Author: hburkelegalgmail-com


Hemp Update: USDA’s Position on Interstate Transport of Hemp and Hemp-Derived Products

As Sarah and I slowly begin to reopen our practice to select new clients (we have not openly accepted new clients for almost 5 full months), we are finding ourselves being called on to answer an increasing number of questions about hemp. Although we blogged about the federal hemp rules after the 2018 Farm Bill was passed last December, metric tons of legal changes have happened since then, including Tuesday’s issuance of the USDA’s “Legal Opinion on Certain Provisions of the Agricultural Improvement Act of 2019 Relating to Hemp,” a release that smashed my legal expectations and I think is a pretty huge deal. Here’s why:

1. A Winner in the Conflicting Application of the 2018 Farm Bill is Emerging.

The 2018 Farm Bill was unclear as to whether its key terms (such as the protection for interstate shipping) applied to hemp and hemp-derived products produced under the currently existing hemp laws, a.k.a. the 2014 Farm Bill. Two federal district courts, in Idaho and West Virginia, came to different conclusions on the application of the 2018 Farm Bill to hemp products produced under the 2014 Farm Bill:

  • In February, the “Big Sky” case held the shipment of hemp produced in compliance with the 2014 Farm Bill may violate STATE LAW where transported through states which do not authorize hemp. The driver in that case, Denis Palamarchuk, was arraigned on the illegal trafficking of over 6,000 lbs of marijuana through Idaho. *His pre-trial conference is set for October 2, 2019.
  • In March, the “Grassy Run” case held that hemp seeds produced in compliance with the 2014 Farm Bill were exempted from the federal Controlled Substance Act and thus no FEDERAL CAUSE OF ACTION could prohibit shipment across state lines.

Based on the USDA’s analysis announced this past Tuesday, the Grassy Run case is emerging the clear winner in the conflict created by these two cases.

2. An Increasing Number of Federal Agencies Seem to Agree.

Since March, several federal administrative agencies have weighed in on the application of the 2018 Farm Bill provisions to hemp produced under the 2014 Farm Bill, by implication or formal legal analysis. These agencies, including the U.S. Department of Agriculture (USDA), the U.S. Patent and Trademark Office (USPTO), and the U.S. Transportation Security Administration (TSA), each decidedly coming to a similar legal conclusion:

While the interstate shipment/transport of hemp and hemp-derived products produced lawfully under the 2014 Farm Bill may not be expressly authorized by the 2018 Farm Bill, the products are exempted from the Controlled Substances Act. 

3. The Lack of Prohibition is Not the Same as the Presence of Authorization.

Thus, the federal agency positions are not based on the express authority to interstate ship hemp, but rather upon the legal effect of deleting hemp from the Controlled Substance Act (“CSA”), a feat the 2018 Farm Bill also accomplished in a separate section. (Compare Section 10114, exempting hemp produced in compliance with the 2018 Farm Bill from interstate shipping prohibitions, with Section 12619, deleting hemp from the definition of “marihuana,” and therefore leaving the production of hemp arguably unprohibited for the moment).  

The legal underpinning for hemp produced under the 2014 Farm Bill (i.e. 100% of the hemp available on the market today) is more a lack of prohibition, as opposed to the presence of authorization, which here proves to be a distinction with a difference sufficient to give numerous federal governmental agencies the legal cover necessary to amend weighty governmental procedures.

  1. The USDA Legal Opinion Takes it a Step Further.

Most importantly, the USDA (a.k.a. the same federal agency tasked under the 2018 Farm Bill with promulgating the regulations everyone is fighting about) surprisingly (to me, anyway) released two documents yesterday which evidence the agency’s legal position on hemp.

Interestingly, one of the documents was a lengthy legal memorandum from the USDA’s own attorneys finding that hemp and hemp-derived products produced in compliance with the 2014 Farm Bill cannot be PROHIBITED BY STATE LAW. This interpretation was based on the grounds the 2018 Farm Bill provisions apply to states that do not have a federal plan under the “legal effect” language, a bold but supported legal analysis.

So What?

This is big. People are being indicted for this, so yeah, this is big.

It is important to note, though, that the USDA is not a federal law enforcement agency, whereas the Department of Justice (“DOJ”) and U.S. Drug Enforcement Administration (“DEA”) or Federal Bureau of Investigation (“FBI”) are. Thus, while the USDA’s civil attorneys may be ready to challenge the legal status quo (perhaps buttressed by the White House’s never-ending scandals), the criminal potentials inherent on the fringes of the federal hemp laws remains firmly in the hands of state and federal prosecutors.

Our nation’s prosecutors are constitutionally mandated to enforce the law as they see it, and while the USDA opinion is powerful in its clear guidance to other administrative and enforcement bodies, it is not a mandatory directive to state and federal law enforcement.

In terms of risk analysis, this does change the game. More importantly, less people will be indicted or sued under vague applications of the law. Clarity is a win-win for all, and Tuesday’s USDA opinion moves us closer to that goal, at least for one manifestation of the cannabis plant.

May the same soon come to all manifestations of the plant.

~hb
#protectourfarmers

The Business Fundamentals Every California Cannabis Company Needs to Know: a five-part blog series

By: Heather Burke and Virginia Ryan 

BLOG 1 of 5: INTRODUCTION TO THE BUSINESS BLOG SERIES

With Nevada County’s recent enactment of its commercial cultivation ordinance, cannabis farmers are scrambling to begin their growing season and to start building their businesses. As the bulk of the regulatory mountain-moving is behind us (for the moment), wise operators should be turning their attention to the business now at hand. And the business at hand today is the nuts and bolts of doing business.

The question of exactly how to do business in our newly regulated industry is largely still being figured out, as the mechanics are just beginning to work themselves out as more and more farms come online. Although we all have some idea of how the new supply chain works, no one has ever done this before (not even folks with regulated farms elsewhere because last season was not tracked-and-traced and NONE of them were in the Sierras).

While there are a lot of vulnerabilities in trying to start a small business in a field that has no operating history, the good news is that we get to write the rules of doing business in our region and for our license types. So, while those first few licensees who pushed through the tribulations of these past two years did suffer greatly, now is the time to reap the rewards by (1) having access to contracts with multi-year terms long before those who took a wait-and-see approach, (2) being able to do business as an industry leader/pioneer, and (3) having a greater voice in policy shaping regarding your business operations, to name just a few benefits.

However, since the scope of cannabis business is so vast and complex, one of my favorite local business lawyers Virginia Ryan has thankfully agreed to co-author this five-part blog series with me, which we’re calling “The Business Fundamentals Every Cannabis Company Needs to Know.”

We will be focusing on the following four areas:

(1) Cleaning Your Own HouseRegulatory Compliance & Entity Governance

(2) Snakes in the GrassDue Diligence & Proper Vetting of Potential Deals  

(3) Contract FundamentalsDude, Where’s My Indemnity Clause (and Other Super Fun Terms Every Cannabis Business Owner Should Know)

(4) Contracts OverviewWhat Paper to Push? (+ Sample Contract Templates)

Our goal is to push each of these out over the next couple weeks to both our blog lists, so make sure you’re signed up!

To sign up for Virginia Ryan’s blog list, go here: https://virgielaw.com/contact/

To sign up for Origin Group LLP’s blog list, go here: http://hburkelegal.com/blog/ 

Now let’s do some business.

~hb

This email is a communication from a lawyer, but it does not constitute legal advice, nor does it create an attorney-client relationshipThis is intended for educational purposes only.
Please contact an attorney for specific legal advice. 

Nevada County Strong: An Open Letter To Nevada County Farmers

My intuition is telling me they’ll be better days,
I sit in silence and and find whenever I meditate
My fears alleviate, my tears evaporate
,
My faith don’t deviate, ideas don’t have a date.

J Cole. “Change.” 4 Your Eyez Only.

***

Community, 

In October of 2015, I wrote a blog about the pressures farmers endure during trim season, and I recommended farmers take extra care to be kind to each other and to themselves in order to stay true to the honorable work of caring for this plant. During this last mad dash of local and state licensing applications these past few weeks, those words regularly come to mind. Since they are just as meaningful in this strange new season of regulation, I decided to share them again: 

“This is “Game On” time for your entire year’s work.  It is instead the time to be at your highest energetic level, and to put your best energy into this medicine that is about to be released to [consumers] around the state. So take this opportunity to abstain from alcohol or other unnecessary intoxicants if possible, increase your physical activity such as yoga or running, and take that extra moment to love on your partner who has to take care of the house and kids in your absence.”

These considerations ring true once again here in Nevada County, where application-fatigue has set in HARD and folks are visibly wilting under the pressure of looming deadlines, massive data gathering requirements, and what feels like never-ending costs. 

For those who are struggling, please take some level of comfort in the fact this too shall pass, and many of us will look back on this as a time in history where we endured, and overcame the impossible together. Farmers are the genesis. Farmers are the origin. Nevada County NEEDS our local farmers to be economically successful and to produce the products we consume, to the benefit of the entire community. 

So please stay focused on the higher meaning of your work these next few stressful weeks. Keep the reason we were all drawn to cannabis in the first place in the front of your mind. Hug your family, fellowship with friends, listen to good music, and then push this f**king paper though. We’re almost there. Heart up.

Finally, while we can’t do anything to halt the insanity, we can have a PARTY! And since Sarah and I are both hella Irish, it makes sense to host the First Annual OG Law Green Party next Sunday, March 17th, a.k.a. St. Patrick’s Day, at the office. Come out!

OG Law’s First Annual Green Party
431 Uren Street, Suite C
Nevada City, CA 95959
DJ Redlocks will be DJ’ing from 4-7 p.m.!!!
WEAR GREEN
*Family friendly, kids welcome
**Celtic Red from Old Republic on tap (first come/first serve).
***Heather will be manning the bar herself and will be serving green drinks of some fabulous sort.

***Please do not park on the opposite side of the street.  We will have a parking attendant to help point you in the right direction from 4-7 p.m.

What’s On Deck
Our next blog will be a technical analysis of the latest version of the Nevada County draft ordinance with some suggestions for upcoming public comment. Stay tuned.

Much respect,

Heather and Sarah
#protectourfarmers #madrespect 

ALERT! Immediate Need for Letters in Support of SB 67 (Temp License Bill)

Community,

Huge thanks from The International Cannabis Farmers Association (icfa.farm) for drafting a sample letter in support for SB 67, the Temporary License bill that would extend temporary licenses if (1) a local authorization was taking more time to be returned to the CDFA, (2) if the Department of Fish and Wildlife LSA is taking a long time, or (3) if the CDFA needs more information from the licensee.

Considering Nevada County’s unique permitting status, it is imperative our licensees don’t experience a disruption in their licences as we move through the local permitting process.   SB 67 will be heard in the Senate Business, Professions and Economic Development Committee on Wednesday, February 27th @ 11:00 a.m.

Senator McGuire’s office has requested support letters be sent to the committee, which means they are due TODAY (Feb 22nd) by 5 p.m.  We know that is not a lot of time, so AS A FREE SERVICE TO THE COMMUNITY, Origin Group Law LLP will help ANY AND ALL licensees prepare and submit their letters today between 1 p.m. to 5 p.m.

You are welcome to stop by, call the office, email us, or send a carrier pigeon and we will get your letter of support out. Here’s our contact info:

Origin Group Law LLP
431 Uren Street, Suite C
Nevada City, CA 95959 
530-955-3184 (office)
hburkelegal@gmail.com

Please find attached a sample letter (thanks to the ICFA) and a fact sheet about SB 67. Thank you!

(1) SB 67 Support Letter Stakeholder

(2) SB 67 Cannabis Licenses Fact Sheet

Nevada County: Consider Outdoor Licenses This Season

Nevada County staff recently reminded us what farmers in other areas have known for a couple years: land use issues are the most expensive piece of coming into the regulated system. While many requirements apply across the board, outdoor farmers generally have lower permitting and operational startup costs than greenhouse farmers, sometimes by hundreds of thousands of dollars. As such, farmers who want to ease into regulation may want to consider outdoor  licenses this season (and scaling up to mixed-light later if desired). Here’s a nonexclusive list of the cost differences between the license types:

  1. Commercial Greenhouses are Structures Which Require Permits.  

In addition to permitting the greenhouses (a process which requires engineered plans for the greenhouse and a site plan), the pads for the greenhouses themselves may need to be graded, requiring yet another permit.

Additionally, fire trucks must be able to access all structures, meaning fire-safe roads must go all the way to the GH and allow a fire truck can turn around. Since outdoor gardens are not structures, roads are not needed to the same degree.

2.  Commercial Greenhouses Have Greater Disability Access Requirements.

Greenhouses are structures which must be compliant with the Americans for Disabilities Act [“ADA”], so the greenhouses themselves need to be wheelchair accessible, as do the pathways pathways to the greenhouses.

Farmers expecting multiple runs per year will also likely require more employees than an outdoor farm of the same size, which means they’re more likely to need an ADA compliant bathroom on the farm. As bathrooms can’t be in a private residence, they may require a new septic and yet another permit.

3.  Commercial Greenhouses Require Additional Operational Costs.

A greenhouse can be expensive to purchase and install, so some mixed light farmers expect to incur an additional $100,000 in operational startup costs per greenhouse, an expense not incurred by outdoor. Of course, greenhouses also have monthly energy bills, which ain’t cheap.

4.  Commercial Greenhouses Need Power.

In addition to the power requirements to run the greenhouse (and btw, generators are NOT allowed as the primary power source for greenhouses), farms may need a power upgrade for the type of power that will be required to run the greenhouse. Considering that PG&E just declared bankruptcy, and that they are taking months longer than expected to get power installed or upgraded, power upgrades are a potential holdup for the 2019 season.

Importantly, state regulations require Mixed-Light 2 (i.e. 7-25 watts per square foot of canopy) meet certain energy requirements by January 1st, 2023, or purchase carbon offsets. I have no idea how much the “offsets” cost, but keep in mind it is another steep cost in addition to power not applicable to outdoor (or Mixed Light-1, which is light deprivation/light-assist up to 6 watts per square foot of canopy).

Finally, I just heard the County’s draft Environmental Impact Report may not adequately address the power-source impacts of converting outdoor to mixed-light, which means there could be additional environmental requirements (and more uncertainty) for mixed-light farmers in the future.

5.  Awesome Policy Organizations are Working to Support Sungrowers in the Marketplace.

Organizations like the Mendocino Appellations Project [MAP], the International Cannabis Farmers Association [ICFA], and the California Growers Association are dedicating insane hours to programs devoted to help sungrowers be successful in the marketplace, such as cannabis appellations, the Sungrown Agricultural Commissions, moving light-deprivation back into the outdoor tier, and consumer education campaigns. So stay tuned for that very exciting news.

6.  State Regulatory Fees Can Vary up to $17,000.

In addition to the engineering, permitting, and power cost differences, here are the state’s regulatory fees for the 3 different license types:

Outdoor (10k): $535 (application fee) + $4,820 (license fee) = $5,355 to CDFA
Mixed-Light 1 (10k): $1,310 (application fee) + $11,800 (license fee) = $13,110 to CDFA
Mixed-Light 2 (10k): $2,250 (application fee) + $20,235 (license fee) = $22,485 to CDFA

That’s more than a $17,000 difference in state regulatory fees for the 2019 season alone!

*Those fees need to be paid in full before cultivation can begin, with the exception of provisional licensees who will likely be paying those fees sometime in the early to mid-summer.

Conclusion

While the numbers will surely make sense for some folks based on their estimated yield, their relationships with buyers, and their emergency reserves, the numbers may be impossible for the average small farm. Rather than mimic what happened in Humboldt and Mendo (where the land use struggles proved to be an extinction event for many farms), I’m suggesting folks think critically about the cost differences between outdoor and mixed-light before jumping in this season, even if the ultimate goal is to scale up later this year or next.

We support all cannabis operators of every license type and we are hyper aware that everyone in the industry needs protection from over-regulation. However, it is particularly critical to our region’s success that mom-and-pop farms survive the onslaught of land use costs. Reducing those costs by starting with outdoor is just one of several ways farmers can do that. Whatever you choose, we support you!

Much respect,
Heather and Sarah

#protectourfarmers

Hemp in CA: A Post-Farm Bill Update

After the new Farm Bill was signed into law last month, I keep hearing folks declaring that hemp is legal now. And it is, kinda. While the 2018 Farm Bill did not create a hemp free-for-all, it did create a legal pathway for the production and interstate distribution of legally produced hemp. Here’s a high-level overview for California farmers:

1. What’s the Difference between the 2014 Farm Bill and the 2018 Farm Bill?

The 2014 Farm Bill allowed the cultivation of industrial hemp in a “pilot program” for research. Importantly, the pilot programs can only be conducted by (1) the state’s departments of agriculture, or (2) universities.

In Oregon and Colorado, the state worked with registered cultivators to grow hemp under that state’s pilot program, which was a brilliant workaround to the 2014 Farm Bill restrictions. However, it remained risky for the farmers because that approach arguably left farmers without federal protection for the distribution of their products.

Just last month, however, Congress flipped the script by enacting full tilt legalization ofregulated hemp production and interstate distribution of hemp that is produced in compliance with the 2018 Farm Bill. By its express terms, the 2018 Farm Bill allows the interstate shipment or transport of hemp and hemp products (which includes hemp-derived CBD, as well as hemp seeds). Individual states can’t even prohibit the shipments through their borders This is a notable difference from the 2014 Farm Bill, which does not protect hemp shipments or transport through unfriendly states.

Two HUGE side notes:

  • Folks with drug felonies in the past 10 years are not allowed to participate in the new hemp program.
  • Cultivation outside the regulated program is reported directly to federal prosecutors.

2. When Can California Farmers Cultivate Hemp?

Last fall, California appeared to be headed for a pilot program that would pair the state with registered growers, similar to Oregon and Colorado, when our Legislature enacted SB 1409 in October. However, Congress passed the 2018 Farm Bill only two months later, which widened the allowable scope for hemp cultivation in California. As such, I hope the state is considering legislation to broaden SB 1409’s allowances in accordance with the new federal scope.

In any event, in order to cultivate hemp legally in California, the grower will not need to get a license from the state. Instead, they will “register” with the Ag Commissioner in the County they want to grow in. Registration is currently unavailable until the state finishes its hemp regulations, which it is working on now.

The state won’t give specific ETAs for the program, but I’m optimistic this amazing plant will be under cultivation in our beautiful state by the 2020 season. For the most current hemp regulations updates from the state, you can sign up here:

https://www.cdfa.ca.gov/subscriptions/.

Since the hemp programs in Oregon and elsewhere were successful even before the passage of the 2018 Farm Bill, many farmers who want to transition into hemp are preparing now.

If folks are interested in farming hemp in California, there is definitely work that can be done now, so talk to your legal advisers sooner rather than later.  

Much respect,
heather b. 

#protectourfarmers #madrespect 

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