December 2017


The Small Farmer Program: A Worksheet for Farmers Headed Into the Regulated Era

Flash Update: The Small Farmer Program Worksheet 

Hey team,

We know there are a lot of questions about how regulations affect our small farmer clients, and the answers are undoubtedly complicated and ever-changing.  In an effort to organize the various categories of issues that farmers can start thinking about now, I wrote up a simple checklist of issues to go through with my clients.

The checklist evolved over the past few months into what I now call the “Small Farmer Program,” and I’ve sought input on the program from a County Ag Commissioner, a successful Bay Area consultant, my attorney colleagues, and dozens of small farmers and other cannabis business women and men.  With their additional insight, the Small Farmer Program has become a helpful rule of thumb for our office to gauge where a farmer is on their path into the regulated era.  Rather than keep this information internal, however, I want to share it with the community so folks can start looking over some of the categories of issues they may need to start thinking about if and when Nevada County issues permits.

I formatted this so you can answer a lot of these questions by yourself, although we are here if you need us.

Keep it confidential!

Remember that we keep this document in our confidential files for our clients because it contains sensitive information. If you do use the worksheet, please take all precautions to ensure your information remains confidential.

Here it is:  The Small Farmer Program Worksheet

Much love and respect,

hb

#protectourfarmers

Summary of our Comments to the Emergency Regulations: Owners, Priority, and Terpenes

Well the time for comments to the emergency regulations has come and gone. The California Greenspoon Marder attorneys, spearheaded by Senior Counsel David Frankel, prepared and submitted our comments.  I think its important to briefly share the three we felt were the most relevant to our clients: (1) ownership rules, (2) the definition of priority, and (3) the regulation of terpenes (aka “terps”).

Some ownership rules apply only to LLCs. Why?

First and foremost, our corporate guru David Frankel correctly spotted the odd regulation that all members of LLC (limited liability companies) are considered “owners,” and require the full panoply of disclosures, background checks, and so on, even if they are not participating in the management of the company and receiving less than 20% of the company’s profits.  Consider, however, that shareholders in a stock corporation are not considered owners if they receive less than 20% of the company’s profits, and are thus subject to less stringent rules.  Although our office is finding the stock corporation with an “S corp” designation to be the most workable company for small cannabis businesses, many if not most, of the newly emerging small businesses are converting to LLCs. As such, LLCs should not have more burdensome requirements than other types of companies, so we asked the agencies to limit the “ownership” rules only to those LLC members who are participating in the membership and control of the business.

Who gets priority if an MBC or Cooperative merges with a for-profit entity?

Secondly, the agencies will give “priority” licensing if an applicant operated in compliance with the Compassionate Use Act of 1996 and its implementing laws before September 1, 2016. There are many applicants who were operating in the form of nonprofit mutual benefit corporations or cooperatives as of September 1, 2016, but who now want to convert to a for profit corporation or LLC. Under the MBC merger statute in CA Corp. Code Section 8010, an MBC can merge with a domestic corporation or other business entity. Under the corporate rules, the new for-profit company is supposed to get “all rights and property” of the old company, so we asked the agencies to make it clear that these new for-profits enjoy the priority status earned by the old company. That seems fair to me!

What’s up with terpenes?

Our final note relates to the regulation of terpenes, as the new regulations barely mention this type of activity, which is a pretty big deal right now.  Terpene businesses would usually fall into the category of Type 6 or Type N, depending on whether the terpenes are considered cannabinoids for purposes of the definition of “Extraction” in Section 40100. Most terpene manufacturers use steam distillation, which is a nonvolatile mechanical process. The distillation equipment can be installed permanently in a licensed premises but can also be installed on a vehicle so that the terpene manufacturer is able to distill terpenes from fresh cannabis plant material at or near the cultivation site. The regulations are silent concerning mobile terpene distillation equipment and operations. In addition, the regulations have been developed to address public health and safety issues related to cannabis products that are intoxicating or which involve potentially dangerous manufacturing processes.  We respectfully suggest that the department develop regulations that are better suited for terpene manufacturers and also that permit mobile terpene operations at licensed cultivation sites.

Conclusion

As a concluding note, we want to acknowledge that the shift into these regulations may be difficult.  Unlike most law firms, our little office has been serving the California cannabis industry for over three decades between David and myself.  We are in this with you.

Much love and respect, hb and the Nevada City Greenspoon Marder team

#protectourfarmers #cali4life #greenspoonmarder

CDFA Comment Letter to Emergency Regs final 1 12042017 pdf

BCC Comment Letter to Emergency Regs final 12042017 pdf

DPH Comment Letter to Emergency Regs final 12042017 pdf

David Frankel: “I Walk the Line,” a message for Nevada County cannabis businesses

Nevada County cannabis people are used to “Walking the Line” – like the Johnny Cash song:  

I keep a close watch on this heart of mine
I keep my eyes wide open all the time
I keep the ends out for the tie that binds
Because you’re mine, I walk the line

Especially the part about keeping your eyes wide open all the time.  We are used to being under threat of petty acts of retribution, retaliation and robbery. California’s War on Cannabis has officially ended in our favor with the passage of Prop. 64.  Yet, Nevada County cannabis people are not quite out of the woods.

The County started the process of creating a commercial cannabis ordinance that would enable some Nevada County cannabis businesses to apply for state licenses.  The process has been far from perfect and it is unclear whether and to what extent Nevada County’s Planning Department and Supervisors will follow the voters’ intentions.  In a stated attempt to take it slow and address the concerns of all stakeholders, the County put Nevada County cannabis businesses at a severe disadvantage compared to those in other similarly situated counties that have adopted local ordinances in time for 2018 state licensing such as Humboldt, Lake, Mendocino, Sonoma, Trinity and Yolo.  

Nevada County cannabis people must continue to walk the line between being documented enough to take advantage of impending state licensing programs and being below the radar of those who would commence enforcement or robbery.  Recently, there have been some disturbing trends.

First, Nevada County growers were encouraged to enroll with the Regional Water Board Cannabis Program, which requires disclosure of the grow site and its operator, setbacks, and some environmental studies.  They incurred substantial costs and exposed themselves to the light of day, so to speak.  For this, every single one of them was rewarded with an inspection and abatement from the Nevada County Sheriff’s Office which uses anonymous and/or self-generated complaints to justify abatements.  Lesson learned.

Then, there was an armed home invasion robbery by some people who were pretending to be cops calling themselves the “Nevada City Drug Task Force.”    To add insult to injury, the Nevada County Sheriff took the report from the victims of the home invasion robbery and referred it to the District Attorney for possible prosecution as a commercial cannabis operation.  Lesson learned.

There are hundreds of Nevada County cannabis businesses actively working to become compliant to seek licenses when the County ordinance is finally adopted.  Many of these people would like to be part of the process so that their voices can be heard but are afraid to reveal themselves, with good reason.  

Imagine involving the people with the most experience in the field of commercial cannabis in the process of creating the ordinance under which they will be governed?  That seems too good to be true because of a legitimate fear that people will be raided, robbed, abated and/or prosecuted as a result of speaking their views publicly.

To those folks, we say “There is a way.”  Our law office is able to meet with clients, take their comments and input to the County and put it in a letter to the Supervisors and Planning Department that keeps the client’s identity strictly confidential.  That way, our clients are able to provide real world input to the proposed cannabis ordinance without risking themselves.

For example, constructive comments to the process could include:  

  • Reasons to include microbusinesses and nurseries
  • Reasons to include distributors, testing labs, and manufacturers
  • Reasons to include brick and mortar dispensaries and delivery services
  • Reasons to include the larger cultivation operations (10,000 sq. ft. and greater)
  • Reasons to include processors
  • Reasons to not require a residence on large parcels zoned for Agriculture or Timber
  • Reasons to allow outdoor cultivation on large parcels zoned for Residential Agriculture

As they walk the line pending the adoption of a Nevada County ordinance, here’s what local cannabis businesses can do now:

  • Check the zoning and setbacks of any property being considered for licensed operations
  • Prepare a property and/or premises site plan, drawn to scale, that shows all the areas that need to be noted under the state regulations (cultivation area, processing and storage areas, waste area, well, streams, setbacks, etc.)
  • Engage one of the Water Board consultants that we work with to do an environmental review of any property that is eligible for licensed operations so that the property can be evaluated prior to next Spring’s mad rush for Nevada County and state licenses
  • Confirm the legality of all water sources, obtain well permits, diversion and stream bed alteration documents as appropriate
  • Set aside funds and time for preparing all the necessary documentation that will go into a license application

California cannabis collectives will enjoy one more year of use before they sunset in January 2019.  Keep all collective paperwork up to date and, if applicable, obtain any required Seller’s Permits related to your cannabis operations.    

As the Man In Black would say, keep a close watch and your eyes wide open all the time.

*By David Frankel, Senior Counsel, Greenspoon Marder LLP, Nevada City