It’s 2018! That means your Oregon marijuana business will be subject to increased minimum wage requirements this summer. The new federal Tax Act has everyone considering money, so now is a great time to think about how the increase in state minimum wage will affect your business expenses.
In 2015 the Oregon legislature established a progressive series of annual minimum wage rate increases. The rate increases began on July 1, 2016 and continue through July 1, 2022. On July 1, 2023 the minimum wage rate will be indexed to inflation based on the consumer price index, which is a figure published by the United States Bureau of Labor Statistics.
The location of your Oregon cannabis business will dictate the amount of increase of the minimum wage for your non-exempt employees this July. (“Non-exempt employees” are employees who must be paid minimum wage and overtime, for any hours worked beyond 40 in a given week.)
July 1, 2016
July 1, 2017
July 1, 2018
July 1, 2019
July 1, 2020
July 1, 2021
July 1, 2022
July 1, 2023
Adjusted annually based on the increase, if any, to the US City average Consumer Price Index for All Urban Consumers
$1.25 over the standard minimum wage
$1 less than the standard minimum wage
The Portland Metro rate applies to all employers located within the urban growth boundary. Metro has an Urban Growth Boundary tool to help determine if your cannabis business is within the Portland Metro area. The nonurban counties rate applies to: Baker, Coos, Crook, Curry, Douglas, Gilliam, Grant, Harney, Jefferson, Klamath, Lake, Malheur, Marrow, Sherman, Umatilla, Union, Wallowa, and Wheeler. All other counties must pay the standard rate.
Both the state of Oregon and the federal government set minimum wage requirements. The federal minimum wage is and remains at $7.25. As you can tell, Oregon’s minimum wage is significantly higher than the federal minimum wage. When federal and state employment laws conflict, employers must apply whichever standard is most beneficial to employees. In the case of minimum wage, Oregon employers, including all cannabis businesses, must pay their employees minimum wage based on the Oregon rate. Start planning ahead.
On December 22, the Oregon Liquor Control Commission (OLCC) adopted a large packet of rules amendments that incorporate the many cannabis bills signed by Oregon Governor Kate Brown this year, as well as “technical amendments [made] in response to market realities.” These changes, effective December 28, 2017, include:
implementation of mandatory seed-to-sale tracking for medical cannabis;
a new regulatory regime for hemp and hemp products that allows hemp products into Oregon’s recreational cannabis supply chain;
new rules governing Marijuana Promotional Events;
new canopy limits for growing immature plants outside of the standard canopy areas;
an exception to the retailers-must-be-1,000-ft-from-a-school rule if there is a physical or geographical barrier between the retail site and the school that prevents children from traveling to the retailer, such as a river;
new certifications for recreational wholesalers that can now trim cannabis, and can offer mobile for-hire trimming services;
some minor changes to transportation rules;
a small change to the definition of “financial interest” that will have a big impact on what investors must be pre-approved by the OLCC;
a new prohibition on sales through walk-up windows to complement the existing prohibition on drive-thru sales (Makes you wonder who came up with the work-around that led to this rule change); and
micro-tier producers can now do some processing of cannabis concentrates.
Because the changes cover quite a bit of ground, we’ll dig into several of these in more detail in future installments in this series. For now, we will focus on the new Marijuana Promotional Events, governed by OAR 845-025-1335. This new administrative rule allows recreational licensees to display their products at trade shows, which is something many of our clients have been eager to do for a while.
Under the new rules, trade shows or similar events will be organized by a single licensee or “Event Organizer”, that will be the primary contact with the OLCC. The Event Organizer must submit an application to the OLCC at least 28 days before the event that will include the names and signatures of any participating licensees, the amount and type of cannabis items that will be on display, and a control plan that explains how the participating licensees will prevent violations.
Assuming the OLCC approves an application, the participating licensees may bring and display marijuana and marijuana products from their inventory (sorry, no hemp). All of the marijuana must be returned to the licensee’s premises at the end of the event. Thus, these trade shows are not an opportunity to sell or otherwise distribute any cannabis products. Even samples are prohibited.
The ban on samples will probably dissuade some members of the public from attending, but that rule is no different than the ban on samples from licensed dispensaries generally. On the licensee side, trade shows may prove invaluable for smaller industry players hoping to distinguish themselves in a very competitive market. The other possibility, of course, is that licensees may find the regulations too strict, and decline to participate.
Check back soon for another dive into the new rules governing Oregon’s cannabis market. And Happy New Year!
A little over a year ago, I put together a State of the State blog post on Oregon cannabis. At that time, the rules were rolling out in a business-friendly manner, many of our clients were proceeding toward licensure, and the market did not feel saturated. Today, the first two items remain true, but the Oregon market has become fuller and more competitive. Part of this has to do with the state’s lack of residency requirements, part has to do with how easy it is to acquire an Oregon marijuana license, and part is just standard free market dynamics. All of this has been a long time coming.
As of the Oregon Liquor Control Commission’s (OLCC) December 19 report, there were 877 licensed marijuana producers in Oregon, with nearly another 1,000 applications pending. Much of the massive Croptober harvest is drying out and finding its way to the market, and prices for outdoor cannabis seem to be falling fast: in some cases, flower is dropping below $400 per pound. It’s hard to know where bottom is. Program architects may not put the brakes on this anytime soon: the legislature won’t meet again until February (and may not take up the issue at all); and, in the interim, OLCC has no authority to cap the number of licenses awarded. Instead, the agency can only reduce canopy sizes (which it has no plans to do, according to our recent conversations).
Today’s market dynamics were somewhat predictable: given the state of the rules and Oregon’s unique accessibility, we predicted a lot of “triage, consolidation, litigation, guesswork, and general ups and downs” as far back as early 2016. Some of this was almost certainly by design: in the Cannabis Law & Policy class I teach we do a deep dive on markets, and we talk about the general desire for states to allow the price of state-sanctioned pot to stay low, so as to undercut the black market. The countervailing consideration, of course, is the state’s desire to create tax revenues. In an excise tax program like Oregon’s, those revenues are higher when prices hold up at retail.
All of this said, we still think Oregon is a great state for marijuana entrepreneurs, even as the market settles out. Here are three interesting trends we are seeing today:
Consolidation. The Oregon merger and acquisition market is in full swing for cannabis, and our well positioned clients are expanding by acquiring competitive and complementary businesses, up and down the supply chain. Other clients are selling, with the belief that prices are still reasonable, but may crater down the line. In the past week alone, we commenced five different purchase and sale transactions, and we don’t expect a lull in this type of activity any time soon. Interestingly, prices and valuation of these businesses are all over the board. For some basics on buying and selling Oregon pot businesses, see our series here:
Litigation. Unfortunately, when pot businesses fail, litigation sometimes follows. We have seen an uptick in Oregon pot litigation as of late, particularly partnership beefs and creditor actions. We do not expect the dispute dynamic to change anytime soon. For this reason, we have been staffing up with litigators in the Portland office, we and are even putting on a free litigation webinar next month to more fully discuss this topic. (Join us!)
Hemp? Lately, more and more of our clients have shown an interest in growing hemp under licensure by the Oregon Department of Agriculture. Some of these clients are pursuing hemp-derived cannabidiol (CBD) sales in interstate commerce, which the ODA program does not prohibit. Others are preparing to sell CBD into the OLCC stream of commerce, which is finally allowed under Senate Bill 1015 (new rules take effect next week). As to interstate CBD sales, federal law is a cluster, but that hasn’t stopped many big box retailers from trading in this area. Right now, a wave of Oregon cannabis growers are going there, too.
People who own businesses often try to keep their names off state-controlled websites and other public registries, to the extent possible. There are various reasons for this: the owners may hope to avoid receiving tax and legal documents in front of clients, may wish to avoid media inquiries, or may simply cherish their privacy. With cannabis businesses, owners have a whole slew of reasons for wanting to maintain their anonymity. In Oregon, however, that is about to become a bit more challenging due to House Bill 2191, which takes effect on January 1.
To be clear, under Oregon state law, information related to marijuana business applications and ownership has always been subject to disclosure via an ordinary public records request. Those requests are easy to make in Oregon, and almost always cheap or free. There are some exemptions to the disclosure rule, but they relate mostly to security. Business ownership status is not a security concern, according to the Oregon Liquor Control Commission (OLCC). That said, public records requests are targeted in nature to a specific business or other matter, and it’s hard to do a quick sweep if you are looking for a certain someone. The online Secretary of State business search page, by contrast, allows anyone to simply type in the target individual’s name, and get immediate results.
Most law firms, like ours, offer registered agent services for their business clients. These services come at a standard fee, and one attractive feature is that the law firm will list itself as the point of contact for official documents, thereby shielding the names of business owners. In Oregon, an owner did not have to be listed at the initial registration in the case of an LLC, historically; and in the case of a corporation, neither shareholders nor officers needed to be listed. On renewal, the standards were a bit tighter, but overall, most business owners were able to remain discrete, like in Delaware and other states. That will be harder now.
Under HB 2191, an individual with direct knowledge of business operations and activities must be identified on the articles of incorporation/organization (including amended, restated, conversion and merger filings). In the case of a corporation, that person may be a director or controlling shareholder; in the case of an LLC, that person may be a member or manager. Alternatively, either type of business can list “any individual that has direct knowledge of the operations and business activities.” Anyone forming a marijuana business and hoping to remain discrete had better find a partner who is willing to be listed.
HB 2191 also adds a requirement that any new company list its principal place of business, rather than a P.O. Box or other address, upon incorporation. This mirrors the I.R.S requirement, and the principal place of business “must be a physical street address” rather than a commercial mail-receiving agency, mail forwarding or virtual office. This new rule probably won’t bother anyone running a dispensary, but producers, processors, and wholesalers may not be so keen on the change.
HB 2191 is a rare example of an Oregon law that affects cannabis operators but did not go into effect immediately on passage. Unlike many other new laws that passed in the last session, HB 2191 is not specifically targeted toward the cannabis industry and wasn’t a “quick fix” in nature. Still, pot business owners should be aware that their information is about to become more searchable. Heads up.
At the end of September, we discussed the successful efforts of local growers in Josephine County, Oregon, to stop an ordinance that would have effectively banned commercial and medical marijuana on rural residential land in the county. After passionate argument by the growers, the Josephine County Board of Commissioners (“Board”) went back to the drawing board.
And they came back with something arguably worse. For comparison purposes, here is a short summary of the ordinance that almost passed back in September:
Any OLCC licensed site would need a 300-foot setback on all sides. Currently, the code requires a setback of 30 feet in the front, 10 feet on the sides, and 25 feet in the rear.
The property would need to be owned directly by the OLCC licensee. This would be problematic because many licensees lease land, or hold the land in a separate holding company for liability purposes.
No OLCC site could be serviced by private road, easement, or owner maintained public right-of-way unless the OLCC producer owns all of the land adjacent to the right of way.
Any farm that could not meet these requirements would have had thirty days from the date the ordinance went into effect to request a Determination of Non-conforming Use. To qualify for a non-conforming use determination, a recreational site needed to:
Be in full compliance with the county codes as they existed prior to the amendments; and
Either have obtained a Land Use Compatibility Statement (“LUCS”) from the county planning department prior to the adoption of the new ordinance amendment, or have applied for a LUCS prior to the adoption of the amendment that is being “actively processed by [the] OLCC with the intent to issue a license.”
And here is a short summary of the ordinance that was officially adopted on December 6, 2017. Any property zoned rural residential with more than 12 mature plants (the ordinance doesn’t seem to distinguish between medical and recreational) must comply with the following requirements:
Cannabis production will be banned outright on all lots or parcels of five acres or less. This provision was included even though Commissioner Dan DeYoung has previously been quoted as saying “The rules should be the same for all rural residential whether it’s one acre, two and a half acres, five, ten, twenty-nine.”
Lots larger than five acres may have up to a 1,250 square foot indoor grow area or a 5,000 square foot outdoor grow area (compared with the 10,000 square foot indoor or 40,000 square foot outdoor maximum per license allowed by OLCC regulations).
The property must have a 100 foot setback on all sides for all structures and grow canopies.
“The person regulated by the State of Oregon must have an interest in the lot or parcel where the marijuana production site is located.” At a minimum, this provision will ban the common practice of landowners leasing a property to third-party cannabis farms. Whether this will affect the practice of a farm owning the land in a separate holding company is a bit less clear. OLCC licensees are almost always companies, so is the company the “person regulated by the State of Oregon”? If so, it seems the licensee company will have to have some direct ownership interest in the separate holding company
All security personnel on the property must obtain and maintain Marijuana Worker Permits from the OLCC. Normally, only workers that physically interact with cannabis must have a permit.
Indoor production must use odor control systems. We believe this just requires what farms should be doing anyway, as we have previously recommended cannabis farms use odor control systems to avoid costly neighbor disputes.
The county will notify all neighbors of any cannabis farm and owners must post notices of cannabis production where their properties meet public streets. Both of these requirements raise safety and security concerns.
Any farm licensed by the OLCC before March 6, 2018, will be considered a “special or unusual circumstance” and may apply for a variance from these regulations.
The group of growers and concerned citizens we discussed in the previous post have formed F.A.R.M.S. (Farming and Agricultural Rights Management Society) and are vowing to challenge this ordinance in court. We will keep you posted.
Recreational legal states are divided on whether to allow cannabis home delivery and just how to regulate it. For example, though cannabis delivery is legal in Oregon, it is still being debated in the Washington State legislature. And even though home delivery is legal in Oregon, that doesn’t necessarily mean it’s legal in every city. Portland, Oregon only lifted its ban on recreational cannabis delivery last December, and it has taken a while for the first delivery companies to obtain their state and city licenses, and to begin operating.
Considering that cannabis home deliveries are still prohibited in Washington, it may come as a surprise that home delivery has been a part of Oregon’s recreational cannabis regime since its inception. Section 27 of Measure 91 provided that licensed retailers would be able to make deliveries to “consumers pursuant to bona fide orders received on the licensed premises prior to delivery.” This language was adopted in HB 3400 without much change, and without any attempt to clarify the definition of a “bona fide order.” But home delivery was put on hold while the Oregon Liquor Control Commission (OLCC) worked out the details.
In 2015, the OLCC issued temporary rules to govern home delivery, and it has been tweaking those rules ever since. However, it wasn’t until February of this year that the OLCC finished working out the kinks and opened up delivery statewide.
Currently, Oregon Administrative Rule 845-025-2880 provides that a retailer may deliver cannabis directly to residential homes or apartments, but cannot deliver to hotels or other similar businesses. Any particular individual or address can only receive one delivery per day.
For the driver’s safety, each delivery vehicle must be equipped with an internal lock-box to store the cannabis during transport and each driver can carry no more than $3,000 worth of cannabis products at a time. Though not strictly required by the rules, a smart delivery company will use nondescript vehicles to further deter theft.
Assuming you are over 21 and you are not visibly intoxicated, you can receive deliveries of cannabis to your home or apartment as late as 9 pm, so long as you place an order by 8 pm. You will be asked to provide your name, date of birth, address, and the specific products you want to purchase. The delivery driver will arrive at your home, check your ID, and ask you to sign a delivery receipt so the retailer can fill out its delivery manifest.
These delivery manifests were the primary cause of the delay in bringing home delivery to the masses, as the OLCC needed to determine how to fit home delivery into Oregon’s seed-to-sale tracking system. Fortunately, the system is now up and running, and home delivery may already be available in your city.
As more states legalize cannabis in 2018, Oregon’s experience with home delivery will no doubt provide a valuable guide. In fact, if you are lucky, you may soon be enjoying commercials like this one.
Portions of this post were first published in the Portland Mercury and are republished with permission.
Want to know what a competing Oregon cannabis business is paying its employees? Don’t ask job applicants.
Oregon passed expansive equal pay legislation in 2017 and a key provision banning employers from asking applicants about past salary and compensation went into effect this month. The Oregon Equal Pay Act makes it an unlawful employment practice for an employer to seek the pay history of an applicant. Similar to the “ban the box” legislation (discussed here), Oregon employers can inquire about past compensation only after making a job offer that includes an offer of compensation. Employers are also banned from seeking compensation history from an applicant’s past and current employers and from screening applicants based on past salary.
Oregon cannabis companies should review their applications and standard interview questions to remove any questions about past compensation and if you work with a recruiting agency, you should make sure their screening processes comply with the law as well.
The Equal Pay Act also expands Oregon’s equal pay requirements by prohibiting disparate wages for work of a “comparable character” for members of a protected class. Protected classes include persons distinguished by race, color, religion, sex, sexual orientation, national origin, marital status, veteran status, disability, or age. Work of a comparable character does not simply mean the same job title or similar duties. Instead, it requires an analysis of the knowledge, skill, effort, responsibility and working conditions the position requires. The law though does allow for unequal pay for the performance of work of comparable character if the pay difference is based on any of the following:
A seniority system
A merit system
A system that measures earnings by quantity or quality of production, including piece-rate work
The equal pay provision does not go into effect until January 1, 2019. This allows employers time to assess their compensation practices and adjust wages as necessary. Employers are not allowed to reduce the compensation of any employee to comply with the law.
Once the law goes into effect, employees can file complaints alleging violations with Oregon Bureau of Labor and Industries and BOLI may award up to two years of lost wages. Beginning January 1, 2024, employees can bring civil actions against their employers. Courts can award lost wages, attorneys’ fees and costs, injunctive relief, compensatory damages (money awarded to a plaintiff to compensate for a loss), and punitive damages (money awarded to a plaintiff to punish the defendant). Employers can avoid compensatory and punitive damages by showing they completed an equal pay analyses within three years before the date the employee filed the action.
If you are an Oregon cannabis business with employees, there is plenty you can and should do now to bring your company in line with existing laws and to set yourself up for compliance with future laws. First and foremost, evaluate your hiring practices and ensure you are no longer asking your job applicants about their pay history. If you have friends in the cannabis business, limit discussions about what they pay employees. In preparation for enactment of the equal pay provision, analyze your pay practices. Are your employees in comparable positions being paid the same amount? If not, ask yourself whether there is a bona fide reason for the pay disparity and if there is not, consider raising the wages of the person with the lower wages before the law goes into effect.
The Oregon Department of Revenue (“DOR”) imposes a point-of-sale tax called the Recreational Marijuana Tax on all Oregon recreational cannabis retailers. The DOR collects 17% of the value of all cannabis sold at each retailer location.
In theory, this tax burden is shared across the entire cannabis production line (producer, processor, distributor, and retailer) by depressing prices. Oregon law also allows cities and counties to impose up to an additional 3% point-of-sale tax, but this additional tax can only be implemented after a vote of approval from local residents. Local jurisdictions can opt to enter into an agreement with the DOR that allows the DOR to collect the tax their behalf, and most jurisdictions that have passed a 3% tax have elected to do so. In these jurisdictions, the DOR will collect a full 20%, and distribute the 3% to the local governments.
The DOR maintains a record of local jurisdictions that have implemented the 3% tax, as well the list of jurisdictions that have entered into a collection agreement with the DOR. In most cases, any local tax issues will be handled on your state tax filings (discussed below), but if you are located in one of the following jurisdictions you will need to contact the local government directly to arrange for payment:
Tillamook (the city)
At the state level, each month every retail location must submit an Oregon Marijuana Tax Monthly Payment Voucher along with payment for the prior month’s tax. The tax can be paid online through the DOR’s Revenue Online website or can be paid by check, money order, or by cash in Salem — with all of the various problems that arise from transporting large quantities of cash. Remember that you will need to submit a separate voucher and payment for each location, so if you have multiple retail cannabis locations you need to track sales separately for each location. In addition to the monthly vouchers, you also need to submit a quarterly return.
What does the State of Oregon do with your hard earned taxes? By law, the DOR distributes the state marijuana tax as follows (taken from the DOR’s Marijuana Fact Sheet):
40 percent for education.
20 percent for purposes for which money in the Mental Health Alcoholism and Drug Services Account may be used.
15 percent for state law enforcement.
10 percent to cities, based on population and number of licensees.
10 percent to counties, based on total available grow canopy size and number of licensees.
5 percent for alcohol and drug abuse prevention, early intervention, and treatment services.
Remember that cannabis businesses are still subject to any other general business taxes imposed by the state or local jurisdiction, and of course federal taxes as well (which you can read more about here, here, here, and here). Oregon’s Recreational Marijuana Tax should, therefore, be only one small part of your tax planning.
There many questions you should ask before hiring someone as a budtender, grower, or trimmer for your cannabis business—but Oregon recently passed several laws banning certain questions. Today’s post will discuss Oregon’s, and specifically, Portland’s, “ban the box” ordinances.
“Ban the box”—named for the box on employment applications asking about criminal history—ordinances became popular in the United States between 2007-2009. In general, ban the box ordinances prohibit employers from asking applicants about their criminal histories before an initial interview. Oregon enacted ban the box legislation in 2016. This means employers cannot ask on a job application whether an applicant has a past conviction, but they are allowed to ask about past convictions during the interview process and to consider that information when making a hiring decision. Certain employers, such as those required by federal, state or local law to consider an applicant’s criminal history, are exempt. If you are not required to conduct a background check, assume you fall under Oregon’s ban the box ordinance.
The city of Portland takes the state ban the box legislation several steps further. The Portland ordinance, effective as of July 1, 2016, applies to any employer with six or more employees and to positions that require work within Portland for more than half of the employee’s time. Portland employers cannot ask an applicant on an application about conviction history and cannot ask about convictions during interviews. A Portland employer may only gain information about an applicant’s criminal history after making a Conditional Offer of Employment (COE). The Portland employer must offer the position to the applicant conditioned solely on the results of an inquiry into the person’s arrest or conviction history. If the inquiry reveals a criminal history, the Portland employer can only rescind the job offer after an “individualized assessment” is done to determine if the prior conviction is “job related to the position in question and consistent with business necessity.” This requires consideration of the nature and gravity of the criminal offense, the time elapsed since the offense took place, and the nature of the employment held or sought. Examples include rescinding a job offer made to an applicant for an auto-dealership who has a prior conviction for auto theft or an applicant who will be in charge of handling money and has a prior conviction for money laundering.
What happens if you decide to rescind the offer after learning about a past conviction? The Portland employer must notify the applicant in writing of its decision and identify the relevant criminal conviction on which the decision is based. The applicant then has the opportunity to file a complaint with the Oregon Bureau of Labor and Industries (BOLI). If BOLI determines the employer violated the Portland ordinance, it can assess up to a $1,000 fine. The Portland ordinance also allows the city to bring an action against employers that have demonstrated a pattern and practice of violating the ordinance. In such cases, BOLI may assess a penalty of up to $5,000 for each violation.
The ban the box legislation is especially important in the cannabis field. Cannabis was legalized relatively recently and many applicants for positions with cannabis businesses have convictions for past possession, sales, or distribution of marijuana. If you ask about past convictions on the job application or in any way prior to the initial interview you are in violation of the Oregon ordinance. Be careful when requesting background information from applicants—even asking about unexplained employment gaps may be considered requests for conviction history. If you requested conviction information before the initial interview you are in violation of the Oregon ordinance even if the applicant was not offered an initial interview for another reason. If you are a Portland employer, you may only ask about conviction history after a COE is made. Remember—you can only rescind the job offer after an individualized assessment has been completed.
We’ve previously discussed a RICO case that is slowly worming its way through federal court in Portland, Oregon. Styled as McCart v. Beddow et al., the case was filed by an attorney who is fed up with two neighboring cannabis grow operations next to her rural home. But rather than focusing solely on the allegedly troublesome cannabis producers, the McCart plaintiffs have filed suit against anyone even tangentially related to the producers’ business, including many dispensaries (“Dispensary Defendants”) that only purchased their product. We counted over 70 named defendants!
In our previous discussion, we suggested that the plaintiffs’ case against the Dispensary Defendants is fairly weak and our opinion hasn’t changed. Since we last checked in, the plaintiffs have filed a substantially expanded amended complaint, and numerous defendants have filed motions to dismiss. Although the Court won’t consider the motions to dismiss until January, it is worth checking in on the parties’ current positions. We are going to continue to focus on the Dispensary Defendants because there could be serious repercussions in the industry if the Dispensary Defendants are found liable even though they apparently didn’t have anything to do with the grow operation.
RICO law is complex, but as a general matter the RICO statutes allow a plaintiff to recover treble damages in a civil claim if the plaintiff can prove the following:
The existence of an “enterprise” affecting interstate or foreign commerce;
The specific defendant was employed by or associated with the enterprise;
The specific defendant conducted or participated in the conduct of the enterprise’s affairs;
The specific defendant’s participation was through a pattern of racketeering activity; and
Plaintiff’s business or property was injured by reason of defendant’s conducting or participating in the conduct of the enterprise’s affairs.
Of course, the devil is in the details, as the Dispensary Defendants point out in their motion to dismiss.
The Amended Complaint
The plaintiffs filed their amended complaint on September 1, which added 95 paragraphs onto their hefty original complaint. The amended complaint adds many new defendants, including employees at the farms and it alleges that nearly all of the defendants were exporting product out of Oregon.
In broad terms, the plaintiffs’ claims against the Dispensary Defendants have not changed in that they still allege the following:
The cannabis grow operation (“Marijuana Operation”) is an enterprise affecting interstate commerce, as defined in the RICO statutes;
All of the defendants were associated with and conducted the Marijuana Operation’s affairs through racketeering activity;
Plaintiffs suffered a variety of kinds of harm as a result of the Marijuana Operation:
Physical Injury to Real Property: littering, driveway damage, tire tracks, damage to some trail cameras, and unreasonable use of easements.
Personal Injuries: harassment and damage to plaintiffs’ use and quiet enjoyment of their property.
The Motions to Dismiss
Eighteen Dispensary Defendants joined together in a single motion asking the Court to throw out plaintiff’s entire case against them. Their motion is well worth the read, not least for its colorful language, such as the lipstick-on-a-pig quote below the pig picture above. The arguments in this motion fit into two general categories:
The Dispensary Defendants are not part of a racketeering enterprise.
To establish an “enterprise” exists for RICO purposes, plaintiffs must show there was an ongoing organization with a common purpose. Both of these elements get to the same idea: a criminal enterprise is a group of people all working together to enrich themselves. Courts have found “ongoing organizations” among disparate businesses when there are legitimate interconnections between the entities, such as similar ownership and overlap in personnel. Similarly, courts have found a common purpose where the alleged members are working to promote a single economic interest, and not where they are simply pursuing individual economic interests. There don’t appear to be any of these kinds of links in this case. The Dispensary Defendants appear to be owned, operated, and staffed by distinct individuals working towards their own individual business purposes. This ties back to our initial read of this case: mere supplier-purchaser relationships like these do not rise to the level of RICO enterprises.
In any event, plaintiffs need to establish that the Dispensary Defendants were associated with and conducted or participated in the enterprise. Yet plaintiffs have not alleged that the Dispensary Defendants had any say over the operation of the farms. Their case against the Dispensary Defendants will likely die here.
Plaintiffs’ alleged harms cannot be recovered as a matter of law.
Even assuming plaintiffs can get over the hurdle of establishing that the Dispensary Defendants directed the farms, plaintiffs still must establish that their specific harms are actionable. The Dispensary Defendants also seem to be on the right side of the law here, arguing that the alleged harms and the speculative claim that the value of plaintiffs’ home has decreased cannot form the basis of a RICO claim against any of the defendants and cannot form the basis of a state-law claim nuisance claim against the Dispensary Defendants, in particular.
The plaintiffs face a number of legal obstacles that seem insurmountable. First and foremost, Oregon has long since decided that it is in the best interests of the state to protect farming uses and it has decided to treat cannabis the same as any other farm crop. Accordingly, Oregon’s Right to Farm Act likely bars plaintiffs’ nuisance and trespass claims for damages based on odors, noise pollution, light pollution, vibrations, and smoke fumes. The Dispensary Defendants rely on ORS 30.936(1), which provides farmers in farming areas with immunity from suit for any trespass or nuisance claims, defined elsewhere as claims “based on noise, vibration, odors, smoke, dust, mist from irrigation, use of pesticides and use of crop production substances.” Since RICO case law suggests that harms to property interests should be determined by state law, plaintiffs’ diminution of value claims are likely dead on arrival.
In any event, plaintiffs’ specific diminution of value claims are likely too speculative. The Dispensary Defendants argue that a RICO plaintiff must plead and prove that plaintiff has suffered a “concrete financial loss” but that plaintiffs’ complaint only contains pure guesswork that the odors, etc. diminished the value of plaintiffs’ property. Even if the plaintiffs could plead a specific dollar amount of diminished value, Oregon law bars claims for diminution of property value if the nuisance can be stopped. In other words, if the harm would disappear if the grow operations shut down, plaintiffs cannot recover damages for loss of value. Instead, plaintiffs should be asking the court to shut down the grow operations, which would have little to no effect on the Dispensary Defendants.
Plaintiffs will also likely fail on their claims for loss of quiet enjoyment and harassment because personal injuries like these are not compensable under RICO.
We will have to wait until next year to find out if the Court agrees with the Dispensary Defendants but we predict vindication for the dispensaries. In fact, we predict the claims against all of the defendants will get tossed, except possibly some small state-law claims. It seems that if you are a good neighbor and you don’t set up your operations next door to property owned by a lawyer, then you’ll likely never be drawn into a mess like this.