Author: hburkelegalgmail-com


Temporary Local Permits Update

As you likely know, temporary permits for the 2018 cultivation season were finalized this week and it’s not great. Some of the provisions are purposefully restrictive. The language is unclear, contradictory, and messy. The ordinance, at its best, evidences a lack of familiarity with basic provisions of state law and regulations. However, this is the only pathway to the regulated market for farmers this season. Here’s a breakdown:

  • The former rule prohibiting commercial cultivation was stricken and replaced with about 50 new provisions relating to the short-term cultivation for legal sale in the regulated market until our permanent ordinance is enacted next year. They did not touch the sections relating to (1) parcel size, (2) plant count and square footage, (3) setbacks, and (4) zoning, except to delete RA and TPZ. Since those are the same as before and have been subject to much debate, I won’t go into them further here.
  • All existing Code violations must be corrected within 60 days. However, any violations related to commercial cultivation (like unpermitted greenhouses for cannabis cultivation) must be permitted before receiving a temp permit. No exceptions. If farmers are intending to enroll in this program, they may want to file that greenhouse permit like yesterday.
  • The temp permits will be for medical production only. ***The updated emergency regulations allow a medical-only cultivator to sell their flower to an adult-use manufacturer, distributor, or retailer, so the M-only designation is not as detrimental, thanks to the state agencies.
  • Sean Powers, the Director of the Nevada County’s Community Development Agency, or his “designee” will be in charge of issuing the permits. Farmers should expect the rules to be interpreted strictly and for violations to be enforced to the fullest, so please know this program has the power to ruin permitees who divert cannabis outside the program with fines, fees, preclusion from permits for 2 years, and discretionary reporting to the state and even the feds.
  • Self-distribution is allowed, but not mandated, so farmers can drive their cannabis (flower, leaf, pre-rolls) off site to a distribution center, but they will have to get a self-distribution license from the Bureau of Cannabis Control (in addition to a cultivation license from the CDFA) to do so. That may be a costly decision with another set of stringent state regulatory requirements, so please talk to your counsel about the implications of self-distribution this season.
  • Mixed light is allowed, so farmers who time their runs strategically may be able to have two light deprivation harvests in compliance with the program this season.
  • The County will not give an additional 6 or 12 plants for personal use this season (although cultivators will be able to have personal in addition to commercial next season). However, the state does not let cultivators divert from their commercial grow for personal use, even though the County says commercial growers can’t have a personal garden this season.  If a farmer plans on consuming the cannabis she or he produces, please talk to your counsel about how that can be done legally.
  • Cultivators must have a state license before the County will authorize them to conduct commercial cannabis activities, but they are also allowed to have a personal or collective garden of the exact same size until they obtain a state license.  It is a complicated concept, but in essence the requirement to obtain a state license prior to flipping the intent and purpose of a garden from personal/collective to commercial should not hold anything up.
  • In light of the state’s recent update to their emergency regulations, cultivators will need  (1) to submit a cultivation plan, and (2) to have already filed with the state water board, as well as a few other things, in order to even file for a temporary license. If a farmer intends to enroll in the County’s temporary permit program, they may want to start these now or risk delaying state license.
  • Folks with a prior marijuana felony best be getting their Prop 64 re-sentencing petition filed ASAP.

The program looks like it will generally go down like this:

  1. A cultivator can turn in an application on or around June 20th.
  2. There will be a brief review period and then she or he will be conditionally approved.
  3. The farmer will upload the County’s conditional approval into the state’s online permitting system. (My clients will have this ready to go well in advance of getting their hands on the conditional approval.)
  4. The farmer will then receive a temporary permit from the state after 10+ days.
  5. Once that state temp permit is issued, the cultivator is authorized to conduct commercial cannabis activity on site.
  6. Within 30 days, and hopefully after a state license is issued, Sean Powers’ office will come do an inspection to confirm compliance with Nevada County Code, and state law to some degree.
  7. Prior to his inspection, our office will have already performed internal (and confidential attorney-client privileged) inspections of our clients’ site to confirm strict compliance with state and local law, so our clients should not have any surprises at their inspection and can feel good about being in strict compliance.

After all that, cultivators will be good to go for 120 days, although they should expect either or both local and state regulatory bumps to arise immediately.  Our office calls it the “hamster wheel,” and permittees will be officially on it.[1]
Is This Program Right For You?
As attorneys, we’re required to advise our clients to enter the regulated market, but I personally believe that is the wiser choice even if I wasn’t required to. Farmers who enroll and strictly comply will be the first in the County to obtain coveted contracts with retailers or distributors, will be able to legally brand and trademark their products, and–most importantly–will likely develop the relationships with the County and state regulators that will put them in the front of the line for expansion to 10,000 square foot of outdoor, mixed-light, or possibly indoor next year.

Remember Conditional Use Permits (“CUP”) can take 6 months. While farmers who aren’t in the front of the line may be able to apply early next year, but they won’t be able to commence their commercial activities until BOTH the CUP and the state annual license are granted some 6 months later. That could easily take until the end of next summer, and those farmers will not be allowed to have current cultivation on site next year (because both the local and state temporary licenses will be unavailable to them by then). However, those who do enroll and comply in this program will likely be able to continue to engage in limited commercial cannabis activity during the pendency of their CUP next year.

I know this is a personal decision and I don’t pretend it is an easy one, but I strongly encourage folks to think about how not getting in this program will affect their 2019 season, as well as the overwhelming protection from state and federal law enforcement that only strict compliance with the local law will afford.

In any event, my office will continue to work with the County to amend this frustrating temporary permit program, as well as the coming permanent ordinance. For example, it is important we get Res-Ag allotments back, as well as additional license types such as manufacturing and micro-businesses, among other issues.

We appreciate hearing from the community about how we can better help, so please feel free to reach out. We’re in this with you.

Much Respect, Heather Burke and Sarah Smale
#protectourfarmers

Nevada County’s Commercial Cultivation Ordinance and CEQA: What every Nevada County Farmer Needs to Know

As most of you know, Nevada County staff prepared a draft commercial cultivation ordinance that was released yesterday. While I’ll leave the specifics of the ordinance for another day, the County must now figure out how to get farmers permitted as soon as possible. The California Environmental Quality Act (“CEQA”), however, requires that any ordinance that would have a “direct impact” on the environment to be vetted through an Environmental Impact Report, or “EIR.”  These EIRs can take months or years to complete, and waiting to issue cultivation permits in Nevada County until a full EIR is completed would likely delay commercial permits until 2019.

My brilliant associate attorney Sarah Smale and myself emailed other options to the Board of Supervisors today and, while none of the other options will be easy for our local farmers, the Board does have other options. You can see our Letter to my Supervisor, Heidi Hall, BY CLICKING HERE. (You should read it. It’s pretty cool.) 🙂  Here’s a very brief explanation:

OPTION 1: Temp Permits
The Board could immediately issue “temporary permits” to local cultivators who DO NOT EXPAND operations beyond the plant count and/or square footage of the current ordinance. This pathway would mean farmers may be able to get state licenses this year, but they could not exceed the current allotment of 25 plants and/or 1,000 square feet of the existing interim ordinance, limiting them to Type 1(c) “cottage” state license for the 2018 growing season.  The garden could expand, depending on the new commercial ordinance, once the EIR is completed.

While this option is not ideal for larger farms because the commercial permits would be limited in size this season, it is by far the easiest option, particularly for smaller farms that can survive off 1,000 square feet or 25 plants.  Another HUGE downside is that the County staff suggested capping the number of these permits at 100, and would decide who gets them by a lottery.

OPTION 2: Discretionary Review
The Board could enact the new commercial cultivation ordinance in the coming months if-and-only-if each and every farm went through “discretionary review.” In other words, this would require the County to make an individualized determination of environmental compliance for each farm.

This option is ideal for larger farms who are able to quickly coordinate site-specific environmental analyses and are ready to engage in the discretionary review process. However, “discretionary review” means by-its-own-terms that you’ll have to prepare reports and plans to submit to the County and then the County gets to review it and decide whether to permit it or to deny it. That process could take months, and the reports could be expensive. I would hope that discretionary review of smaller farms might be able to be streamlined in some manner, but that is not clear.

What Can You Do About It?

There is NO EASY ANSWER here. Each one of these pathways involves a weighing of the benefits and burdens, and then choosing the path that works best for the greatest number of our local farmers. To be sure, not everyone will be happy with either option.

However, PLEASE KNOW the County staff is advising the Board not to issue any licenses at all this year and to wait until the full EIR is completed, effectively pushing commercial permits off until 2019. That’s not legally required under CEQA and it just is not right. So please make your voice heard on Tuesday, May 1st, at 9:00 a.m. in the Board’s chambers at 950 Maidu in Nevada City.

I will be there making my voice heard.  Will you?

Much love and respect, hb
#protectourfarmers #nevadacounty

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

From Zero to Sixty: Cannabis Corporations in the Last Days of the Collective/Cooperative

As most farmers are aware, the shift out of SB 420 (i.e. the collective/cooperative model) into MCRSA (i.e. the local permit/state license model) is in part intended to bring cannabis cultivation into the light, primarily the taxable light. In light of these changes, my farmer clients commonly ask if they should start a corporation in preparation for the future, or if they should continue on as they have in the past.

This article is intended to flesh some of the issues out regarding starting a lawful California cannabis corporation now.

I.  Who Should Not Start a California Cannabis Corporation

1.  Do not start a shell corporation to establish priority.

A shell corporation is a business that is formed, but ignored in any meaningful manner. It is generally unwise to form a “shell” corporation to gain “priority” status under MCRSA or Prop 64, a tactic some attorneys and even our local policy organization advised in the past.

The statutes do not mandate local Cities or Counties give “priority” to prior-existing corporations, but instead order the State agencies issuing the state licenses. (Cal. B.P. Section 19321, 260554.2.)  While the issues are related, the buying and selling of pre-existing corporations may prove to be a fruitless exercise that serves only to generate more money for the attorney who set the shell corporation up in the first place.

Local jurisdictions (Calaveras/Mendo/Humboldt) have thus far cared more about the pre-existence of the farm in light of CEQA than any “priority” offered by a shell corporation, so don’t get played.

2.  If you aren’t ready to learn how to run a legitimate corporation, don’t start one. 

Those who are not ready to operate in strict compliance with the collective/cooperative rules should refrain from starting a corporation now, as they could expose themselves to criminal liability for financial and tax crimes instead of the simple cannabis crimes. Financial crimes are far worse, as they are often felonies and may be considered “moral turpitude,” forever precluding any type of licensing.

If you ain’t ready, you ain’t ready.

II. Why Does Corporate Status Matter?

For those who are ready to move into the next phase of California’s lawful system of cannabis production, the remainder of this article is for you. The first thing to know is MCRSA and Prop 64 authorize commercial activity, which will operate within the U.S.’s hyper-capitalistic economy. Thus, in order to best protect yourself and your assets, a smart farmer should have a working knowledge of basic business, and of those corporate rules that come along with it. Here’s a few issues to be aware of:

1.  Taxes

Taxes on California cannabis are wild, and they appear to have no end in sight with the allowance given to locals to tax even further. This massive taxation will likely put some mom-and-pops out of business, but by thinking strategically about taxing now, you can take the right steps to avoid unnecessary taxes.

By my account, cannabis taxes thus far are:

  • $148 per flower pound (due at harvest);
  • $44 per leaf pound (due at harvest);
  • 8% sales tax (which would be negated for wholesales from grower to dispensary/retailer if the growers can obtain a resale certificate, but growers who direct sale would be liable);
  • 15% excise tax (applies only to purchases of cannabis products, so this is a bigger issue for retailers);
  • Local cultivation and/or sales tax (TBD depending on your City/County);
  • Absolutely no write-offs for cannabis-only related expenses, per 26 U.S.C. § 280E.

By making sure you’re not paying extra self-employment taxes and ensuring your small business can obtain “pass-through” taxing when you move out of the collective/cooperative model, you can eliminate or greatly reduce the possibility of double taxation (i.e. where your corporation gets taxed and then your salary from the corporation gets taxed again).

2.   The Reputation and Goodwill of Your Business May Prove to Be Critical in an Industry Where Your History Matters.

I cannot understate the value of building your corporate personality and the “goodwill” of your business now, as the age of your corporation and its existing reputation matters, both for “priority” status under MCRSA and Prop. 64, and also for competitive local permits. Mostly, however, consumers care!

3.  Allows Strategic Business Decisions in Quick Turn-Around Permits.

In addition to the obvious issue of taxation, growers may not get a lot of time to ponder these issues before having to make a quick decision about permitting in light of the quick ebb and flow of the local cannabis rules in each City and County. (Hello, Mendo!)

4.  Allows Strategic Business Decisions in Non-Transferable Permits.

Many of local permits are non-transferrable, which means you may be stuck in the same corporate formation for several years if the County permits go on hold during a CEQA analysis. Taxes may prove to be unbearable if you don’t have corporate protection once taxes kick in in earnest in about 2019-2020 (once the collective/cooperative model dies).

5.  Protects You From Personal Liability if Your Business Gets Sued or Goes Under.

With a functioning corporation, you get the added benefit of a corporate “veil,” meaning your personal assets would likely be protected if your business got sued. Considering there will be tons of lawsuits as these issues get worked out, protect yourself by making sure you and your business are distinct entities. 

III.  Overview of California Cannabis Corporations

1. Current Law Continues to Demand Not-for-Profit Status.

Current law still requires non-profit status, but allows for profit making in the future. This odd conundrum leads to the common question: “How can we protect ourselves now but prepare for the future of California cannabis?”  

There are three primary choices: (1) do nothing, which essentially means you are a sole proprietor, (2) incorporate as a not-for-profit Mutual Benefit Corporation that can be transitioned to a for-profit company in the future, (3) organize a for-profit corporation that chooses to operate on a not-for-profit basis, or as a “management” or “holding” company for a distinct not-for-profit collective or cooperative. 

2.  Sole Proprietorships

California law continues to require a cannabis farmer be organized as (1) a collective or a cooperative, which (2) must be operated in a not-for-profit manner. Thus, operating as a sole proprietor of a commercial cannabis operation is arguably illegal at this time.  

There is the rare case where a grower provides cannabis to a dispensary of which they are a member.  If your garden is organized as a producer for a dispensary, however, your hard work is actually building someone else’s business. 

Additionally, once you begin to file taxes on your commercial cannabis business, sole proprietors will be subject to self-employment taxes, which essentially doubles your standard taxes. This self employment tax is in addition to the other taxes described in the previous section.  

3.  Cooperatives and Not-for-Profit Mutual Benefit Corporations

In 2008, Jerry Brown declared medical cannabis cooperatives must be formed as “Consumer Cooperatives” or “Agricultural Cooperatives,” which are specific types of businesses where members are united in common purpose and generally get an equal vote on the corporation’s major decisions. Cooperatives have stringent voting requirements that greatly limit their flexibility as an entity.  

At some point, dispensaries wisely began utilizing Mutual Benefit Corporations [“MBC”], another type of corporation that allows the Board and governing members greater flexibility in building the dispensary’s business.   The MBC can have members with voting rights similar to a cooperative, or members who do not get to vote, or even members who can vote on only some things, and this pliability makes it a desirable form.

The downside, however, is a MBC may not make the best business sense once the corporation gets big enough to own assets (such as real property or personal property like a greenhouse or a tractor).  An MBC cannot distribute assets or “dividends” to its members like a profit corporation can do for its shareholders, as the only time a MBC can distribute assets to members is at dissolution, unless the governing documents such as the Articles of Incorporation (AOI) or bylaws state otherwise. (Corp. Code Section 8717.)  

California law thankfully allows a MBC to merge with or transition into a for-profit company (C.C. 8010), which cannabis-related MBCs should not do until:

  • Collectives/cooperatives may legally operate on a for-profit basis (watch out for AB 64); or
  • You’re governed by the rules of MCRSA/Prop. 64, i.e. where you have a local permit and a state license.

          4.  LLCs, Partnerships, and Other Traditionally For-Profit Corporations

An LLC is a common entity type for small businesses, as LLCs offer traditional corporate protection, but don’t have the same rigmarole as traditional corporations that issue stocks to shareholders.  Most folks who have cannabis-related LLCs traditionally operate them in addition to their MBC and, in those cases, the LLC “manages” or acts as a “holding company” for the non-profit MBC’s assets or Intellectual Property, such as the company’s logo, the secret nutrient formula, or special growing techniques.  

In such cases, appropriate contracts/leases would need to be drafted setting forth how the LLC interacts with the MBC to ensure the transactions between the two corporations are sufficiently “arms-length” to be unquestionably legitimate.

Technically, you can run an LLC in a not-for-profit manner by declaring so in the Operating Agreement (CC 17701.10), which is a common structure in areas where the local jurisdiction is more friendly to creative cannabis businesses. In Nevada County and the surrounding Counties, you will likely be prosecuted if you tell an officer your cannabis business is an LLC, even if you can prove your financials are managed in a not–for-profit manner.  Thus, while a not-for-profit LLC is a legitimate possibility, its wisdom in practice largely depends on your jurisdiction.

If your cannabis business has a creative corporate structure involving an LLC or other type of for-profit, it is critical that Sierra Foothills farmers do not discuss their business model with law enforcement, and you should be wary of obtaining a permit in the name of the LLC. 

          5.  What Corporate Structure is Best for the Small Farmer?

For the aggressively professional and forward-thinking Sierra Foothill farmers, the most strategic method is to maintain (and operate) two corporations (i.e., a not-for-profit to manage the cannabis and a for-profit to manage the assets), as growers may not get lengthy notice when the Sierra Foothill Counties finally do issue cultivation licenses. Thus, having one of each type of corporation allows you to make a strategic decision about which corporation to get the permit under, if and when they are issued. For example:

  1. If not-for-profit status is still required by the State when your County issues a permit, or if the County grades applicants on the length of their previously existing corporate status, then having a longstanding not-for-profit corporation would be extremely helpful; or
  2. If the County issues licenses after for-profit becomes legal, then it would be needlessly cumbersome to get the permit as a non-profit unless you desire to remain a non-profit in the future (which a lot of folks do) or unless you don’t get time for a lengthy transition before your application is due.  If you’re in the latter category, you should ensure your governing documents allow for flexible transition now, or you could screw yourself in the future.

However, for the majority of small farmers just trying to make it through the day, a Mutual Benefit Corporation which allows easy transition to an LLC or stock corporation is perfectly workable, as it the safest option for now and can be converted to a for-profit in the future. 

If you are in a friendly jurisdiction, you could skip the MBC and go right to the LLC, but that’s dangerous ground in hostile Counties and may hurt you if your jurisdiction requires proof of not-for-profit status when permits are available.

IV.  CONCLUSION

In sum, I am aware the corporate stuff is unfamiliar and daunting. But, while the massive taxes are my least favorite part of the end of prohibition, I strongly believe wise steps to protect yourself from over-taxation and the lack of any risk of arrest will make this transition worth it someday.   

For now, just continue to hold on tight, start to ponder these concepts, and then take initial steps if and when you’re ready. Above all, please stay safe this coming season.

<3, hb

Written by Heather L. Burke, Criminal/Administrative/Corporate/Litigation

In consultation with attorney Fran Cole, Diamond Baker Mitchell, L.L.P, Corporate/Civil Litigation

***This blog is excerpted from a larger chapter in the The Farmer’s Corporate Handbook, due in May, 2017.  Additional chapters include (2) How to Run a Legal Cannabis Corporation, and (3) What Legal Cannabis Producers, Manufacturers and Distributors Need to Know About Contracts, and more!  Stay tuned!  

#protectourfarmers #cali4life

The Tortoise, the Hare, and the Ostrich: Legal Compliance in the 2017 Growing Season

I used to joke that many farmers act like ostriches by burying their heads in the sand when it comes to staying on top of the sweeping new laws relating to cannabis cultivation.  That approach is understandable in light of the volume and complexity of the new laws, but I recently realized the age-old story of “the tortoise and the hare” may provide significant insight for those trying to find a path forward, particularly here in Nevada County. That story taught us—as we all remember— that slow and steady wins the race.   This principle is applicable to growers in Nevada County’s current cannabis realm for three primary reasons:

1. Protect What You’ve Built in the Industry Thus Far.

Before thinking about the future, farmers should start by protecting what they’ve built so far.  For most, this means perfecting their legal compliance now, as one’s compliance with state law matters this season more than ever, especially in the ban counties such as Nevada County (yes, we are still under a ban).  It is critical to protect yourself from arrest this season, and from felony arrest in particular, as we are expecting the Sheriff’s Office to mount an aggressive anti-cultivation campaign. The County will get $100 per plant out of compliance, per day, which adds a unique financial incentive not previously in play.  Moreover, thanks to our “interim” ordinance, law enforcement can “summarily abate” (i.e. slash-and-burn) without a hearing wherever there is any violation of state law! Thus, even a misdemeanor violation of Prop 215 and/or the Collective/Cooperative rules could possibly get you immediately chopped, fined $100 per plant, perhaps arrested, and having to “lawyer up” for a criminal case.  Talk about insult to injury!

Additionally, although Prop. 64 (aka “AUMA”) downgraded illegal cultivation to a misdemeanor in most situations, it is still a felony where the plants are grown in a way that harms the environment.  Law enforcement will likely interpret the environmental crimes broadly, so unpermitted clear-cutting in an area close to the watersheds or irresponsible use of pesticides might get you arrested for harming the environment. Since you can be denied a state license under MCRSA for a felony conviction based on purposeful injury to our Mother Earth, you should not half-ass your legal or environmental compliance this year.

Finally, as Congress defunded the DEA and fed DOJ from investigating and prosecuting conduct that is in “strict compliance” with California’s medical cannabis laws, a half-assed informal Collective or a defunct Not-for-Profit Mutual Benefit Corporation [“MBC”] is probably not enough to protect you from the Feds if they come in. (P.S., #fdt.)

While our County’s ordinance status is imperfect, I am choosing to be grateful for this momentarily lull after a barrage of sweeping changes over the past 2 years, both locally and state-wide. Instead of acting like the braggadocios hare (who has a popular Instagram page, so he must be legal, right?) or the purposely ignorant ostrich, I am encouraging my clients to follow the wise tortoise’s lead and take this precious time to perfect their legal compliance, particularly as we are only beginning to methodically digest the deluge of new laws.  I strongly advocate a “safety first” approach, focusing on protecting what you built in this industry thus far as we inch towards the future with wisdom.

This simply is not the year to risk everything because we’re ticked off the County did not give us grow permits after Measure W. Complaining is self-defeating. Get over it, and bring your legal status into line while there is time to do so thoughtfully.

2. Prepare for the Future, But Do So Wisely.

You can be proactive during this short respite by taking small but significant steps to prepare for permitting, if and when it is available.  Should Nevada County allow you a mere few days to turn in your permit (recall what happened in Mendocino County), you may regret burying your head in your expensive pile of fancy dirt. There is much to do, now.

Firstly, we can look to the cultivation ordinances in Calaveras, Mendocino, and Humboldt, make educated guesses about the requirements of a future permitting ordinance here, and get working on it.

Secondly, as we move from collectives/cooperatives to small businesses, there are a LOT of corporate and tax rules that now may apply.  You could, for instance, get answers to the following questions now, instead of making critical decisions under a stressful timeframe:

  • Should you start a MBC? (Hint: beware of anyone selling you a MBC without assessing the cons as well as the pros.)
  • Was your MBC created in haste to get you “priority,” but you don’t really use it or have any idea what to do with it? How do you breathe life into an existing non-profit corporation?
  • Does your defunct MBC get you “priority” under MCRSA? (Hint: no.) If not, what does?
  • Does an MBC and a popular Instagram page equate to legal compliance?  (Hint: yikes!)
  • If you have a MBC, do you know if you will need to dissolve it or whether it can be morphed into a for-profit entity in the near future (should AB 64 pass or you get state licensing)? Should your bylaws be updated now, before you bind yourself to a non-transferable permit?
  • What Water Board tier are you? What can be done today to prepare if you may a higher tier? Does compliance with the Water Board BMPs even matter now, before you can submit a Notice of Intent?
  • Have you met with a CPA and started thinking about the process of tax compliance, even if you’re not ready to commit to paying taxes just yet? Is your CPA subject to the attorney-client privilege, or are you telling your most critical secrets to someone who is not bound by statutory confidentiality?

While the questions can go on ad infinitum, a knowledgeable lawyer can give you a fairly good overview of these issues so you that can take your first step at developing an Action Plan.  Don’t wait to make a game plan until the game is on.  While we have precious time to prepare and plan, prepare and plan for Goddess sake!

3. Intent Matters. A Lot.

An intention to operate lawfully actually has cognizable significance in the legal realm. I find that developing an intent to be lawful is often matter of self-perception, as cops and prosecutors told growers they were illegal for decades, even when the growers were trying to do it right. This unfortunate self-perception of illegitimacy is a result of that conditioning, and the time has come to stop playing into their narrative and to create your own story about your intention and understanding of your own legitimacy.

No, you still cannot talk to law enforcement about your new self-realization, but it is a hugely significant step forward if the only change you make this season is to alter your intention surrounding the lawfulness of your canna-business.  Like everything else in life, intent matters.

***

In closing, I note that the work of the tortoise is undoubtedly tedious and perhaps lacking in glamour, but it is methodical and wise. You will be better prepared than the ostrich who refuses to look up from his pile of dirt, and you will likely outlast the rabbit, who gained a reputation for folly.  As we alter our perception of our County’s currently undesirable status from an affront to a respite, we can change our perception of ourselves along the way, and create our own story.  Then we trod on slowly, but wisely, to the finish line.

#strongertogether #protectourfarmers #cali4life #setmypeoplefree ~hb

My musical meditation for this post is a live version of Bad Brains, The Meek Shall Inherit the Earth. You’re welcome.

 

Discussing Federal Cannabis Issues with Attorney Omar Figueroa

I got a chance to sit down with one of my colleagues and friend, the brilliant attorney Omar Figueroa, this morning to chat about what’s up with the feds. Know this! ~hb

Probable Cause in Planning and Planting Your Legal Cannabis Garden.

This is the first in a four-part video series entitled “California Cannabis Law,” and this Part I focuses on Probable Cause in Planning and Planting Your Legal Cannabis Garden.

Part II will focus on State Law Compliance, Local Ordinance Issues, and Federal Law Update, and will include an overview of all three areas of law which may apply to the lawful cultivation of cannabis.

Part III will address the Future of Cannabis Cultivation in California, including priority issues and how to move forward in California’s new legal era.

Finally, Part IV will discuss Resentencing and Expungement, including Proposition 64’s allowance for redesignation, legal invalidity, and expungement.

Happy 2017 from The Law Offices of Heather L. Burke!!

 

Prop 64’s Effect on Criminal Records: Legal Invalidity vs. Redesignating Prior Felonies

**This is a technical analysis that is not necessarily fun reading, but may be helpful for attorneys or people who want to clean up their prior cannabis felonies .

Prop 64 fundamentally redefines California’s criminal cannabis laws, in particular Health & Safety Code [“H.S.”] §§ 11358 (cultivation), 11359 (possession for sale), and 11360 (transportation/sales).  Each of those crimes are now misdemeanors, unless its someone’s third offense for that particular crime.[1]  AUMA also allows people to redefine their criminal histories to reflect Prop 64’s changes to the standard marijuana felonies.  There are two avenues for updating one’s criminal record, one of which applies to people who are still serving their sentences (H.S. § 11361.8(a)-(d).)  The other avenue, for folks who have served their time and are off probation or parole, is the focus of this article.

Legal Invalidity vs. Redesignation (H.S. Section 11361.8(e)-(h).)

Under Prop 64, people with cannabis felonies on their record can now “apply” either (1) to have their prior conviction dismissed and sealed because the prior conviction is now “legally invalid,” or (2) to have their prior convictions reduced to misdemeanors.  Judge Couzin’s bench brief on Resentencing Procedures (PDF attached below) is helpful on this procedure, but there are a few substantive notes I want to add: 

1.  ”Redesignating” The Prior As A Misdemeanor

This avenue is available to everyone with a conviction for H.S. §§ 1135811359, and 11360, as well as anyone with a prior “hash” felony, H.S. § 11357(a).  It is critical people realize Prop 64 actually “redesignates” these felonies to be misdemeanors “for all purposes.”  (H.S. § 11361.8(h))  This includes future priorability!   Thus, someone with two prior felonies who gets them “redesignated” will now have two AUMA priors, which then allows any future criminal offenses to be charged as felonies! (See an example in footnote [2], below.) 

Thus, folks who are no longer working in the cannabis industry or who want licensing to become doctors, lawyers, teachers, etc. may want to get their records redesignated.  Those who are still in the cannabis game, however, may want to leave well enough alone, since a prior cultivation felony is not priorable under H.S. § 11358(d)(1).  Arguably, it is legally invalid as-is, so why mess with a good thing?

2.   Declaring The Prior to Be Legally Invalid

AUMA says a person who has a criminal record for conduct that “would not have been guilty of an offense or who would have been guilty of a lesser offense” can now seek to have the sentence declared invalid or get it reduced to a misdemeanor.  This language is unclear, but I imagine most judges will read this to say that if one’s conduct would have been perfectly legal under AUMA, then they can get the conviction dismissed and sealed as “legally invalid.”  (Judge Couzins agrees.)  That means the conduct would not have been a crime under AUMA (which only allows 6 plants, 1 ounce of flower, and/or 8 ounces of concentrates), so the dismissal/sealing on grounds of “legal invalidity” will be far more difficult to obtain.
 
There is no question that those who have felony convictions for cultivating 6 or less plants (11358) are eligible to have their priors declared legally invalid, as are those who have possession for sale (11359) and transportation (11360) for possessing or transporting their personal stash (so long it’s a single ounce of flower and/or 8 ounces of concentrates).  

Everything else, however, is legally murky, as H.S. §§ 11359 and 11360 are not determined by quantity, and instead are focused on whether the conduct was being possessed, transported, or sold consistently with AUMA or MCRSA’s regulatory regimes, which presents somewhat of a quandary because these schemes are not yet in effect.  Presumably, however, if one’s conduct was within S.B. 420’s collective/cooperative defense as we know it today, that might also be sufficient for a declaration of legal invalidity, but that’s no slam dunk and may require an evidentiary hearing, depending on your DA. [3] 

One interesting issue will arise where the arresting or investigating officer(s), and/or their police reports, are no longer accessible due to the passage of time.  Since the prior conduct is presumed to be legal, and the burden is explicitly placed on the prosecution to prove otherwise, older convictions may more easily be declared legally invalid due to the prosecution’s simple inability to locate the old evidence.  This will be a huge asset to those cannabis foremothers and forefathers with felony convictions dating back to the 1980’s or earlier.
 
In any event, the prosecutor can always elect not to contest an application for legal invalidity and, thus, discussing these issues with opposing counsel in advance might save our clients from putting them through another emotional, costly, and often difficult evidentiary hearing on an old conviction. 
 
                                                                                 ***
In closing, our clients are undoubtedly in a better position under Prop 64, since cannabis crimes now default to misdemeanors instead of felonies, and even those misdemeanors are allowable only where one cannot obtain a permit under MCRSA or AUMA.  This fundamental shift in the law provides defense attorneys new arrows in their quiver, with which to continue to strike down cannabis prohibition and keep people out of cages for a plant.  
 
<3, hb

Footnotes:
​ 
[1] As the priors are statute-specific, a prior 11358 conviction should not be “priorable” in a future § 11359 case.  

Additionally, cultivation (11358) remains a felony where committed with an environmental crime, and transportation (11360) remains a felony where the cannabis is being transported out of state.  Sections 1135811359, and 11360 may also be charged as felonies where the defendant has a prior conviction for murder, child molestation, or other serious or violent crime.  This last rule seems like an odd thing for AUMA to throw into the mix, but I am not going to address it here in detail since most of us will rarely see that become an issue in the standard cannabis cases.

[2]           Take cultivation (11358) as an example:

If a person has two cultivation priors, they could seek to have them “redesignated” as misdemeanors, so their criminal history would show two prior violation of the new subsection (c) in H.S. § 11358.  That is great, in that their criminal history is now comprised of two misdemeanors instead of two felonies, a definite improvement.  Where this gets wonky, however, is that those two misdemeanors are also now “priorable” under H.S. § 11358(d)(1), since this section allows a felony charge where there are two priors of § 11358’s new subsection (c).

The same is true for possession in § 11359(c)(2), and also for transportation/sales in § 11360(a)(3)(B)

[3]   If that person already went to trial and used a collective/cooperative defense, it’s doubtful AUMA’s procedure will be interpreted to allow a mini-bench trial on the exact same issue in order to get a declaration of legal invalidity, but I suppose that remains to be seen. 

[4]    Note that H.S. § 11361.8 does not extend to priors for H.S. §§ 11366 or 11366.5, which was a common plea bargain for many cannabis crimes because they were wobblers and did not require registration as a narcotics offender.  These folks may still access the regular route for expungement and reduction under P.C. §§ 1203.4/17(b), and discretionary relief may be made more available due to Prop 64’s passage. 

Why I’m Voting Yes on 64: A Tortured Analysis

Admittedly, Prop 64 does nothing to alter the corrupted capitalist economic system in our nation.  That means that if-and-when cannabis enters the commercial market, it enters a capitalist commercial market where traditional market forces will be in play, for better or worse.  And I’m still voting yes. Here’s why:

I am a criminal defense attorney. My task each day is to defend those who are charged with cannabis felonies throughout the California. Prop 64’s primary redeeming quality is it will have a sweeping effect on current California’s cannabis prohibition, where cultivating cannabis is currently presumed to be a felony unless one can prove their conduct was medical and not for profit.  Today’s cannabis law and today’s cannabis industry simply do not match, which works to the advantage of law enforcement who often seize upon this confusion out in the cannabis fields to arrest famers first, and ask questions later.  

Importantly, illegal cultivation is a straight felony under SB 420 or MCRSA, as misdemeanor cultivation does not even exist in California law today. This should be a heightened concern to growers in ban counties, such as most of the Sierra foothills.  However, if 64 passes, any illegal conduct becomes a misdemeanor unless its (1) a person’s 3rd offense, (2) if the cultivation is conducted in conjunction with an environmental crime, or (3) if transporting out of state.  Even with the influx of cash to law enforcement from Prop 64, law enforcement does not have the same resources or authority to investigate misdemeanants as it does felons. Perhaps equally important, Prop 64 explicitly negates the smell of cannabis as the necessary probable cause that cops use to get into homes and cars. That’s a sweeping disadvantage to law enforcement and will have massive effects on how they can investigate our people. I cannot stress how important these changes could be for growers. 

Next, I am wary of those (often wealthy out-of-staters who moved to California in the recent years for the specific purpose of cultivating cannabis) who are advising those of us who were born here that the corporations are going to take over.  Those corporations are already here, my friends.  There are people at our own local policy meetings that would happily vertically integrate if they could and push the diversity of our small farms out of the market in favor of market domination. If we think the big guys have the small farmers’ backs today, we’re kidding ourselves. It is already happening.  The competitive application processes thus far around the state have been a bloodbath, as is often the case in a corrupted capitalist system such as ours. Steve DeAngelo of Harborside spoke in Nevada County recently and said the future of the small farmer is to lease space from the large cultivators!  And he wasn’t talking about Prop 64, folks. 

To some degree, the preservation and promotion of self is human nature, regardless of the economic system in play.  In fact, the most common question at my office is “how can I establish priority for future licensing?,” raising the inference that if there is a cap on number of permits, most folks want to be one of those few, to the exclusion of others.  Lets also take a moment to recall Prop 64’s allowance of priority and vertical integration sent hundreds—perhaps thousands—of NorCal growers to ill-advisedly rush to file for cooperatives prior to September 1 this summer. The same insane bumrush happened last December regarding the MCRSA priority. Trust me, someone out there is already gunning to throw other small farmers under the bus, Prop 64 or not.  Prop 64 just takes that felony bus and makes it a misdemeanor. 

In California, we should instead look closer at competitive capitalism, the effect of money in politics, and a grossly unjust legal system, rather than reject a second semi-legalization initiative.  Instead of infighting, I wish our community would focus on addressing the corruption in these underlying power systems, making sure that more small businesses, people of color, women and those with cannabis-related criminal histories, are supported in this new era.

Finally, a particularly violent anti-64 grower I know (in another County) has thrived in the black and grey market because his cannabis is subpar by all accounts, and has been so for years.  Market forces should drive out the growers who lie about their pesticide use or inflate the cannabinoid content.  The market will make sure the money he made in the past would now go to someone who does play by the rules, who is willing to have their cannabis tested by a laboratory, who pays taxes, and who makes sure their product is labeled truthfully; someone who makes sure to follow the appropriate regulatory process.  Small growers will be able to get their permits and can even thrive, if they are willing to do the hard work of increasing the quality of their brand, marketing their product well, banding with others, coming to the policy meetings to shape the regulations in their favor, and who will do the work required of legitimate business.

I admit this is a tortured doom-and-gloom analysis, and it saddens me that I just don’t see another option. Prop 19 was far better than Prop 64, so I doubt the next one is going to be better.  Who would fund another and more expensive legalization initiative after two failed in California? My heart is heavy about this, as the harsh realities of Prop 64 has exposed some of the darker sides of California cannabis, on both sides of the issue.  I can only pray we respect each other’s opinion and each others Constitutional and ethical imperitive to VOTE, and look forward to that day when we reunite in a meaningful way to focus on the greater problems we continue to battle: money in politics and a broken legal system.

Those evils will persist, regardless of the outcome of this election. Please do not let this divide our community any further.  Either way, we have so much work to do. 

#rise #dividedwefall #fuckthatCOINTELPROshit #protectourfarmers #sameteam 

My musical meditation for this sad soulful post is Murs, “The Time is Now.” 

Look, not now, but right now, it’s time to change the game,
A new style, something different, you know, uplifting,
New sound from the West that we all can get with it,
The Pacific to be specific.”  

#cali4life <3, ~hb