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Nevada’s Cannabis Compliance Board Launches and Prepares for Inaugural Meeting

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On July 1, 2020 the Nevada Cannabis Compliance Board (CCB) became fully authorized to take over regulation of the state’s cannabis industry. The CCB was created last year when Governor Steve Sisolak signed AB533. The regulatory body was noted as being one of the Governor’s top priorities during the 2019 legislative session. Governor Sisolak says the board will “play a vital role in both supporting the industry and holding it to the highest standard.”

So far the Governor has appointed former Nevada Supreme Court Chief Justice Michael Douglas as chairman, along with former Gaming Control Board chairman and lawyer Dennis Neilander and local banker Jerrie Merritt to the five-member board. The two remaining positions will be filled by a medical professional and an individual with special knowledge and experience in the cannabis industry. The Cannabis Advisory Commission (CAC) will be chaired by CCB Executive Director Tyler Klimas, a Nevada Native and former lobbyist, along with seven additional members. The CAC will be tasked with making recommendations to the Board.

The Nevada Cannabis Compliance Board’s final Proposed Regulations are set for Consideration and Adoption on July 21, 2020 during the Board’s inaugural board meeting. The new board will be in charge of company site inspections; overseeing marijuana lab testing; auditing; tracking; vetting employees, owners, officers & board members; issuing agent cards and more.

The new proposed regulations are titled as follows:

  1. Issuance of Regulations; Construction; Definitions
  2. Cannabis Compliance Board: Organization and Administration
  3. Cannabis Advisory Commission: Organization and Administration
  4. Disciplinary and Other Proceedings Before the Board
  5. Licensing, Background Checks, and Registration Cards
  6. Distribution of Cannabis
  7. Cannabis Sales Facility
  8. Cannabis Cultivation Facility
  9. Production of Cannabis Products
  10. Minimum Good Manufacturing Practices for Cultivation and Preparation of Cannabis and Cannabis Products for Administration to Humans
  11. Cannabis Testing Facilities
  12. Packaging and Labeling of Cannabis Products
  13. Cannabis Distributors
  14. Workplace Requirements

These regulations can also be found posted on the Department of Taxation’s website here as well as on the CCB’s website here.

 

Nevada’s Cannabis Compliance Board Seeking Public Comment on Proposed Regulations

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Nevada Governor Steve Sisolak’s office has issued its proposed Regulations of the Cannabis Compliance Board (CCB) on May 29, 2020. They are currently seeking input from interested parties on proposed regulations 1-15 and are requesting that written comments be submitted via email to regulations@ccb.nv.gov including the name or the individual or entity comments are being submitted on behalf of. Submissions will be accepted until 5:00 p.m. PST on June 9, 2020.

The draft regulations can be found here.

The Cannabis Compliance Board was created by AB533, a measure sponsored by the Governor and approved by the Nevada State Legislature in 2019. The Board assumes all statutory authority to regulate cannabis in Nevada and consists of 5 members appointed by the governor for a 4 year term. Gov. Steve Sisolak has named former Supreme Court Justice Michael Douglas Chairman of the Cannabis Compliance Board along with former Gaming Control Board Chairman Dennis Neilander. Remaining appointments are still to come.

California Adopts Vertical Exhaustion Rule in Environmental Loss Claim

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On April 6, 2020, the California Supreme Court announced its decision in Montrose Chemical Corporation v. Superior Court, case no. S244737, applying a rule of “vertical exhaustion” as to the triggering of excess policies at differing levels of coverage. Under that rule, contrary to “horizontal exhaustion,” the insured may select any excess policy once it has exhausted its other underlying excess policies with lower attachment points, in the same policy period.

In Montrose, the insured was sued for causing continuous environmental damage in the Los Angeles area between 1947 and 1982. For each policy year from 1961 to 1985, Montrose had secured primary insurance and multiple layers of excess insurance during this period. Each excess policy provides that Montrose must exhaust the limits of its underlying insurance coverage before there will be coverage under the policy. Each of the excess policies also provide that “other insurance” must be exhausted before the excess policy can be accessed.

The parties disagreed as to whether these clauses required Montrose to exhaust other insurance coverage from other policy periods. Montrose argued that it is entitled to coverage under any relevant policy once it has exhausted directly underlying excess policies for the same policy period (i.e., “vertical exhaustion.”) The excess insurers, by contrast, argued that Montrose may call on an excess policy only after it has exhausted every lower level excess policy covering the relevant years (i.e., “horizontal exhaustion.”)

The trial court ruled in favor of the insurers, holding that the excess policies required horizontal exhaustion in the context of this multiyear injury. The court concluded there is a “ ‘well-established rule that horizontal exhaustion should apply in the absence of policy language specifically describing and limiting the underlying insurance.’” The Court of Appeal affirmed, holding that the plain language of the excess policies provide that they “attach not upon exhaustion of lower layer policies within the same policy period, but rather upon exhaustion of all available insurance.”

The California Supreme Court reversed, holding: “Reading the insurance policy language in light of background principles of insurance law, and considering the reasonable expectations of the parties, we agree with Montrose: It is entitled to access otherwise available coverage under any excess policy once it has exhausted directly underlying excess policies for the same policy period.” In other words, the policyholder is not required to horizontally exhaust excess insurance at lower levels for all periods triggered before obtaining coverage from higher level excess insurance in any period.

This decision will make it easier for policyholders in long-tail progressive injury claims to access upper level excess policies by lowering the attachment level of those policies. A few words of caution. First, it should be noted that its ruling may not apply where the insured is seeking to trigger first level excess insurance. In Community Redevelopment Agency v. Aetna Casualty & Surety Co. (1996) 50 Cal.App.4th 329, the court held that “[u]nder the principle of horizontal exhaustion, all of the primary policies must exhaust before any excess will have coverage exposure.” The Montrose court indicated that this was not the issue before it, thereby leaving open the possibility that “horizontal exhaustion” remains the rule in a primary vs. excess situation.

Secondly, the Court noted that an insurer called on to provide indemnification under this “vertical exhaustion” rule may, however, seek reimbursement from other insurers that would have been liable to provide coverage under excess policies issued for any period in which the injury occurred.

Please feel free to contact Bryan Weiss if you have any questions about this decision or any coverage matters in general. Our office remains fully operation to assist our clients during this unique period.

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USDA Releases Long-Anticipated Regulation on U.S. Hemp Production

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Ten months after the 2018 Farm Bill was signed into law, the U.S. Department of Agriculture on Tuesday, released the long-awaited Draft Final Interim Rule to regulate and license domestic hemp production in the United States, its territories, and on Tribal lands.

States and Indian Tribes are required to obtain USDA approval of their proposed plans and will have primary regulatory authority over the production of hemp within their designated territories. If the State or Tribe does not have a USDA-approved plan, hemp producers in those locations may apply to produce hemp under the USDA’s Departmental Plan.

The 2018 Farm Bill defines “Hemp” as “the plant species Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” Delta-9 tetrahydrocannabinol, is commonly known as “THC”, and is the primary intoxicant found in cannabis. “Cannabis” commonly called “marijuana” contains greater than 0.3 percent THC levels and continues to remain illegal under federal law, classified as a Schedule I controlled substance under the federal Controlled Substances Act, alongside other drugs like heroin, LSD, and ecstasy.

Many are not aware of the United States’ long-established history in using hemp for industrial purposes. Hemp was commonly used to produce fabric, fuel, paper, construction materials, food products, and even cosmetics. However that changed with the passage of the Marihuana Tax Act of 1937 which levied a significant tax on Hemp and it’s close relative, marijuana. The Marihuana Tax Act essentially made it illegal to produce the plants by imposing a significant excise tax on all sales. However, during World War II the U.S. hemp supply from Southeast Asia was cutoff, and the USDA lifted the tax on growing hemp and implemented the “Hemp for Victory” campaign promoting the US need to grow hemp for rope, canvas, and U.S. Army and Navy uniforms.

Then the Agricultural Act of 2014 (the “2014 Farm Bill”) established an Agricultural Pilot Program allowing State Departments of Agriculture and institutions of higher education to apply for permission to produce hemp for research purposes only. Last year Congress made history with the passage of the Agricultural Improvement Act of 2018 (or the “2018 Farm Bill”) which extended the 2014 Farm Bill even further.

Under the 2018 Farm Bill States and Tribes may submit hemp production plans to the USDA for approval. More importantly though, the 2018 Farm Bill redefines hemp, thereby removing hemp from the definition of “cannabis” found under the federal Controlled Substances Act, and allows for the interstate transportation of hemp within the United States. On December 20, 2019, the 2018 Farm Bill was signed into law requiring the USDA Secretary to promulgate regulations and guidelines to administer the federal hemp production program. Yesterday, those long-anticipated draft regulations were released.

The Interim Rule addresses a myriad of areas applicable to all hemp producers including:

1) Licensing requirements;
2) Maintaining information on the land on which hemp is produced;
3) Procedures for testing the THC concentration levels for hemp;
4) Procedures for disposing of noncompliant plants;
5) Compliance provisions; and
6) Procedures for handling violations.

However the Interim Final Rule does not:
1) Address hemp seed certifications – Technology is not advanced enough to make seed certifications feasible. According to the USDA “the same seeds grown in different geographical locations and growing conditions can react differently.” The example provided claims a hemp seed grown in one state may have less than 0.3% THC levels, but that same seed could produce higher levels of THC content if grown in another state. This would essentially make the plant by definition cannabis (a federally illegal substance) and not hemp (an agricultural product).
2) Allow for the exportation of hemp outside of the United States – this may be addressed in the future.
3) Allow States or Tribes to prohibit interstate commerce.

The Final Interim Rule is anticipated to be submitted to the Federal Registrar on or around Thursday October 31, 2019. Once published in the Federal Register it becomes effective immediately. However, the USDA is inviting a 60-day public comment period once it is published.

For more information on federal and state hemp laws and regulations, please contact Ken Moreno at kmoreno@murchisonlaw.com.

City of La Mesa Set To Discuss New Adult-Use Commercial Cannabis Ordinance

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Tonight the La Mesa City Council will consider a draft Ordinance that proposes to allow new Adult-Use Commercial Cannabis businesses to operate in the City. As currently drafted, the Ordinance will have no cap on the number of licenses that will be issued. If passed, La Mesa would be the first City in San Diego County without a limit on the number of commercial cannabis licenses.

In 2016, City voters passed, Measure U, which allowed medicinal cannabis dispensaries and the medicinal cultivation and manufacturing of medical marijuana to operate with an approved Conditional Use Permit. As proposed, the Ordinance would allow Measure U compliant businesses to apply to co-locate as Adult-Use commercial cannabis businesses.

In addition to the co-location option, the Ordinance proposes to allow new Adult-Use commercial cannabis businesses including: Cultivation Type 1A, Nursery Type 4, Manufacturing, Distribution/Transportation, and Testing Facilities. Distribution and Testing facilities were not allowed uses under Measure U.

The proposed Ordinance will have two phases in the application process for the Adult-Use only commercial cannabis businesses. Phase I proposes to vet applicants by evaluating the facilities, ownership, operations, plans and location. Phase II will look more closely at the physical location, security measures, owner requirements, and operational requirements. Licenses will be valid for two years.

Currently, the cities of San Diego, Chula Vista, Imperial Beach, Vista, and Oceanside have all issued or are in the process of issuing commercial cannabis licenses. However, all of those jurisdictions have a limit on the number of commercial cannabis licenses that can be issued.

If you are interested in attending, tonight’s City Council meeting it will be held at 6:00 p.m. in City Council Chambers, La Mesa City Hall, 8130 Allison Avenue, La Mesa, California.

If you are interested in finding out information about commercial cannabis licensing in the City of La Mesa, or other California jurisdictions, please contact Ken Moreno at kmoreno@murchisonlaw.com.

Hearing to Discuss Cannabis Industry’s Banking Challenges

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Next week, the U.S. Senate Committee on Banking, Housing and Urban Affairs will hear from U.S. Senators, Banking representatives, and Cannabis industry leaders to discuss the numerous banking challenges for the cannabis industry.

The witnesses scheduled to speak at the Hearing include United States Senators, Cory Gardner (of Colorado) and Jeff Merkley (of Oregon). Both Senators are also supporters of the “Secure and Fair Enforcement Banking Act” (“SAFE”), a banking bill that proposes to open up safe harbors to financial institutions working with cannabis businesses in states where cannabis is now legal. Additional witnesses scheduled to speak include, Chief Risk Officer of Maps Credit Union, Rachel Pross; President and Chief Executive Officer of Citywide Banks, Joanne Sherwood; Vice President of Government Affairs of Smart Approaches to Marijuana, Garth Van Meter; and Chief Executive Officer and Owner of LivWell Enlightened Health, John Lord.

Currently, thirty-three (33) states, the District of Columbia, and many U.S. territories have legalized marijuana to some degree, albeit medical or for adult-use. However, federal law still prohibits the possession and distribution of marijuana under the federal Controlled Substances Act (“CSA”).

Financial institutions are subject to federal laws and regulations including potential civil and criminal liabilities under the CSA, anti-money-laundering statutes, the Banking Secrecy Act, and the Patriot Act. Due to the significant risks involved, many financial institutions have been wary in dealing with marijuana businesses, even in states that have legalized marijuana. These challenges continue to force marijuana businesses into a “legal gray area” of dealing in cash-only transactions, and transporting and storing large amounts of currency.

In the last couple of months, state banking supervisors, the state bankers associations, and even the National Association of Attorneys General have all called on Congress to take action now to advance federal legislation to allow financial institutions to serve the needs of their local communities.

“Leaving the cannabis industry unbanked presents serious public safety, revenue administration, and legal compliance concerns and must be remedied immediately,” a May 2019 Letter from the 50 state bankers associations reads. “Although we do not take a position on the legalization of marijuana, our members are committed to serving the financial needs of their communities – including those that have voted to legalize cannabis. We believe federal action is necessary and support a solution that would allow banks to serve cannabis-related businesses in states where the activity is legal.”

Next week’s Senate Committee Hearing comes just over a week after the U.S. House of Representative’s Subcommittee held the first-ever hearing on the need to reform our nation’s marijuana laws.

The Senate Committee Hearing entitled, “Challenges for Cannabis and Banking: Outside Perspectives” is scheduled for Tuesday, July 25, 2019 at 10 a.m.

Changes to Provisional Cannabis Licenses Passed By CA Legislature

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On Thursday, the California Legislature passed Assembly Bill 97 in an attempt to avoid further disruption to the issuance of Annual Commercial Cannabis Licenses. The Governor is expected to sign the bill into law, and if signed would go into effect immediately.

This year thousands of commercial cannabis licenses were due to have their state-issued Temporary Licenses expire pursuant to a provision under the Medicinal and Adult-Use Cannabis Regulation Safety Act (MAUCRSA). That provision, prohibited state licensing agencies from issuing additional Temporary Licenses after December 31, 2018. Under MAUCRSA, Temporary Licenses were only valid for 120 days. Last year, the State passed Senate Bill 1459 in an attempt to extend Temporary Licenses for an additional 90 days.

However, AB-97 attempts to go further. If signed into law, AB-97 would allow any qualified applicant to obtain a Provisional License upon submittal of a completed Annual License Application. The Provisional Licenses would be valid for 12 months from the date of issuance, or until the applicable state licensing agency issues the annual license.

The licensing authorities will also have full authority to renew, revoke, or suspend Provisional Licenses.

The Bill also establishes a $30,000 administrative fine per violation to unlicensed operators in violation of the laws and regulations, and up to $5,000 per violation to a licensed operator. Any of the state licensing authorities may impose these fines – the Bureau of Cannabis Control, the California Department of Food and Agriculture (CalCannabis Division), or the California Department of Public Health (Manufactured Cannabis Safety Branch).

Worker Classification Landscape Altered Again

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The Ninth Circuit has issued a crushing blow to employers and companies when it decided that recent restrictions on independent contractors would apply retroactively. On May 2, 2019, the Ninth Circuit in Vazquez v. Jan-Pro Franchising International, Inc. decided that the ruling in Dynamex Operations West, Inc. v. Superior Court should be applied retroactively. The Dynamex decision made it more difficult for a California employer to classify a worker as an independent contractor unless it met a strict “ABC test.” Employers are required to prove that a worker is (A) free from the control and direction of the company in connection with the performance of the work, both under the contract and in fact, (B) the worker performs work that is outside the usual course of the company’s business, and (C) the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the company.

After Dynamex, the California Court of Appeals clarified in Garcia v. Border Transportation Group that the ABC test only applies to wage issues and should not be applied to non-wage disputes.

This Ninth Circuit opinion will undoubtedly create a wave of major and potentially devastating implications for California employers that utilize independent contractors, especially gig economy companies with business models built around a more flexible prior standard. While the 9th Circuit opinion is instructive, it remains to be seen whether the California Supreme Court will also find that the Dynamex opinion is retroactive. However, in an attempt to further solidify the application of this stricter test for California workers, the California legislature is trying to codify the Dynamex decision into law. Although the bill would exempt certain occupations, gig economy workers are not currently among those included in the exemptions. As the bill moves through the Legislature, the list of exempted occupations could grow.

Given the current state of retroactive application, employers should re-visit existing independent contractor agreements to verify that they, in fact, conform to the restrictions in Dynamex. Consult with legal counsel to discuss current worker classifications under the new ABC test and understand the risks and exposures that you may face for past worker classifications in light of this retroactive application.

What Whistleblower Laws Mean for Your Small Business

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By: Tyler N. Ure

If you run a small business, chances are you have not spent much time thinking about whistleblowers and whistleblower protection. Many high-profile whistleblower cases involve sounding the alarm on fraud and government contracts, but government contractors are not the only ones who need to understand whistleblower laws. Virtually any employee “who blows the whistle” on unlawful activity is entitled to protections. There are a number of state and federal whistleblower protection laws, but OSHA oversees a large swath of these protections.

What Whistleblower Laws does OSHA Enforce?

OSHA’s mandate is broad. OSHA will oversee whistleblower claims relating to workplace safety or health, asbestos in schools, cargo containers, airline, commercial motor carrier, consumer product, environmental, financial reform, food safety, health insurance reform, motor vehicle safety, nuclear, pipeline, public transportation agency, railroad, maritime, motor vehicle safety, and securities laws. Chances are, if you are running any kind of business, OSHA is going to have some oversight involving whistleblower protection.

When Does OSHA Get Involved?

All Whistleblower laws try to prevent retaliation against an employee for engaging in a protected activity. An employee is engaging in a protected activity if they report violations of the law to any person or state or local government. An employer retaliates by undertaking any kind of adverse unfavorable personnel action including termination, demotion, denying overtime or promotion, discipline, reducing pay or hours, and suspension. An employee who is retaliated against may file a complaint with OSHA which triggers an investigation.

How to protect against retaliation claims

Once an employee has complained, a business needs to proceed cautiously. The employee can still be disciplined for conduct not related to the whistleblowing, but any kind of discipline is probably going to be construed as retaliation.

Every business should create a whistleblower policy and then follow it meticulously. Components of this policy might include:

  • Have a complaint system and investigate complaints thoroughly. You want to promote a culture of openness. This includes having a complaint system that protects both the person coming forward with the complaint and the target of the complaint. Even if you discover that another employee is not complying with legal requirements, chances are they are making innocent mistakes that can be corrected early.
  • Document, document, document. Every step of the investigation needs to be documented. Employee statements should be written down. The dates and outcomes of any steps of the investigation could be recorded. Records are key in making sure the investigation is fair and proving that later. Your employee is probably keeping a real-time journal, you need to do the same.
  • Proceed cautiously with discipline. Any discipline is going to be perceived as retaliatory. If you must discipline the employee for other conduct, make sure best efforts are made to explain the reasons for the disciplinary action to the employee. Again, document those reasons clearly and thoroughly.

More Seizures Against Unlicensed Operators

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Continued enforcement actions occurred yesterday against two separate unlicensed cannabis businesses in Sacramento, Davis and Los Angeles. Police in Davis assisted the Department of Consumer Affairs’ Division of Investigation – Cannabis Enforcement Unit to serve search warrants on an unlicensed cannabis delivery service with locations in Sacramento and Davis. Over $850,000 in cannabis products was seized as a result.

Meanwhile, the Los Angeles Sherriff’s Department also assisted in serving a search warrant on an unlicensed cannabis retailer in Los Angeles. This resulted in the seizure of nearly $440,000 in cannabis products.

Continuing to operate unlicensed is simply not worth it. Get assistance if you need it and get licensed.