Marijuana Won Big In The Election -- How Can You Take Advantage Of Legalization?

Two of the biggest marijuana victories came from Florida and California. What will the legal landscape look like there?

legalize marijuana signAs most of you know by now, among other states that legalized recreational marijuana or medical marijuana, two of the biggest marijuana victories came from Florida and California. Florida voters yesterday passed the “Use of Marijuana for Debilitating Medical Conditions” ballot measure commonly known as Amendment 2, and California voters passed the “Adult Use of Marijuana Act,” known as Proposition 64. As a Florida-licensed attorney, I want to first give a big congrats to my home state for finally saying yes to a comprehensive medical marijuana program that should (hopefully) expand the monopoly on MMJ currently held by the Charlotte’s Web nurseries and provide more and better access to a variety of medical cannabis for patients. And as a California-licensed attorney, I want to give another big congrats to California for resuming its position as a leader in our nation’s cannabis industry by finally legalizing marijuana for adults age 21 and up.

Under Amendment 2, Florida’s Department of Health has no more than six months from the law’s effective date to create regulations for registering Medical Marijuana Treatment Centers (MMTCs). Under Florida’s Constitution, the ballot measure should take effect “on the first Tuesday after the first Monday in January following the election unless otherwise specified by the amendment.” Amendment 2 has no specific effective dates for its various provisions, so this should mean we will be seeing a complete set of MMTC rules by June 2017 (assuming there are no legal challenges to these rules, but it’s Florida, so there will be). An overview of the initial Department of Health Charlotte’s Web rules can be found here. Under California’s AUMA, with oversight from the Bureau of Marijuana, the 19 different types of marijuana licenses are anticipated to begin issuing as late as 2018 or sooner.

Leading up to this vote, Californians and Floridians have been calling my firm asking what they can do now to get ready to take advantage of legalization. My response was and still is, “a lot actually.” I tell them that they can and should be doing the following, starting now:

  • Read the ballot measures and then read them again. Amendment 2 in Florida and the AUMA in California are everything at this point and it’s imperative prospective marijuana operators in their respective states read and thoroughly understand them because they provide the baselines for what’s going to be allowed for marijuana businesses.
  • Figure out where you might want to operate and learn about the local government there.  In California, the local regulation game is key. Though the AUMA does not require local approval before receiving a state license to operate, you must still comply with local law in order to open your doors. In Florida, Amendment 2 is silent on whether cities and counties can opt out of its implementation. Some Florida cities have already prepared themselves for changing state marijuana laws by enacting municipal zoning and permitting laws. Other Florida cities and counties are (and will remain) opposed to MMJ businesses. Instead of spending dollars and time planning for a marijuana business in a city that will never allow a marijuana business, you should instead get a handle on friendly versus non-friendly local governments. In both states, this is your chance to step up and help educate uncertain local authorities about what their local industry should look like. My firm has done this in countless cities and counties in multiple states, and believe me when I tell you that this can profoundly impact which way a city or county will go on cannabis commerce. I cannot stress enough the importance of your understanding the local situation where you will be locating.
  • Study other state regulatory models, including the super strict ones. You can learn a lot about what to expect from Florida and California by looking at other states’ regulatory models. For Florida, look at states like New York, Illinois, Nevada, and Minnesota, all of which have fairly limited and heavily controlled MMJ regimes. If Florida’s 2014 Charlotte’s Web law tells us anything (and it does), Florida’s new medical cannabis regime is going to be a lot more like these states than California’s old MMJ regime where (until the implementation of the MCRSA) the “cannabis friendly doctor is always in.” In California, I’m confident that the state will borrow marijuana regulations from Oregon, Washington, Alaska, and Colorado, though it’s sure to create some new and never-before-seen regulations, including rules about marijuana environmental impacts and how it will deal with distribution and delivery.
  • Review the corporate structures available and figure out now which makes sense for you. In Florida, MMTCs will be the “entities” that cultivate, process, and dispense cannabis to qualified patients. However, since MMTCs aren’t defined in the initiative beyond the term “entities,” that means we could be looking at either non-profit or for-profit entities. This means you should learn about the various corporate structures available to you, how they operate, and what you’ll need when you’re ready to file for your entity. In California, under the AUMA, “licensee” is defined as including the term “person,” which is defined to include “any individual, firm, co-partnership, joint venture, association, corporation, limited liability company, estate, trust, business trust, receiver, syndicate, or any other group or combination acting as a unit, and the plural as well as the singular.”

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  • Start figuring out your budget and pace yourself. In anticipation of a fee-laden, probably very expensive application process for registering an MMTC in Florida, you need to start thinking now about your budget and from where you are going to get your funding. In all of the marijuana-friendly states in which my firm has operated, one thing always holds true: those with secure funding before the application process starts have always had a huge advantage in competing for a cannabis business license over those still patching together their funding when the application window opens. You should plan for more than just startup costs such as inventory, employees, operational costs, etc. You should also have a good idea of the funding you will need for the application process itself, which will require legal oversight, expert advisory input, contracting with architects for floor plans, and all sorts of other expert assistance. And again, speaking from experience, those with the best and most experienced team in place are the ones that get the licenses. And speaking just for lawyers, the best lawyers will charge a lot but not take on many clients. All of this means that you must budget accordingly and pace yourself. Just because the initiative mandates Florida’s Department of Health come up with all of the MMJ rules within six months of the effective date of the law doesn’t mean it will actually issue licenses or register MMTCs by that time. It’s Florida, people, and that means there will likely be a whole host of lawsuits to delay this process. Get your budget in sufficient shape to weather these inevitable delays. The AUMA gives the heads up that licenses won’t even be ready for issuance until 2018, and it so far has nothing to say about who can invest in these businesses (outside of its residency requirement) and how. So, be sure your financial planning allows for the various uncertainties you can discern and then add in a bit more funding for those you cannot.
  • Choose your partners wisely. Consultants and so-called cannabis experts are a dime a dozen. Take your time in choosing who you will be using to help you navigate what is sure to be a complicated application process. Ask lots of questions, especially about whether they will require you to give them equity in your company and whether their relationship with you will be exclusive. For more on why this choice can be so important, check out Buyer Beware: Pot Colleges and Canna Consultants.
  • Choose your legal counsel wisely. Lawyers claiming to be marijuana business attorneys are also a dime a dozen and you need to proceed with caution in choosing your legal counsel as well. Make sure you choose a law firm with extensive experience in navigating robustly regulated application processes, the more states, the better. Make sure your law firm also has corporate lawyers experienced in forming cannabis businesses and in dealing with state cannabis laws and regulations. Make sure to get clear on whether your law firm will be representing just you in seeking a particular license, or 10 of your potential competitors as well. Make sure your law firm also has experience with commercial leaseholds for the cannabis industry. For why this matters, read Marijuana Commercial Leases: This Industry Is Different, You Know. And, given the wild-west nature of this industry, no matter how regulated it is by a given state, make double-sure your attorney is an ethical one. And to put it bluntly, ethical lawyers do not take equity in cannabis businesses; they just don’t.
  • Don’t forget about federal illegality and get comfortable now with what that means. Those of us with years of experience in the state-regulated marijuana industry know all too well how the federal illegality of marijuana makes day-to-day business difficult, even in states that have full-blown legalization, and you need to start educating yourself on this as well. It’s not too early for you to start figuring out how you will deal with the difficulties under both Amendment 2 and the AUMA of opening a bank account due to federal anti-money laundering laws or protecting your trade name and your brands without being able to register trademarks with the USPTO. It also makes sense to start navigating how you can best mitigate against federal income tax laws that prohibit all normal business deductions under IRC 280e, and that bankruptcy isn’t a likely option in the event of failure. And, finally, how will you advertise your new cannabis business when Google and most major social media platforms will not allow you to do so?

It’s off to the races for marijuana in 2017….

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Hilary Bricken bio photoHilary Bricken is an attorney at Harris Moure, PLLC in Seattle and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at hilary@harrismoure.com.