How Will Streamlined Cannabis Licensing Affect Compliance?

October 19, 2021

Danica Hibpshman - Tonkon Torp LLP

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Oregon

The approval timeframe in Oregon’s cannabis licensing process was historically very long and the amount of documentation and disclosures required burdensome. Thankfully, over the past year, the Oregon Liquor and Cannabis Commission (OLCC) made a massive effort to streamline rules and policies, simplify forms, lessen requirements for disclosure of investors and purchase agreement documents, and reduce requirements for in-person inspections before approving licenses^[1] and certain licensing changes. These changes by the OLCC have resulted in a dramatic reduction in the time and effort it takes to get regulatory approvals. For most of 2021, licensees and applicants have had smooth experiences and enjoyed predictable, short timeframes.

While all of these changes have been extremely positive for cannabis business growth in Oregon, they have the potential to lead to compliance issues; even though OLCC regulations and policies may no longer require certain information be presented pre-licensure, licensees are still expected to make accurate representations about their business in their applications, and have certain records on hand if requested. Failure to do so may bring unwanted compliance attention and potential violations. There are several key areas business owners should pay attention to avoid problems down the road.

Identifying the Correct Applicants for a License
The OLCC previously required detailed disclosures of nearly all investors in an applicant’s business through a series of complex forms, and often required parties to produce copies of operating agreements, purchase documents, shareholder lists, corporate structure diagrams, management contracts, and similar materials for the agency to verify all the parties qualifying as applicants on the license. An “applicant” is a very specifically defined term in OLCC regulations, and the failure to identify all entities and individuals that qualify as applicants can result in a violation. Depending on the severity of the omission, it could be considered a cancelable offense.

The OLCC’s new streamlined process no longer requires disclosure of these types of verifying documents (although they have the discretion to do so). Instead, the OLCC requires a simple form that requests applicants list the names of all parties qualifying as applicants. The identification of applicants requires including all parties with certain levels of both operational and financial control. It is now up to the applicant to ensure all are properly disclosed.

It is important to discuss your business structure with legal counsel before submitting these forms to the OLCC, to make sure the disclosures are accurate and complete.

Mapping Premises
The OLCC simplified the requirements for floor plan diagrams needed to receive a license, but certain licensees (mainly producers) must have additional documentation available that shows more detail. Although the OLCC mapping instructions no longer require numbering canopies, or designating areas for growing mature versus immature plants, the documentation is still required to be on hand if requested. Failure to have accurate mapping available can result in violations.

Legal Access to Premises
Gone are the days of the OLCC requiring applicants to turn over leases or other legal access documentation before receiving a license; instead applicants now just check a box on a form, verifying they have the right to access the property being licensed.^[2]  However, the leasee of the premises, if different than the applicant, must be listed on the license as well, and failure to do so could result in compliance issues.

Compliance Inspections
Earlier this year, the OLCC made it a permanent rule that they will no longer do in-person inspections for most new licensing inspections. Instead, they will rely on the applicants themselves to verify that they meet security requirements. The OLCC’s security requirements are as complex as ever, however – ripe for misinterpretation or misunderstanding. It is critical that before confirming you meet the requirements, you carefully go through the OLCC-provided checklist and are comfortable that you meet the requirements. If you have questions about the security requirements, utilize the OLCC inspection staff. This will demonstrate a good faith effort to comply with the regulations, in the event you are later found inadvertently non-compliant.

To supplement the lack of in-person inspection pre-licensing, the OLCC has indicated that it is moving to a program of “first visits,” whereby an inspector will visit the premises in person within a couple months of the license being issued. The spirit of these first visits seems to be to assist in educating licensees on compliance rather than to discover and issue violations. The first visit allows licensees the opportunity to address or correct minor operational deficiencies missed during the streamlined licensing process. The specifics of what will be expected during these first visits have yet to be announced by the OLCC. Stay tuned for further updates.

Other Recordkeeping
All licensees are required to keep and maintain a variety of records as part of holding their license. These records need to be available upon request. From Standard Operating Procedures to visitor logs, it is very important for licensees to make sure they understand all of the records they are required to keep, and to ensure their records are up-to-date in case they are requested or need to be inspected.

Please consult with your legal counsel if you have any questions about the types of records a licensed business must maintain and have on hand in advance of OLCC inspections or requests.

The recent streamlining of the cannabis licensing process in Oregon has been incredibly beneficial to the industry as a whole and has undoubtedly allowed businesses to grow. The pieces of the pre-licensing process that were stripped out are not likely to lead to issues affecting public safety. But just because you didn’t have to turn over the documentation to the OLCC before receiving your license doesn’t mean it is still not required. Make sure you are ready for any visit or request from the agency to ensure you are compliant in all respects.

Questions? Contact Danica Hibpshman or any of the other experienced attorneys in Tonkon Torp’s Cannabis Industry Group. This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice.

About Tonkon Torp
Tonkon Torp LLP is a leading business and litigation law firm serving public companies, substantial private enterprises, entrepreneurial businesses, and individuals throughout the Northwest. For more information, visit tonkon.com.

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^[1] It is important to remember that brand new licenses are not being issued at this time. The only mechanism to obtain a license in Oregon is through changing ownership of an existing license, a similar process to applying for a new license. 

^[2] The one exception is for producers, who must provide verification from the property owner that they consent to marijuana being grown on the premises.