MMJ Division/Matt Cook update

I have been corresponding with Mr. Cook on various legal issues that continue to arise. I wanted to share with you his responses.

1. Is the sale of the 30% inventory from MMC to MMC retail or wholesale? A: Wholesale and that normal business records must be kept. I suggest that you verify both local approval and timely filing of the state application with any MMC you deal with. Make a copy of any licensing if possible.

2. Can MMCs sell to caregivers on behalf of the caregiver’s patients? A: No, unless the patient is homebound AND has a waiver from CDPHE.

3. If you failed to meet the 9/1 certification deadline, can you continue to operate? A: No. However, if you met the 7/1 local approval/pending local approval deadline and filed the state application by 8/1, you are still considered “established” and do not forfeit your application fees. Nonetheless, you must cease operation until the state rules on your application.

4. Will there be a license fee(s) in addition to the application fee(s)? A: Yes. The license fees will be set in the spring. Start saving your money (what little you have) now!

5. Does the 2 year residency requirement also apply to employees and managers? A: Yes. As you know, I do not necessarily agree with this, but that is the state’s interpretation until a district court judge rules otherwise. You should also assume the felon criminal conviction rules for owners applies equally to employees and managers.

6. Can municipalities impose a different standard for who is permitted to own a MMJ business? A: No, it is the state who decides this issue. For instance, Fort Collins enacted an ordinance prohibiting someone from owning a MMC/MIP if the have a felony within 10 years of the completion of the sentence (the state limits this to 5 years).

7. Can municipalites use a different standard of measurement for the distance between MMCs, schools, day cares, etc.? A: No, the “pedestrian access” standard set from in CRS 12-43.3-308(d)(II) will be applied.

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…

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.

7/1/10 “Black Thursday”

Try as I might, I cannot possibly get to all of you before Thursday (I have tried!). Accordingly, I am writing this blog in an effort to address various issues that appear common to most MMJ business people.

1. 7/1/10 is the effective date for all MMJ businesses going forward. I understand that Mr. Matt Cook has told some of you that you have until 7/1/11 to comply. This is not the case. I have spoken with Mr. Cook and corresponded with him on several occassions. In his correspondence he makes clear that your MMC and/or MIP application will be evaluated using the 7/1/10 date. For those of you seeking to add a retail or add a grow after 7/1/10, Mr. Cook advises that both aspects of the MMC must be locally approved on or before 7/1/10.
2. There is no one year state moratorium. However, there is a defacto moratorium in that you cannot operate after 7/1/10 unless you were “established”/locally approved for both the grow and retail location(s) before 7/1/10. Otherwise, you cannot operate until both local and state approval are obtained.
3. Hash is going to be considered an “infused product.” The distinction provided by Mr. Cook is that green stuff in a bag is for MMCs, everything else is for MIPs.
4. There can be no deliveries except in the narrow circumstances provided in HB1284.
5. One grow can supply a MMC with multiple locations and common ownership.
6. One grow cannot supply MMJ to mulitiple MMCs not wholly and commonly owned by the same people. NO INDEPENDENT CONTRACTOR GROWS NO MATTER WHAT ANYONE IS TELLING YOU!!!
7. The residency, “no felony w/i five years of completion of sentence” and “no felony drug convictions ever” standards apply for owners, employees and managers of the MMC. The criminal background issues apply equally to investors.
8. The 70/30 rule applies on 7/1/10 and the certification is due 9/1/10. Again, in evaluating your application and 70/30 certification, the state will look back to 7/1/10.
9. MIPs must be locally approved by 7/1/10 to be considered established under HB1284 even if there is no such licensing procedure locally available.
10. The MIP may, but is not required to, grow its own MMJ using a locally approved OPC or may contract, in writing, with up to 5 MMCs to purchase the MMJ for use in making the products. The MIP MMJ cannot be resold to any other business or person, but the MIP can sell its products to any MMC.

I know how hard it is out there. Better to be on the sideline and do it right, then be further down the road doing it wrong. Remember, doing it wrong can result in delay, denial, permanent bar from future MMJ business or removal of any protection from criminal prosecution.

Stay legal, stay safe.

MMC and patient assignment – a follow up to the 70/30 rule

Further to my previous post, a MMC’s inventory is measured by the number of patients that assign the MMC as their “primary center” times two ounces per patient (I am not dealing with the “edibles”/medical necessity issues here) and can only grow 6 plants for each assigned patient. The question is how do we do this? The answer is not simple and has not yet been considered by the Dept. of Revenue or Dept. of Health. As with most MMJ issues, we must solve the problem ourselves and wait for the state to catch up. As with all MMC issues, prior to 7/1/10 is the date to accomplish this.

Accordingly, I suggest that the primary caregivers associated with the MMC have their patients assign the MMC as their “primary center.” Since their is no form or procedure for this, I suggest using the Change of Primary Caregiver form issued by the Dept. of Health. Instead of inserting a person’s name as the PC, I suggest inserting the MMC’s name, address, etc. Otherwise, fill out the form as required by the Dept. of Health and have the document notarized and mailed to the Dept. of Health, certified mail, return receipt requested. The state may reject the form, but at least you have timely proof of conversion from primary caregiver to primary center. Keep the proof handy, including the original patient cards, change of caregiver forms and return receipts as evidence of an unbroken chain of legal caregiving/care centering.

Finally, there are many patients you cannot locate. I suggest sending the Dept. of Health a letter detailing the patients that have changed from you as a PC to the MMC. Next, list each of the patients you were unable to locate and advise the state that “I am listed as the primary caregiver for the following patients listed below. I have tried to contact these patients, but am unable to do so. Accordingly, let this letter serve as notice that I am unwilling to act as the primary caregiver for the patients listed below effective immediately. If you have any means of contacting these patients, please advise them that I am no longer their primary caregiver.” Again, notarize and send this letter to the Dept. of Health AND Dept. of Revenue, attn. Mr. Matt Cook, certified mail/return receipt requested.

Someday the state will create its own procedure and form for designating a primary center and you get to do this all over again!

Keep all the records handy, organized and a copy at the MMC and any optional grow premises.

Primary Caregiving post HB1284

HB1284 goes into effect on 7/1/10. This restrict all primary caregiving to five patients or less, requires the provision of “other services” as set forth in the Clendenin case, and providing the MMJ for cost only. No two (or more) primary caregivers can work together, share a grow, etc. and no primary caregiving duties can be delegated (grow assistance, delivery, etc.). Finally, you cannot ever sell your “excess” medicine to medical marijuana centers.

Meeting with Matt Cook

I just completed my meeting with Mr. Matt Cook, the current head of the Department of Revenue Medical Marijuana Business Division. I clarified several points that concern MMJ businesses:

1. All MMJ Centers must be locally approved for both the cultivation and retail sale of medical marijuana by 7/1. I understand this presents many logistical problems, but it is true nonetheless;
2. There is no state moratorium on new MMJ businesses (that was just in the bill summary) but local approval and state approval is required BEFORE any operation of that business.
3. Hash is likely to be considered an infused product and its creation is likely to be limited to Infused Product Manufactures. He stated that MMC’s are going to be able to create “raw product” only and that is likely to include clones.
4. The no felony within five years of the completion of sentence and no felony drug convictions ever is going to apply to employees, managers, investors, etc., as well as owners.
5. The two year residency requirement is likely to apply to employees and managers, not just owner/licensees.
6. The corporate structure for a MMC is simplistic: one business handling both the grow and cultivation, which is locally approved for both activities. This means no corporations owning corporations. While this is permitted as a matter of corporate law and may evolve in the future, I suggest you give the state what it expects to see.
6. Growers may not be “employed” by more that one MMC and, under no circumstances, can exist as a seperate business.
7. Owners of MMCs can still be a primary caregiver for 5 patients, but all activities must be separate from the MMC (no selling excess from your patient grow!).
8. In examining your MMC/MIP application, the state will refer back to 7/1/10 to establish your compliance with HB1284.
10. Service business will be allowed, like a grow consultant, but be careful not to blur the lines between consultant and grower.
11. The rules will be created over a six month process and will be binding. That means what Mr. Cook says today may or may not be established by rule in the future. Anticipate the most conservative view of HB1284 and expand beyond that when the rule permits such expansion.

I hope this helps guide you efforts to comply with the new regulations.

New Regulations

As many of you know, the state legislature has given us two new MMJ regulations, HB 1284 and SB 109. HB 1284 regulates MMJ businesses and SB 109 regulates MMJ doctors and eliminates and financial relationships between MMJ businesses and doctors. Both bills are aimed at making MMJ businesses more legitimate. As with any regulation, there are pros and cons to each bill.

Pros for HB1284:

HB 1284 creates legal protection for all participants in the MMJ business. Growers, trimmers, retail employees, owners, managers, etc., all are specifically protected from criminal prosecution by virtue of being employed or ownership of a MMJ business. The MMJ business must cultivate and sell its own medicine and cannot contract out such services. The upside is that MMJ businesses will have greater control over product quality, availability and cost of the medicine. The MMJ business can work with any licensed patient and a licensed patient can patronize any MMJ business without requiring primary caregiver assignment. This provides tremendous choice and flexibility for the patients and the MMJ businesses.

Cons for HB1284:

It will be difficult to comply with all of the logistical and financial requirements of running a MMJ business. The cost of the licenses, application fees and other costs are substantial and are likely to be passed on to the patients. No person with a felony drug conviction can own a MMJ business and out-of-state residents similarly are prohibited from ownership. Finally, the cost of running such a business typically requires both an industrial location to cultivate and a retail location to provide medicine to the patients. The costs of running such a business is likely to prevent smaller businesses from thriving.

Pros for SB 109:

The MMJ program has widely been criticized for catering to recreational drug users and the financial relationships between doctors and dispensaries has created widespread public opinion that the program has tremendous fraud. By cracking down on the financial relationships between doctors and MMJ businesses, the public perception of fraud may be replaced by community trust.

Cons for SB 109:

The requirement of a complete physical examination and an ongoing relationship between the MMJ patient and recommending doctor is likely to be costly. Many MMJ patients have few financial resources and may be unable to participate in the program. This is especially true since no health insurance is available to cover the cost of the medicine. The costs may force patients to acquire medicine from the “black market” and be exposed to possible criminal prosecution.

Conclusion:
HB 1284 and SB 109 usher in a new period of legitimization for the MMJ industry. The legislature formally recognized that patients must be able to acquire medicine from professional businesses. The end result should be greater acceptance of MMJ and the businesses that provide medicine to legitimate patients. However, regulation has a cost that is likely to be passed on to the patients. In response, patients should organize and patronize the businesses aimed at providing high quality medicine at affordable prices.