Doctors and dispensaries – a “no-no”

It is important for doctors to continue working with patients independent of any relationships the doctor or patients may have with a primary caregiver/primary caregiver business. It is unclear whether a doctor’s association with a referral business will be affected. The transaction between primary caregivers should be wholly seperate from any renumeration to the doctor. Better yet that the patient pays the doctor directly for the examination. If the doctor is shareholder of such a business and primary caregivers/primary caregiver business is a source of revenue, it will be quite problematic. As we seek to restore our “image” with the public, it is necessary to make sure that legitimate doctors are recommending medical marijuana for legitimate patients and that the doctor’s evaluation is independent of any financial dealing with dispensaries or growers.

Stay legal

Also, the doctor is not permitted to see patients at any dispensary. It is unclear whether an office rented or occupied by the referral business would permitted.

Brokering Cannabis Current and Future Risks

As I have repeatedly advised over the last 10 years, brokering wholesale cannabis is not legally protected. In a formal opinion issued yesterday which I have attached, MED states:

Facilitating or brokering a sale, therefore, is not one of the privileges granted to Licensed Transporters by the State Licensing Authority. Finally, only a person that is expressly authorized by the Medical Code, the Retail Code, and State Licensing Authority rules to sell marijuana, either directly to a consumer or patient or by transferring to another licensee, is permitted to do so. Further, a licensee who exercises privileges that are not granted by the State Licensing Authority for that license, may be suspended, fined or revoked for acting outside the scope of their licensed privileges. See §§ 44-11-601 and -901, and 44-12-601 and -901, C.R.S.

This opinion was issued in the context of a transporter’s inquiry, but you can see that MED also made sure to expand the opinion to anyone, not just transporters, who broker wholesale cannabis and cannabis products. Also, this “warning” should be understood to include the risk of criminal prosecution. Anyone who distributes cannabis, in any amount, without being licensed to do so commits a felony(s).

It is my view that there are no regulations that permit wholesale cannabis brokering since the activity necessarily involves profit sharing. However, based primarily on prevalence of the activities in the industry, MED’s cannabis brokering opinion remains limited to transporter licenses. However, the MED is still investigating the matter and determining whether the opinion will be more broadly applied in the future. Until the MED says otherwise, you can still contract with brokers, although I would tread with caution until MED releases a formal opinion on the matter.

Robbery protocol

We have received questions about the robbery protocol for marijuana businesses. In response we have prepared best practices outlining the proper protocol. This robbery protocol is primarily aimed at training employees, but it also contains information for owners and managers so you have quick access to the reporting requirements.

The Protocol:

Preventing Robberies

Employees should take the following daily precautions to try to prevent break-ins and robberies at the facility:
1. Check all security equipment and carefully follow opening and closing procedures to ensure the business is secured in non-business hours.
2. Do not discuss cash levels and security procedures with non-employees.
3. Be alert for suspicious persons loitering around the interior or exterior of the licensed premises.
4. Be alert for suspicious vehicles near the licensed premises.
5. Suspicious activity should be reported to the manager on duty.

Robbery in Progress

If employees encounter an in-progress robbery, the following action should be taken.
1. Remain calm and avoid any action that would jeopardize the safety of personnel or customers.
2. Obey the robber’s instructions, even if it appears that employees or customers cannot be harmed. No amount of money or product is worth the risk of endangering a person’s life.
3. Try to be as observant as possible. Take note of the following:
1. The robber’s physical characteristics, including: race, sex, height, weight, facial features, accents, scars, marks and/or deformities, and right or left-handed.
2. The number of robbers and their clothing description, as well as any names used by the robbers.
3. Description of any weapons used.
4. If the robber uses a note, place it out of sight to retain as evidence.
5. Description of vehicles used and license plates if possible.
4. Inform the robber of any surprises. If someone is expected back soon or if you must reach or move in any way, tell the robber what to expect so they will not be startled.

After the Robbery

Immediately after the robbery, follow the below instructions, in order:
1. Lock the doors once the robbers have left the licensed premises so that they cannot reenter.
2. Check employees and customers for injuries. If anyone is injured, immediately call 911 for medical assistance.
3. Call 911 and give your best description of the events to the dispatch operator including all items above that you observed.
4. Close and secure the licensed premises until the police arrive to preserve the scene of the crime for physical evidence.
5. Each employee (and customer, if cooperative) involved in the incident should write down his/her description of the robber and events. Employees should not confer with other witnesses or compare notes. This should be done as soon as is safe to take advantage of your short term memory.
6. Ask customers and witnesses to remain at the licensed premises to assist with police. If customers insist on leaving, obtain their full name and contact information and permit them to leave once it is safe to do so.
7. The manager on duty should call the owners to inform them of the situation.
8. The owners or managers will report the incident to the local licensing authority and Marijuana Enforcement Division as is required by the marijuana rules.
9. Do not post about the robbery on social media or discuss the incident with others until police have confirmed it is ok to do so. Do not disclose at any time how much money or property was stolen except to police and other staff. If the amount of money is released, it may encourage subsequent robberies or robberies of other marijuana facilities in the area.
10. Cooperate with police as the investigation progresses.

Management: After the Robbery

Management and Owners should be aware of the following marijuana regulations in addition to the above:

1. The Marijuana Enforcement Division R904 requires the following in relevant part:
“Reporting of Crime on the Licensed Premises or Otherwise Related to a Retail Marijuana Establishment. A Retail Marijuana Establishment and all Licensees employed by the Retail Marijuana Establishment shall report to the Division any discovered plan or other action of any Person to (1) commit theft, burglary, underage sales, diversion of marijuana or marijuana product, or other crime related to the operation of the subject Retail Marijuana Establishment; or (2) compromise the integrity of the Inventory Tracking System. A report shall be made as soon as possible after the discovery of the action, but not later than 14 days. Nothing in this paragraph (B) alters or eliminates any obligation a Retail Marijuana Establishment or Licensee may have to report criminal activity to a local law enforcement agency.”
To complete this requirement, email the Marijuana Enforcement Division.
2. Make sure to comply with any local jurisdiction reporting requirements.

MED Eliminates Face to Face Meetings

It has been a strange few weeks for the industry. MED policies are changing quickly and the obligations for the businesses are ever increasing.

Of particular concern is the newfound zeal in the financial investigation area. PEI investors are experiencing extreme and, in my opinion, unnecessary scrutiny. It is no longer enough to show proof of funds that match the intended investment. Instead, the investors are required to prove the source of all of their money, investments, and other sources of income. In one case, a client worth several million dollars was required to show the sources of all of the money even though only a few hundred thousand dollars were to be invested and proof of those funds was provided. Wealthy investors typically have many layers of financial intricacy including trusts, investment accounts, rental income and other complex vehicles to diversify their money. This is posing a very significant burden on any anticipated investor.

Next, MED is prohibiting any interim use of money by a potential buyer of a cannabis business. Many of the businesses being sold are in distress and having trouble making rent, payroll and paying their taxes. Traditionally, we have used interim loans to cover the shortfalls so that the asset still exists at the end of the approval process.  It is unclear whether any such lending will now be permitted by MED.

Finally, MED has now eliminated face-to-face meetings with the investigators and is requiring all applications be submitted at arm’s length. This is problematic because the investigators often head off issues at the application meeting that would not otherwise be anticipated due to constant rule changes. The businesses will now be “flying without a net” and it is imperative that great care be used in preparing any application. This works a particular hardship on the less wealthy entrepreneurs who cannot afford the luxury of legal services and were accustomed to working directly with the investigation team on their applications. But, like always, we have to comply first and complain later. We’ll see how this all shakes out.

House Bill 18-1381

The legislature finally eliminated the requirement that medical marijuana businesses be vertically integrated and sell at least 70% of the cannabis they produce through their designated centers.  House Bill 18-1381 phases out vertical integration and the 70/30 rule in two stages.  A copy of the bill can be found here: https://leg.colorado.gov/bills/hb18-1381

Effective immediately, medical marijuana businesses are only required to sell 50% of the medical cannabis it produces through their designated centers.  Effective 7/1/2019, the medical marijuana centers will no longer be required to produce any of their own medical cannabis.  Carrying the dual burden of a retail store and cultivation operation has been devastating the medical cannabis businesses.  Hopefully, leveling the “playing field” with recreational cannabis businesses will help medical cannabis thrive and continue to focus on and support the medical marijuana patients they serve. It is not yet clear how plant counts and other inventory tracking will be handled since medical cannabis businesses currently cultivate medical cannabis based on the patients who assign the medical marijuana center as their primary center.  I suspect that it will be handled by the tier system currently used for recreational cannabis, but stay tuned.

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