They’re here: Liquor Control Commission unveils preliminary regulations for recreational cannabis industry
By Garrett Rudolph
The Oregon Liquor Control Commission recently released its temporary rules for the state’s recreational marijuana industry, giving applicants a look at the guidelines that will govern production, processing and sales for the adult use market.
In many ways, the Oregon rules model their Washington counterparts, with a few notable exceptions, including different canopy limits for indoor and outdoor growers.
Oregon became the third state in the nation to legalize marijuana for recreational purposes when voters approved Measure 91 in the 2014 election. The state will begin accepting applications Jan. 4, 2016. The temporary rules will be the law of the land until June 28, 2016, when the Liquor Control Commission will adopt permanent rules. State officials have said they expect licensed retail stores to open in fall of 2016, but no specific time frame has been presented for licensing.
Basics
The guts of the temporary rules probably come as a surprise to no one, but will be some of the most significant details for receiving and maintaining a marijuana business license.
Businesses cannot be located in areas that are zoned for only residential use, and they must be at least 1,000 feet away from schools.
A seed-to-sale tracking system will be implemented.
Cannabis packaging must be child resistant and cannot be designed in a way that appeals to children. Packaging and marketing materials also can’t attribute “unnatural or extra-human abilities, such as imperviousness to pain or injury, X-ray vision, tunneling at very high speeds or transformation,” the rules say.
So, if your marketing plan was touting a line of marijuana edibles that transform the user into a werewolf … you’re out of luck.
Licensed producers and retailers are also banned from claiming marijuana has curative or therapeutic effects. All advertising for recreational cannabis must include the following statements: “Do not operate a vehicle or machinery under the influence of this drug,” “For use only by adults twenty-one years of age and older,” and “Keep out of the reach of children.”
Only the most basic insurance requirements are outlined in the temporary rules; vehicles used for the transport of cannabis must be insured “at or above the legal requirements in Oregon,” the rules say.
The recently-released rules do not address taxes, which were established by the state Legislature. Retailers must collect a 17% sales tax on all marijuana products. Individual cities and counties are permitted to levy an additional 3% tax. The Liquor Control Commission has estimated $10.7 million in tax revenue for the 2015-17 biennium. By contrast, Washington collected nearly $70 million worth of excise taxes in its first year of implementing an operational marijuana program; Colorado collected more than $100 million of taxes from both recreational and medical marijuana in the first year and a half since opening its recreational market.
Security
Licensed premises are required to have fully operational alarm and surveillance systems, in addition to other security details.
The alarm must be activated when the business is closed on all entry and exit points, including perimeter windows.
The alarm must be able to detect movement within any indoor area on the licensed premises. It must be programmed to notify a security company in the event of a breach, which will relay the alert to the licensee or law enforcement, if necessary.
Two operational panic buttons located inside the premises are also required.
Commercial-grade, non-residential door locks are a requirement on every external door of licensed premises.
The surveillance equipment must, at a minimum, include digital or network video recorders, a printer capable of producing still photos, a failure notification system that alerts licensees of any surveillance interruption and sufficient battery backup.
Cameras must have a minimum resolution of 1,280×720 pixels and record at least five frames per second (cameras in some areas must record at least 10 frames per second).
Cameras must record all areas with marijuana items continuously 24 hours a day.
The surveillance recordings must be kept for a minimum of 30 calendar days in a format that can be easily accessed for viewing and reproduction.
Video recordings must be in a format that ensures authentication of the recording and guarantees that no alterations of the recorded image have taken place.
Production limits
Under the temporary rules, growers will have different canopy limits depending on whether they’re growing indoors or outdoors.
Similar to Washington’s model, growers are broken down into a two-tiered system for different sized operations. The large-scale outdoor growers will be granted up to 40,000 square feet of growing canopy with a Tier II license, while the largest Tier II indoor growers will be limited to 10,000 square feet.
Tier I licensees are capped at half the size of the larger operations — 20,000 square feet outdoor and 5,000 square feet indoor.
The significant canopy discrepancy accounts for the difference between the perpetual production cycle of indoor growers compared to single-crop sun growers.
It’s a big victory for outdoor cultivators and environmentalists, but severely challenges indoor growers’ ability to utilize economies of scale. The 40,000-square-foot allowance will mean 25% bigger outdoor farms than allowed in Washington, coupled with an even longer growing season.
Indoor growers are limited to just one-third of what a Washington business can use.
However, greenhouses are caught somewhere in the middle. Structures that don’t utilize supplemental lighting, such as hoop houses or similar non-rigid structures, are categorized as outdoor.
True commercial greenhouses with supplemental lighting and the potential for year-round cultivation are classified as indoor facilities.
Cultivators can utilize a mixed indoor/outdoor canopy based on the 4:1 ratio.
But the Liquor Control Commission rules don’t tell the whole story. The rules allow the potential for local governments to increase canopy limitations.
“If a local government adopts an ordinance that would permit a producer to have a higher canopy size limit than is permitted under this rule, the local government may petition the Commission for an increase in canopy size limits for that jurisdiction,” the rules say.
Will a business-friendly city endear itself to growers by allowing larger canopy limits than the state rules? Only time will tell.
But it stands to reason that some cities might realize the economic value of the cannabis industry and actively court commercial-scale producers.
The temporary rules also state that the Liquor Control Commission will evaluate market demand for marijuana items, the number of production license applications and whether marijuana items are commensurate with market demand on an annual basis.
“Following this evaluation the Commission may amend this rule as needed,” the rules say.
Fees
The temporary rules establish a plethora of fees, ranging from basic and justifiable application fees to eyebrow-raising “marijuana handlers permit” fees.
The nonrefundable application fee is $250.
Licensing fees are $4,750 for retailers, processors, wholesalers and laboratories, $3,750 for Tier I producers and $5,750 for Tier II producers.
Changes of ownership, business structure or location are all subject to $1,000 fees.
Packaging preapproval and labeling preapproval both cost $100.
The fee for a marijuana handler permit, which is required of almost any individual who works for a licensed retailer, is $100. Applicants must pass a marijuana handler education course and examination in order to receive their permit.
Violations
The two most severe violations of the state rules are Category I and Category II violations.
A Category I violation can result in the immediate cancellation of license, so business owners must be acutely aware of these rules — they might not get a second opportunity to “make it right.”
Category I violations include: conviction of a felony; intentional false statements to the Liquor Control Commission; intentional destruction or concealment of evidence; permitting noisy, disorderly or unlawful activity that results in death or serious physical injury, or that involves the use of a deadly weapon; failure to notify the state prior to complete change of ownership/allowed interest in a licensed business without prior commission approval; operating a business with a suspended license.
First-time offenses for Category II violations carry a 30-day suspension of license; a second violation results in cancellation of the license.
Notable Category II violations include: Being under the influence of intoxicants while on duty; intentional failure to verify the age of a minor; failure to permit premises or records inspection; and failure to promptly admit regulatory specialists or law enforcement into licensed retail premises.
Failure to pay taxes, unintentional failure to verify the age of a minor or being convicted of a non-felony crime are labeled Category III violations, which face fines and license suspension for the first three offenses. A fourth Category III violation would result in license cancellation.