Chernis Law Group

CANNABIS LAW

Overview

Cannabis LawChernis Law Group P.C. provides a full range of legal services to the cannabis industry. Our team of attorneys help clients navigate the complex and ever-changing legal environment facing commercial cannabis businesses. Our services include strategizing business structures and implementing entity formation, assistance with local and State license or permit applications, and regulatory compliance. As California implements major changes to its cannabis laws, Chernis Law Group P.C. is prepared to guide its clients through the new era of cannabis regulatory compliance in what is anticipated to become a $5 billion industry in California.

Chernis Law Group P.C. remains up to date on the latest changes to cannabis laws, both local and State, which now includes both medical and recreational or adult use, and seeks to arm our clients with that knowledge. It is our prime directive to keep our clients out of harm’s way, and we believe an educated and informed client is critical to the equation. Major changes to existing cannabis laws are in process, and our goal is to ensure our clients are prepared for those changes. We are thinking of issues not only that clients are asking about today, but which we anticipate will be relevant and asked about in the future.

Chernis Law Group P.C. can also assist clients in understanding the unique challenges implicated by federal law, including the legality of Cannabidiol (CBD) products, exemptions and exclusions from the definition of “Marijuana" under the Controlled Substances Act, 21 U.S.C. § 802(16), the 2014 Federal Agriculture Act governing Industrial Hemp, and IRS Regulation 280(e). Chernis Law Group P.C. is also quite familiar with the Rohrabacher-Farr Amendment to the federal budget, and the scope of protections it offers.

Our clients include storefront and mobile retailers and dispensaries; cultivators; manufacturers of edibles, oils, topicals and resins; collectives; landlords with current or potential tenants in the cannabis industry; trade groups; and investors. We often consult with clients either seeking an entry point in the industry, seeking reliable advice concerning the current laws and regulations, or seeking solutions for future operations and licensing under the new regulatory scheme.


History of Marijuana Laws in California

California first enacted laws protecting the use of medical marijuana in 1996. Since that time, and mainly during the last two years, there have been substantial changes in those laws, and a broadening of those protections to recreational or “adult-use" marijuana or cannabis.

Cannabis LawFirst, in 1996, California approved the country’s first medical cannabis program through the Compassionate Use Act (“CUA"), commonly known as Proposition 215, a ballot initiative passed by voters. The CUA exempts qualified medical marijuana patients, with valid recommendations from physicians for medical cannabis use, from criminal prosecution for possession and use of medical cannabis. The CUA was groundbreaking and cracked the door open for what has now become the legal cannabis industry in dozens of states more than two decades later.

Next, in 2003, the California Legislature passed the Medical Marijuana Program Act (“MMPA") through Senate Bill No. 420. The MMPA formalized California’s medical cannabis program by providing for patient identification cards issued by the Department of Health and the formation of patient "collectives" that can cultivate and distribute marijuana to approved patients who are members of the collective.

In the ensuing years, patients, cultivators, manufacturers, distributors, and dispensaries have relied on the CUA and MMPA to protect their activity in the medical cannabis industry under what is known as the “collective model." This model actually remains today, even with the recent passage of Proposition 64 and State legislation authorizing permitting and licensing of both medical and adult-use businesses.


Recent Changes to State Law

Cannabis LawIn October 2015, California enacted three bills (Assembly Bill No. 243, Assembly Bill No. 266, and Senate Bill No. 643) that made up the Medical Marijuana Regulation and Safety Act, later renamed the Medical Cannabis Regulation and Safety Act ("MCRSA"). MCRSA established "a comprehensive licensing and regulatory framework for the cultivation, manufacture, transportation, storage, distribution, and sale of medical marijuana." Under MCRSA, Medical cannabis would be subject to licensing and regulations by several State agencies within the Department of Consumer Affairs, including the Department of Food and Agriculture, Department of Public Health, and newly-created Bureau of Medical Cannabis Regulation.

In November 2016, California voters approved Proposition 64, known as, the Adult Use of Marijuana Act (“AUMA"). AUMA legalized cannabis possession and consumption for individuals 21 years old and above and provided for a comprehensive licensing and regulatory framework for adult-use cannabis similar to that created by the MCRSA for medical cannabis. AUMA also provided for a reduction of certain qualifying crimes relating to adult-use cannabis from felonies to misdemeanors.

In June 2017, MCRSA and AUMA were combined into the Medical and Adult Use Recreation and Safety Act (“MAUCRSA") through Senate Bill No. 94 to provide a comprehensive licensing and regulatory system for both medical and adult use cannabis. As a result, beginning January 1, 2018, separate licenses or permits must be obtained both from local municipalities and the State to grow, manufacture, distribute, transport, test, and sell cannabis products. This dual jurisdiction licensing requirement allows counties and cities to license, regulate, and tax cannabis businesses, or even ban commercial activity in its entirety. Additionally, as of 2019, the collective model will cease to offer protection for commercial cannabis activity; those businesses will be required to have a license or permit to legally conduct its activity.

Under MAUCRSA, cannabis will be regulated by several State agencies, including the Department of Food and Agriculture, Department of Public Health, and Bureau of Cannabis Control within the Department of Consumer Affairs. MAUCRSA will require cannabis businesses to meet complex development and operating standards and regulations, some of which have yet to be finalized. These include, among other requirements, security, fire, and safety measures; “seed-to-sale" tracking of medical cannabis; testing, labeling and packaging requirements to ensure products are safe for consumption; labor and employment law compliance; and even restrictions on where businesses may be located. While these measures will result in a vastly more stable and predictable business environment, they are nonetheless obstacles that require sophisticated legal advice to navigate.

Regardless of whether you are an individual who simply wants to use medical or recreational marijuana personally and understand how many plants you can cultivate legally, or you are seeking to become a part of the burgeoning commercial cannabis industry, Chernis Law Group P.C. can counsel you about your rights and how your desired activity can be done legally under the California laws. For example, as California’s recent changes to State law are implemented, we advise our existing clients on transitioning their non-profit collectives into commercial businesses, and in turn, in preparing applications for licenses and permits. Chernis Law Group P.C. are sophisticated thinkers and creative strategists, adept at solving complex problems, and bring that training and sophistication to cannabis law as it continues to evolve and raise new and cutting-edge challenges and opportunities.


Business Formation

In the process of forming a business to conduct business in the Cannabis sector, Chernis Law Group P.C. offers its clients sophisticated advice on the best form of business entity to suit its needs, given a number of considerations of legal compliance, protection against personal liability for tax liabilities of the entity, IRS Regulation 280(e), and any unique needs of the client. Chernis Law Group P.C. also drafts for its clients operating agreements, bylaws and management agreements, among other documents, that ensure legal compliance and also take into account other considerations unique to the cannabis sector. The decisions and agreements made at the outset will often have a significant impact on the internal and external relationships for years to come, and these decisions are not cookie-cutter, and so it is critical that they be made intelligently. Chernis Law Group P.C. also assists clients with ongoing corporate maintenance issues necessary to maintaining legal protection.


Licensing and Permitting of Commercial Cannabis Operations

As the State transitions from the “collective model" to licensing and permitting, anyone who wishes to operate a commercial cannabis business will first have to apply for and obtain a license or permit from their local county or city and then obtain one from the State. Cities throughout California have already enacted local ordinances authorizing certain commercial cannabis activities, while others have passed bans. Chernis Law Group P.C. can help a client identify which jurisdiction already has or may in the near term authorize the desired activity and, in turn, assist the client is submitting an application for a license or permit to operate a cannabis business. Chernis Law Group P.C. guides its clients through the licensing process, which involves confirming that the desired premises comply with applicable zoning and sensitive use restrictions, collaboration between architects, security experts, and other consultants with specialized knowledge, and drafting application documents.


Real Property Zoning and Compliance

A requisite component to creating a licensed cannabis business is securing physical premises that are compliant with zoning and land use requirements and the State’s restrictions on “premises," particularly where multiple operations are contemplated at a location. Chernis Law Group P.C. advises clients regarding these issues, including, sensitive use buffers and co-location of licenses, as well as lease negotiations and drafting.


Best Practices and Compliance

Cannabis LawWhether your business is still following the collective model, or transitioning to a licensed and permitted business, maintaining compliance with myriad and complex State and local regulations is important, not only to maintain the license or defense, but also to avoid expensive fines and penalties. In addition to navigating MAUCRSA’s requirements, the California Bureau of Cannabis Control, Department of Public Health and Department of Food and Agriculture are each in the process of passing first emergency and then final regulations implementing MAUCRSA for the different business operations and licenses regulated by those respective agencies, The local jurisdictions in which the business operates may subject the business to regulations and requirements that exceed the State regulations. Chernis Law Group P.C. tracks these regulations in order to answer difficult questions and assist its clients in maintaining business operations that meet the new regulatory challenges. That’s our business.

Chernis Law Group P.C. can provide its clients with detailed checklists and guidance to meet the various practice requirements mandated by MAURCSA and the implementing regulations, including packaging and labeling issues. In addition, Chernis Law Group P.C. can draft operational documents and agreements, including for vendors, employees and contractors.

Chernis Law Group P.C. can also assist clients with ongoing corporate maintenance issues necessary to maintain legal protection, and minimize the impact of IRS Regulation 280(e).


Collective/Non-Profit Formation

Although the “collective model" will cease to exist by 2019, it may still provide some legal protection for a client’s operations, while those businesses transition to the licensing and permitting model.

Cannabis LawChernis Law Group P.C. has developed an expertise in assisting clients in the formation of MMJ collectives, and addressing all the challenges that arise between the formation and operational stages. Our approach is not formulaic or one-size-fits all; at Chernis Law Group P.C. we consider each client as having unique concerns and needs and once we understand those issues we craft a solution to meet the client’s goals.

Formation is much more than filing a registration or incorporation document with the State. There are several different types of legal entities, including several different forms of non-profits, that may be utilized for MMJ business activities, depending on the client’s unique goals and desired activities. The entities have differences from one another which may be important to you.

With the benefit of our compliance services and documentation, Chernis Law Group P.C. has helped clients intercepted by federal and State law enforcement with large amounts of cannabis either avoid criminal prosecution or defeat the charges and, in some instances, obtain return of seized cannabis property. Chernis Law Group P.C. has had clients caught by local law enforcement transporting marijuana who upon showing documentation we prepared avoid prosecution and had their medicine returned. The documents we provide are constantly being updated to reflect recent changes in the law.

As many businesses plan for their post-"collective" future, and consider paths for licensing and permitting, the questions most often asked are whether the business needs to remain a non-profit entity, when can it operate as a for-profit business, and whether the entity it currently uses is worth salvaging for purposes of obtaining a State license or permit. Chernis Law Group P.C. has spent a great deal of time considering these issues and can remove the uncertainty in the law, answer your questions, and allow you to move forward with confidence.


Defense

Unfortunately, there remains a threat of criminal prosecution for persons engaged in the cannabis business sector, not only under Federal law, but also under State and local law. Although the Adult Use Marijuana Act (Prop 64) legalized certain conduct previously deemed a crime, and reclassified much activity that was a felony to a misdemeanor, there are still criminal consequences to certain conduct under State law, and most local laws impose misdemeanor liability and financial penalties for violating the municipal code. And even when businesses are permitted by the State and the local jurisdiction, there may be criminal or financial consequences for certain conduct that falls outside of what is permitted.

Chernis Law Group P.C. is uniquely qualified to provide representation to a client facing Federal, State or local charges. For nearly a decade, Mr. Chernis has been defending both individuals and businesses in State and Federal courts against charges stemming from cannabis-related activity. We are proud of our track record in vindicating our client’s rights in State court under the medical marijuana laws. These cases are unlike most other criminal cases because there often is a legitimate defense, and Chernis Law Group P.C. can use that defense in court and in some instances even before charges are filed. Even in Federal court, in both civil and criminal proceedings, where historically compliance with State marijuana laws not been a defense, Chernis Law Group P.C. can still use a cannabis business’ positive track record to reach a positive result.

Chernis Law Group P.C. has had a great deal of success representing patients, mobile and storefront dispensary operators, transporters, and cultivators, and even doctors, who are accused of wrongdoing. These successes include persuading prosecutors not to file or to dismiss charges brought against our clients, successfully using the medical marijuana laws in court to defend clients charged with illegal possession, cultivation, sale, and transport of medical marijuana. We have also had success in persuading federal prosecutors to not charge clients who are caught engaging in medical marijuana activity.

In the last several years, Chernis Law Group P.C. has also defended a number of dispensary operators, mobile retailers and cultivators in criminal and administrative proceedings charging violations of either tax laws or local ordinances. For example, we successfully defended the principal of a retail business charged with 15 felonies and obtained the return of seized property. In a 280(e) audit before the IRS we reduced a potential $1.5 million liability to $80,000. We have defended clients facing liabilities to the Board of Equalization for non-payment of sales taxes. And we have defended numerous clients, both landlords and business operators, charged with violating Proposition D of the Los Angeles Municipal Code. Michael Chernis handles each of these cases personally.


Litigation

MMJ collectives and businesses are not immune from the sort of business disputes, and even lawsuits, that confront other industries. Most often, these disputes are with cities seeking to stop the cannabis business from operating, or with landlords seeking to evict the tenant. There are also situations where collectives or cannabis businesses have disputes amongst partners, or with their own members and service providers.

Chernis Law Group P.C. has the necessary background and experience to represent individuals and collectives in all forms of litigation related to medical marijuana. For example, Chernis Law Group P.C. has represented dispensaries and landlords in lawsuits against cities seeking to enforce dispensary bans, and has defended collectives in unlawful detainer and nuisance cases, as well as in contract disputes and forfeiture proceedings. Chernis Law Group P.C. has also represented doctors and clinics that provide recommendations to qualified MMJ patients in litigation and in Medical Board proceedings.


Landlord/Tenant

We have often been asked to assist either the property owner or the tenant (whether it be a collective, cultivator, MMJ doctor, or other form of cannabis-related business) in drafting a lease to address the unique usage and maximize legal protections for our client. Landlords often consult with us to evaluate the cost and benefits associated with leasing to a cannabis tenant, or even permitting a residential tenant to have a personal grow. We have also prosecuted and defendant unlawful-detainer actions relating to MMJ usages, and represented landlords of collectives in federal proceedings.


Trademark Protection/Brand Licensing

Chernis Law Group P.C. can assist clients in establishing and protecting their brands and intellectual property associated with cannabis businesses. We work with a leading attorney in the area to develop cutting edge trademarking strategies and navigate the USPTO’s policies with respect to the trademarking of marijuana businesses. In addition, we can assist clients seeking to enter into an agreement with a joint venturer or licensee who can produce and distribute the client’s product or brand. We have negotiated several brand licensing agreements of this nature.