Ten Years in the Oregon Cannabis Industry

Last month, I spent a Saturday scraping together a syllabus for the Cannabis Law and Policy class I teach at Lewis & Clark Law School here in Portland, Oregon. In one unit, we go through the regulatory history of Oregon cannabis. From an academic perspective, it’s amazing to look at all the things that have happened over the years. From a lawyering perspective, it’s almost unbelievable.

2011

I was a second-year lawyer at a business firm downtown when a medical cannabis dispensary owner came through our office. The shop was here in Portland (with a grow in the back) and the owner had been passed along by two other law firms who felt uncomfortable advising him. This gentleman had received a bankruptcy trustee’s notice on his door, advising that his landlord was in a Chapter 7 (I think). He desperately wanted to stay in the building. Maybe even buy it, somehow.

We looked at the lawyer ethics rules, called the State Bar Association, read the Ogden memo, etc., and it was unclear whether we could service the client– even regarding compliance with state and local laws. It was unclear whether our malpractice insurance extended coverage. It was unclear whether our bank would take the deposits. It was unclear if his business even complied with Oregon law to begin with. Everything was unclear; no one would opine. The first Cole memo issued that summer, making things even more confusing. But, the answers were not clearly “no” and my boss asked me if I’d like to try. I had no problem with any of it.

We ended up helping the client broker a deal to pay rent for a time to the bankruptcy trustee (which would never, ever happen at this point) and then I started helping him with business agreements and everything else. Back then, there were virtually no lawyers working on non-criminal cannabis issues. He started sending me industry referrals pretty fast. It was a crazy time— the work was less sophisticated but also more challenging in certain respects than much of what we do today.

Seems like all of those people are gone now.

2012

Oregon was not licensing medical marijuana dispensaries, but people were boldly opening collective-style storefronts, like the guy I just mentioned, ostensibly under the state’s decades-old medical marijuana statute. That law was not designed for commerce– at all. The idea was to simply to confer an affirmative defense to “patients” and “caregivers” from prosecution under state law for cannabis possession and use. That is as far as it went. A lot of the businesses I dealt with in those days had self-organized as non-profits and collectives and such. I couldn’t find CPAs for them, or anything really. It was such a mess.

That fall, Measure 80 narrowly lost at the polls (47%-53%). Measure 80 would have legalized cannabis for adult use in Oregon, established a licensing and taxation system, etc., which ultimately happened a few years later under Measure 91. Elsewhere, industry pioneers like California’s Harborside dispensary (who would later become a client) were going at it with the feds. In those days, everything was a rock fight.

2013

The Oregon legislature passed a law called HB 3460 that August, directing the Oregon Health Authority (OHA) to write rules and launch a registry system for medical marijuana operators. This was a big deal! Clients seemed nervous: there was no real industry lobby and everything coming from Salem seemed reactive. The second Cole Memo also issued that summer, in response to Washington and Colorado coming online with adult use licensing programs. It felt like things were changing pretty fast. My boutique business law firm “merged” with a mid-sized law firm downtown that catered to financial institutions and did not like cannabis. I continued to quietly do the work.

2014

OHA issued its rules, which were skeletal, unenforced and ass-backwards on certain things. There were no cannabis testing requirements; no grandfathering protections for current storefront operators; a rule that people who had been convicted for “manufacture or delivery of [cannabis]” couldn’t be “responsible for” a cannabis store (?!); and I can’t even remember what else. But I remember clients coming to us with so many questions and problems which were essentially unanswerable, because the framework wasn’t there. That November, Measure 91 passed, legalizing cannabis for adult use in Oregon. Finally.

2015

The legislature started monkeying around with Measure 91 almost immediately in pretty drastic ways (e.g. tax structure, residency requirement). Some of my clients started to ramp up to transition into the OLCC program, but many sat back and waited. People were getting bigger and bolder on the medical side. We began to see a proliferation of medical marijuana processors and “wholesalers” around this time, although none of this was contemplated in the rules. Lots of crazy stories.

The Oregon State Supreme Court amended the lawyer ethics rules in February, to expressly allow us lawyers to work with marijuana business “regarding Oregon’s marijuana-related laws.” I left my old law firm in June, and started the Portland office of Harris Bricken. A lot of people seemed to think that was a crazy move, but it was really fun. I started writing here on the blog and I wrote the first of 100 columns for the Portland Mercury.

Adult use and possession became legal on July 1, which was awkward in the sense that OLCC had not yet licensed stores. The state eventually capitulated and allowed for “early sales” through existing medical dispensaries on October 1. The whole system was still vexing from a contracts perspective– the cannabis being bought and sold all came in through the OHA supply chain, which meant it was theoretically the property of medical marijuana patients, at least to start.

I recall working with another lawyer in my firm on one of the OLCC committees on rulemaking (wholesale), and then getting the first batch of the OLCC program rules in October of 2015. The agency made a valiant effort there, but business acumen was lacking. The “financial interest” and “residency” rules were terribly confusing, and basic commercial concepts were not addressed, from convertible notes to security interests. The City of Portland was even worse.

Folks started lining up to submit OLCC applications on January 1, 2016. I recall organizing and incorporating a dizzying number of little companies in the months leading up to that date. Back then, a common setup was someone with property, a guy who knew how to grow cannabis (always a guy), and maybe an investor with $200,000 or so. Really simple stuff. I also recall testifying at various city and county council events for clients with respect to cannabis-related zoning ordinance proposals. Some of those hearings were well-run and respectful; a few went off the rails.

2016

We muddled through licensing and the system began to launch. I recall one of our producer (grow) clients being told they were the “third licensee in the state.” The legislature began to fiddle with the system further, including through repeal of the residency requirement (HB 4014). It’s hard to overstate how important this was: no other jurisdiction in the world had a cannabis program where non-residents could be owners. Calls started coming in from everywhere and people could not seem to get their minds around it. But the rule was clear: you could be from Oregon or California or Israel or Spain. You could be from Mars.

We were asked a lot of questions about federal law back in these days, which hardly happens anymore. The fear factor ticked up substantially again in November, when Donald Trump was elected President. That same election night, California, Nevada, Maine and Massachusetts all went recreational (and Arkansas, Florida and North Dakota all adopted medical programs), making the state/federal dynamic more dissonant than ever. Locally, more and more OHA program participants made their way into the OLCC system, while others stayed put or went off the grid altogether.

The OHA finally got its act together and started licensing medical marijuana processors even though the medical program was clearly on the way out. The Oregon Department of Agriculture (ODA) passed a key law to propel the stalled state hemp program, and we had a few clients start in on that. They had logistical problems you wouldn’t believe, including finding seeds.

2017

Jeff Sessions was confirmed as Attorney General to kick off the year. People will say that didn’t scare anyone, but I’m here to tell you that investment slowed a bit. By mid-year, though, the OLCC program began to hit its stride. Things felt mostly “built” for the first time, even if a testing lab bottleneck persisted alongside other program kinks. Elsewhere, I began teaching the cannabis course at the law school. Class was sold out and then some.

By December 2017, there were almost 900 licensed farms in Oregon, and the M&A market started to gain steam. There was a LOT of talk at this point about oversupply, unlicensed cannabis and diversion. The faddish and wasteful RICO lawsuits were in full swing. Here at the law firm, we were also fielding fewer and fewer calls from “medical marijuana growers”, although it was known that folks were still stacking cards and everything else. That said, all of those 90-plant medical grows were going the way of the buffalo.

Elsewhere, many of the newer businesses were already failing and folks started suing one another in earnest. Reporters still called whenever suits were filed. I recall putting out ads for litigators, and wondering if anyone was going to figure out how to make money in the regulated market. I also sat for a series of lunches with lawyers in mid-sized and large law firms who were poking around the Oregon space.

On the hemp side, we saw more and more clients pursuing CBD sales, which were coming into vogue notwithstanding confusion about the 2014 Farm Bill and everything else. People got real crops in the ground, in real quantities. It felt like hemp was finally on the way.

2018

Jeff Sessions kicked off the year by rescinding the Cole Memo, which got people jittery once again. The local “oversupply” conversation was coming to a head, such that Oregon U.S. Attorney Billy Williams felt the need to author a memo of his own. Immediately thereafter, the OLCC “paused” its intake of marijuana license applications– possibly as a result of the memo, but also because the agency was just so far behind.

The Canadian invasion was also in full swing at this point. Many of our local clients were rolling up on the Canadian Stock Exchange through reverse mergers, or wondering how to do this, or talking with someone about doing it. Other clients despised the whole thing. And still other clients WERE the Canadians. Foreign dollars were also pouring into other western states by this point, mostly California and Nevada.

I cannot tell you how many mergers, reverse mergers, option agreements, stock sale agreements, asset purchase agreements, convertible debt agreements, etc. etc. we papered around this time– even as prices tanked. It was incredibly dynamic and incredibly fast. Around this period, we also were hired by a series of large-cap, bellwether U.S. companies trying to understand the CBD market and what could be done there. Lots of opinion work.

Outside of Oregon, I doubt there was ever a bigger year for cannabis than 2018. California commenced its adult use marketplace, the U.S. legalized hemp through the 2018 Farm Bill and Michigan became the first midwestern state to go full rec. Internationally, Canada legalized marijuana federally, Mexico announced its plan to do the same, and the U.N. announced it would revisit cannabis scheduling. Oh, and Jeff Sessions was sent on down the road. It was awesome.

2019

Hemp was probably the biggest story locally in 2019. Nearly 2,000 growers registered to plant over 63,000 acres, a nearly 6x acreage increase from the year prior. Then the problems came. Much of the hemp went unharvested due to bad weather and inexperience. Prices also went through the floor all along the supply chain, from seeds to finished products. USDA seemed to be slow-walking the rules and FDA was as useless as ever. In all, 2019 was probably the first year that our office handled more litigation on the hemp side than on the THC side. People also started to use ODA licenses as cover for diversion around this time, as opposed to persisting in the OHA (medical) system.

On the THC side, the Oregon legislature finally passed a law to curtail the award of cannabis production licenses, bowing to pressure from all sides. It was probably too late to have much impact at this point, although the effort did create a strong secondary market for production license transfers (which we continue to trade in today). The Oregon legislature also passed a forward-looking law to allow cannabis exports– the idea here was to set up local growers for the end of prohibition. Finally, vaping came into the regulatory crosshairs (and this continues to be a focal point).

Overall, 2019 was the first year that the OLCC market seemed to really settle out and there was less compliance work than before. We had paralegals covering all of the licensing. I started doing some expert witness work locally, but a high point was flying out to D.C. and helping the National Credit Union Administration develop its guidance for hemp banking under the 2018 Farm Bill. Beyond that, it was just deals and deals and deals.

2020

If you made it this far, thanks and I applaud you. My 2020 “State of the State” post on Oregon cannabis can be found here. It gives a solid overview as to where we are today.

Ten years in, it has been a trip, from advising unregulated medical outfits to working with private equity and multi-state operators. Overall, it’s just been really fun. Let’s see what happens next.