2931 takes effect 91 days from passage; expect roll-out to commence this fall.