1st lawsuit against MMED successful

It has been awhile since my last blog. As you may have guessed, I am working hard on MMC/MIP compliance issues, including numerous meetings with the new director of the Medical Marijuana Enforcement Division, Mr. Dan Hartman. Over the last several months working with Mr. Hartman and his predecessor, Mr. Matt Cook, I have developed an insight into how MMED may address each situation. This allows me to understand how MMED is “thinking” and help predict future rules and changes.

In any event, there are times when we must stand up for our rights and challenge the laws as written and as interpreted by MMED. Accordingly, in December, I filed the first lawsuit against MMED based its denial of a client’s MMC business application. The lawsuit was over whether an applicant must file an MMC business application by 8/1/10 or “within 30 days of receiving local approval.” The statute provided for both, alternative, filing deadlines. MMED determined that only the 8/1/10 filing deadline was applicable and issued a cease and desist order. However, “the law is the law” and MMED entered into a settlement which accepted the application filing and my client was permitted to open their business. While not every case will be successful, it is always important to try.

2011 MMJ Update

As most of you know, DOR has drafted various rules regarding regulation of MMJ businesses. Public comment is invited and there is hearing scheduled on 1/27 and 1/28. For those of you who do not have a copy, you can view the document at:

http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251678551504&ssbinary=true.

Next, further legislation is being proposed for MMJ businesses, caregivers, doctors and patients. The bill, HB 11-1043 is attached in PDF format. A summary of the proposed changes include:

1. Only owners of MMCs and/or MIPs will be subject to the 2 year residency requirement;
2. MIPs that cultivate their own medicine will be limited to 500 plants;
3. Primary Caregivers can work with more than 5 patients upon the granting of a waiver from the Department of Revenue. This class of Primary Caregiver will be licensed (there may be fees…) and would be able to transact with the patients of another Primary Caregiver of the same class (more than 5 patients). This section does not appear to be well thought out and is likely to be substantially revised;
4. Primary Caregivers licensed to serve more than 5 patients will be required to register the cultivation site with the Department of Revenue, disclose the patients they are working for and comply with zoning and building regulations. This appears to be limited to PCs who received a waiver to care for more than 5 patients, but could likely include all Primary Caregivers. This could result in elimination of home-based cultivation;
5. MMCs will be permitted to sell MMJ below cost or give MMJ to indigent patients. It is unclear whether this will impact the 2 oz. per patient inventory limits;
6. MMCs will be permitted to sell clones. According to the recent Dept. of Revenue rules (see above) clones are treated as plants and subject to inventory limits (6 plants per primary center assignment) and cannot be sold to patients;
7. MMCs will be able to “trade” medicine in equal amounts with another MMC, but not “re-traded.” It is unclear whether this will be included in the 30% allowable sales;
8. The prohibition for owners with a felony drug conviction in their lifetime will be reduced to a conviction within 5 years of the completion of the sentence;
9. The location of the Optional Cultivation Premises will no longer be confidential;
10. Multiple MIPs will be permitted to operate from a single facility by obtaining a “manufacturing facility license.” It is unclear how this will be enforced, fees, etc.;
11. Patients will be permitted to purchase medicine while their application is being processed (no more 35 day waiting period);
12. Labeling of medicine is going to be addressed; and
13. Doctor’s with “conditional” licenses will be permitted to request that they be able to recommend MMJ.

Finally, I trust that all of you are prospering in the New Year and that you are currently in compliance with the rules governing your business. Be reminded that compliance will be measured from 7/1/10 and you should not expect any leniency if you are not compliant at all times.

35 day rule, selling to new patients

As some of you may know, Mr. Matt Cook, on the advice of the attorney general, pronounced that MMCs cannot sell MMJ to new patients until the expiration of 35 days after the application is sent to the Department of Health. Please review http://www.colorado.gov/cs/Satellite/Rev-Enforcement/RE/1251575119584.

The apparent basis is Amendment 20 which states, in part, that the state must issue the MMJ registry cards within 35 days after the application is received. Accordingly, Mr. Cook believes that 35 days must pass before the patient is “legal.” I disagree. Participation in the MMJ registry program is not required. A patient is entitled to the affirmative defense to criminal prosecution upon the recommendation for use of MMJ by a licensed physician. The Amendment requires that the card must then be issued no later than 35 days after submission of the application. As we all know, this hasn’t occurred for over a year.

However, Mr. Cook requires that the MMC not sell MMJ to any new patients until 35 days after submission of the application have passed. I anticipate that the state will be verifying this information at some point in the future and will look back to 7/1/10 for compliance. Accordingly, please comply with this rule immediately.

Finally, the state is still woefully behind in issuing MMJ patient registry cards. The Amendment states that when the card is not issued within 35 days, the patient “shall provide a copy of the application” and “written documentation and proof of the date of mailing.” I understand that this is not included in the application or the state’s application instructions. Nonetheless, it is the law and must be followed by the MMJ businesses…

amending applications

In view of the rapid, changing circumstances for MMJ businesses, the Department of Revenue is permitting applicants to amend their applications in the following situations:

Replacing a cultivation location with a new cultivation location (filing an amended appendix A) to the original application. I suspect that another OPC fee must be tendered along with the new Appendix A;
Adding/deleting managers, members, shareholders. New keyperson applications must also be tendered;
Transferring or selling the business assets (internal changes to an LLC or corporation, including transferring all stock/ownership of that entity); or
Increasing or decreasing the size of the proposed premises.

This list is not exhaustive and amendment may (or may not) be permitted in other situations.

Next, you must first seek local approval for any of the above-changes to your business. Also, you may only amend the application if:

1) You were operating an established, locally approved business on July 1, 2010, (or you had an application on file by July 1, 2010, which was subsequently approved), and;

2) You filed the required applications and fees with the Department of Revenue on or before August 1, 2010; and

3) On or before September 1, 2010, you certified that you were growing at least 70% of the medical marijuana necessary for your operation.

Mr. Cook advises that continued operation of a medical marijuana business or without meeting all three of these conditions is in violation of 12-43.3-901(1)(c) and 12-43.3-901(1)(d) C.R.S. This means that if you were late with your 9/1/10 certification, you are no longer permitted to continue to operate while your application is pending and must submit an entirely new application.

MMC and the “grow your own” requirement

Although I have previously discussed this issue, I need to address the concept of a MMC growing its own medicine. Here are the basic rules:

1. The MMC must grow up to 70% of its own MMJ.
2. The MMC can only purchase up to 30% of the MMJ from another, licensed MMC.
3. The MMC cannot buy MMJ from a caregiver or patient. Simply put, there is nothing legal a caregiver or patient can do with “excess” MMJ.
4. The effective date for the MMC to grow its own MMJ is 7/1/10. The 9/1/10 certification date is merely the date you tell the state that you are and have been growing your own MMJ.
5. You cannot contract with a grower to produce MMJ – you must grow your own.

Next, what is 70%? This is one of the more cryptic answers in this area of law. First, you must look to CRS 12-43.3-901, the unlawful acts section. At Sec. (e), it states that it is unlawful (i.e., illegal) for the MMC to possess more than 2 ounces and grow more than 6 plants for each patient that assigns the MMC as their “primary center.” Accordingly, the total amount of MMJ a MMC can possess is 2 ounces multiplied by the number of patients who have designated the MMC as their primary center. Using simple math, a MMC with 50 patients who have assigned the MMC as the primary center can possess no more than 100 ounces of MMJ. A MMC with 100 patients can possess 200 ounces and so on. Accordingly, a MMC with 50 patients must produce 70% of 100 ounces, which is 70 ounces. Again, the MMC can possess up to 100 ounces and no more. The practical result is that, in most cases, the production of the grow far outstrips the legal possession of MMJ by the MMC. Also, since you can only sell 30% of the total inventory to another MMC, in the 50 patient example, you can only sell 30 ounces to another MMC. Understand that the MMC is likely to produce “excess” MMJ, but cannot legally sell it. The key is to acquire more patients who assign the MMC as their primary center until your retail and cultivation capacity are equal. Otherwise, unlawful and illegal activities will have dire consequences.

Employees: felons, under 21, and out of state residents

As most of you know, the state prohibits people under 21, drug sale related felons and out of state residents from owning MMCs. The state also requires employees to “pass a criminal background check.” The question arises – does the drug felon, under 21 and out of state resident standards for owners apply equally to non-owner employees? At this point, the answer is yes. First, CRS 12-43.3.-101 et seq. prohibits employees under the age of 21 working in any capacity. Second, in speaking with Mr. Matt Cook, he advised that the “no drug sale felony” rule will be applied equally to non-owner employees. While the standard “pass a criminal background check” is vague, Mr. Cook believes (at least for the moment) that the felony issues are the same for owners and employees. Finally, Mr. Cook also states that the out-of-state resident, i.e., two years, applies equally to non-owner employees. Again, CRS 12-43.3-101 et seq. only states that employees must be state residents, Mr. Cook believes the two year standard applies. Perhaps several dozen letters might change his mind?

City of Boulder requires license for grow and retail

The City of Boulder elected to require seperate licenses for both the OPC (grow operation) and retail operations of a MMC. Be warned that is is not enough to submit a MMC business license application for the retail side of the business. Also, if you added the grow after June 18, you are required to submit the application for the grow by 8/31/10. Of course, if you had both the grow and retail in operation before June 18, you may submit both applications on or before 10/31/10. Please be advised that it appears that priority for location (i.e., within 500 ft. of three other MMCs) will be allotted based on date of submission of the application, not date of operation. This is not final, but you should get your application in a.s.a.p.

7/1/10 or 7/1/11? Which is it?

Confusion continues to guide the MMJ industry. Many of you have attended presentations by Mr. Matt Cook, the head of the state’s MMJ business regulation division. At these presentations, Mr. Cook repeatedly states that the bill goes into effect on 7/1/11 and that local regulations apply until then. I have spoken with many MMJ business people who take this information as the gospel truth and intend to continue with their businesses in their current form until 7/1/11. Many such businesses are “grow only” or “retail only” operations that have been locally approved (or not). Many are owned by people who have not resided in the state for two years, have a felony drug conviction or a felony conviction less than five years old or all three. In my discussions and correspondence with Mr. Cook (see prior blogs), it appears that continued operation of a MMJ business without strict compliance with HB1284 until 7/1/11 could be a serious problem.

Let’s examine the idea that you have until 7/1/11 to comply with HB1284. If the bill does not take effect until 7/1/11, is there any requirement to apply to the state by 8/1/10? Can you refuse to pay the $7500-$18,000 application fee until July 2011? When you list your optional grow premises, can you tell the state that you plan to get around to it before July 2011? When you list a drug felon or out-of-state resident as an owner or employee on your application, will you be able to address this issue sometime before 7/1/11. Finally, when you certify, under penalty of perjury, on 9/1/10 that you are growing 70% of your own MMJ, can you tell the state that you are planning on doing this, but currently are buying all of the MMJ from various growers?

The point of this exercise is to point out that compliance with HB1284 appears to be immediate. If it were otherwise, none of the provision of HB1284 would apply, including the 8/1/10 application, the license/application fee, the 9/1/10 certification, etc.

Based on the information we received from Mr. Cook and our reading of HB1284, we suggest immediate compliance with HB1284. If you follow this advice, the worst that can happen is that you ran an HB1284 compliant business for one year longer than necessary. However, if you defer your compliance until July1, 2011, you may find that your application is denied or, worse, that you may face criminal prosecution for operating a business without the benefit of HB1284 protection. In our view, it is better to be safe than sorry.

Post 7/1/10, the hangover from Black Thursday

Well, it was one hell of a tough road getting from the enactment of HB1284 through “Black Thursday.” All of you who hustled to get their businesses in order are amazing, resourceful, ingenious people and I am proud to represent you.

Now that it is 7/2, I want to make clear the following points:

1. You must be growing and selling only your own MMJ. The 9/1/10 certification does not act as an extension of the deadline for this requirement. Late last night I received clarification from Mr. Matt Cook that the effective date for growing and selling your own MMJ is 7/1/10. Do not jeopardize your hard work by purchasing MMJ from any one other than another established MMC, which has local approval for both its grow and retail operations. Don’t take any one’s word for their own legality – do your own due diligence.
2. Do not continue employing any people with drug felonies, concerning criminal histories (lots of misdemeanors, less-than felony drug convictions, etc.), people with a felony within five years of completing the sentence or anyone who has not been a Colorado resident for two years prior to 7/1/10 (see, prior blogs).
3. Do not operate your business at all unless you are locally approved and/or have applied for local approval for both the grow and retail aspects of your business. If you are a MIP, you can only continue operating if you have local approval/applied for local approval. If your MIP does not grow its own MMJ or you do not have local approval/applied for local approval for growing your own MMJ, you must have a written contract for purchase of MMJ with an established MMC. Please note that the MMC must be locally approved/applied for local approval for both the grow and retail aspects of its business in order to be able to sell 30% of its MMJ to your business. You may contract with up to 5 such businesses.
4. After 7/1/10, the MMC can only possess 2 ounces and grow 6 plants for the number of patients who have assigned the MMC as their “primary center.” As stated in previous blogs, you must convert all patients who have assigned any of the persons associated with your business to be their primary caregiver over to the MMC as their primary center. Use the state’s Change of Primary Caregiver form (there is not MMC primary center assignment form yet available) and make sure to properly complete, notarize and mail to the Department of Health and Department of Revenue, attn. Mr. Matt Cook, certified mail/return receipt requested. Remember – if you have zero patients who have assigned the MMC as their primary center, you may possess zero ounces of MMJ and may cultivate zero plants.
5. You should download the newly minted Dept. of Health patient application for use in acquiring new patients or use the Change of Primary Caregiver forms to assign current patients at the time of sale of MMJ from your MMC. You do not need to continue using any “temporary caregiver” forms (which were never legal anyway, see prior blogs). The forms may be downloaded from: http://www.cdphe.state.co.us/hs/medicalmarijuana/forms.html.
6. Begin preparing for the 8/1/10 Department of Revenue MMC/MIP application and save a substantial amount of money for the as-yet undisclosed application and license fees.
7. Please keep careful and accurate records regarding both your cultivation and sale of MMJ. Remember, the state’s microscope for your business will be applied beginning on 7/1/10!
8. For all of the primary caregivers – you must only have five patients, must provide other caregiving services (see prior blogs) and charge only the cost of producing the MMJ. You must notify the Department of Revenue who the five patients are that you intend to continue as their primary caregiver and give notice that you are no longer willing to act as the primary caregiver for the remaining patients. List all of the patients accordingly. Send the letter certified mail, return receipt requested.

Stay legal and stay safe. Please contact us with any questions

The course of MMJ business over the last year

Over the last year, we have seen an explosion in the MMJ business. At first, it was a few brave souls who simply undertook to provide medicine to a few patients without regard to profit or large scale operations. However, once the Obama adminstration announced that MMJ would not be a federal law enforcement priority, a great many people began exploring the MMJ business. Unfortunately, most of the entrepeneurs were advised, not by my office, that the MMJ business was a “grey area” and that you could do virtually anything you want as long as the MMJ is sold to patients. This was not the case and there was little or no legal protection for these businesses. As a result, the primary business model was acquiring a few patients to justify a commercial grow operation primarily in residences or in places unknown to local governments. The MMJ was then sold wholesale to dispensaries. Selective prosecution by law enforcement gave these growers and dispensaries a feeling of relative safety in their MMJ business activities.

Quickly, the MMJ business was booming and Westword magazine capitalized by permitting large scale advertising of this fledling industry. A few business were blatant in catering to “recreational patients” and adopted names like “Dr. Reefer.” The Denver Post then got into the act by taking an active role in criticizing the MMJ industry, including by referring to dispensaries as “pot shops” and publishing photographs of young people smoking marijuana. This created a public perception of MMJ as a front for recreational drug use. The legislature quickly responded with threats to eliminate the MMJ industry with the help of law enforcement.

In the following months, many attempts to create regulations for the MMJ industry were attempted and a rash of local moratoriums on MMJ businesses were enacted. A long and arduous process soon followed. From the outset, the legislature made clear that responsible and tightly regulated businesses would be the only survivors.

In the spring, various drafts of the proposed regulations were completed and it was clear that commercial growing and wholesale sales of MMJ would be prohibited. However, the growers were advised, again not by my office, that the regulations would not pass and that business as usual would be fine. This was not the case.

In May, HB1284 was completed and required a single business, the Medical Marijuana Center, was created. The MMC was required to grow and sell all of its own medicine and the commercial grower was legally eliminated. This wreaked havoc in the MMJ business community, as the grower businesses far out numbered the retail businesses. Felons and out of state residents were also eliminated creating further havoc in the industry.

Now comes “black thursday,” July 1, which is the effective date of HB1284. All businesses must be locally approved for both the grow and retail aspects of the MMC in order to continue operating after July 1. “Shotgun weddings” of growers and dispensaries are occurring in a matter of days or hours as people struggle to comply with the July 1 deadline. In many cases, these business marriages are doomed to fail. I predict law enforcement will ramp up its efforts to squash out non-compliant businesses and less than half of the existing MMJ businesses will survive. The final chapter of this story will be written over the next several months. Let us hope that the patients are not the ones who suffer along with the fate of the businesses that support them.