As you know, Mr. Dan Hartman was removed from his position as Director of the Medical Marijuana Enforcement Division due primarily to the efforts of our Attorney General, John Suthers. On the last day as Director, I met with Mr. Hartman to answer many of the questions posed by our clients and colleagues:

1. Q: If a MMB that was locally banned (i.e., Fort Collins, Longmont, etc.) withdraws its application and then moves to a favorable jurisdiction, when can they begin operation?

A: The local authority must approve the business, then MMED will move forward with state approval. The MMB will receive preference in the processing of the application.

2. Q: Can a MMC sell to a primary caregiver?

A: Only if the primary caregiver’s patient is homebound and the appropriate home delivery request has been approved by MMED.

3. Q: Can a MMC sell to a patient who has valid paperwork on file with the MMC?

A: No. A valid MMJ registry card must be presented every time, including patients that have assigned the MMC as their primary center.

4. Q: Can MMCs trade an equal amount of MMJ with another MMC without implicating the 70/30 rule?

A: No. There are no “trades” permitted. Payment from one MMC to the other MMC is required and there must be paperwork evidencing the transaction.

5. Q: Can a MMC sell kief hash and/or bubble hash wholesale to other MMCs without implicating 70/30?

A: The answer was not clear. Mr. Hartman acknowledged that hash does not count against allowable inventory and is treated like other infused products. However, he stated that it counts against 70/30. At this point, Mr. Hartman advised that hash is a problematic issue and will be addressed in future rule making. Stay tuned.

6. Q: Does a homebound patient have to assign the MMC as their primary center in order to receive a home delivery?

A: No. See #2 above. The sale is to the patients primary caregiver, who will deliver the medicine pursuant to authorization by MMED. This means that any homebound patient must assign a primary caregiver.

7. Q: Does hash count against allowable inventory?

A: No. See #5 above.

8. Q: Does the sale of trim count against 70/30?

A: This is complicated. If the trim is provided to a MIP and the MIP uses the trim to create an infused product, which product is then provided back the MMC only and not sold to any other MMCs, then it does not count against 70/30. However, if the trim is used by the MIP and the MIP sells the infused products to any MMC other than the MMC that provided to trim, it counts against the selling MMC’s 70/30.

9. Q: Can employees of a MMJ Vendor (i.e., has a MMED Vendor license) be under 21?

A: Not if the employee will be in a restricted access area for any reason.

10. Q: Will the 7/1/12 moratorium be extended?

A: Not in Mr. Hartman’s opinion. Mr. Hartman stated that MMED will not request it and the legislature “is in no mood to hear anything else about MMJ” at this point.

This is highly problematic. The moratorium affects existing businesses, not just new businesses. Under the current ordinance, the City requires a new license in the event the business wants to, or needs to, change locations. A new license is also required in order to transfer the business to a new owner. By contrast, the State of Colorado amends the existing license for both scenerios and does not require a new license.

In view of the recent Federal threat of criminal prosecution and civil forfeiture for landlords and medical marijuana businesses located within 1000 feet of a school, this is quite terrifying. For instance, if a medical marijuana business is within 1000 feet of a school (CU?, a day care?), the Feds require the business to move within 45 days. The City of Boulder moratorium makes this impossible.

Finally, the City’s actions demonstrate veiled hostility and fear toward the medical marijuana industry. The moratorium is likely only a first step. It is incumbent on all City of Boulder medical marijuana businesses to band together and oppose any further interference with medical marijuana businesses, which are the most regulated businesses in the history of the State of Colorado. City officials need to be reminded that they are representatives of the citizens of Boulder and personal political agendas have no place in representative government. If they are unwilling to support the industry, they need to be replaced with people who support local and state law regarding medical marijuana. Please attend the 2/7/12, 7:00 p.m., public hearing and let the Council know that further regulation, including the proposed moratorium, will not be tolerated.

By way of review, the Feds purported authority over state medical marijuana programs stems from a 2005 U.S. Supreme Court Case, Gonzales v. Raich, 545 U.S. 1, which can be viewed at:

http://www.law.cornell.edu/supct/html/03-1454.ZS.html

A close reading of this case reveals that Colorado medical marijuana business regulations are very different from California. Recall that medical marijuana businesses in Colorado must be owned by two year state residents, there is no reciprocity for out-of-state medical patients and the state requires that the businesses grow their own medicine under strict state supervision. This scheme could possibly carve out an exception to federal authority over Colorado medical marijuana. Now if we only had an attorney general who was interested in supporting Colorado citizens and Colorado laws instead of taking pot shots at Obamacare…. Stay tuned.

1. Transfer of “banned” businesses to new jurisdictions:

Will there be continued operation of the transferred business based on prior 7/1/10 compliance? Yes, as long as there is local approval. Mr. Hartman recommends that the “banned business” request withdrawal of the application, along with an explanation of the banned/transfer reason. If the application is not withdrawn, it must be denied. Then, once the transfer and local approval are complete, you can request that the withdrawal of the application be rescinded. Once the rescinded application is reinstated, you may resume operation.

Also, if the banned/tranferred business is sold before the transfer is complete, the business will not be able to operate. Mr. Hartman’s reasoning is that this provision is designed to help people who suffered local ban, not speculators who seek to profit from this unfortunate situation.

Further, both the MMC/MIP and OPC must be transferred, not the OPC only.

2. Security system and other ongoing compliance issues:

Are there approved providers? No, and there will not be any. Mr. Hartman states that the specifications are published and must be followed. As long as the specifications are followed, the provider of the service is not relevant. He did state that ADT appears to be ready to supply MMC/MIP/OPC security needs.

What if the system is not in place yet? This will be ok, as long was you have something in place and are under contract by 7/1/11to meet the specifications.

What if the system is not adequate, will there be a chance to correct it? Yes.

Does the security system have to have its own room? No, as long as the DVR(s) is locked in a secure box, bolted into the wall, floor, etc.

3. Point of Sale system:

Are there approved providers? No, but various companies are prepared for compliance, (MJ Freeway is one example). Mr. Hartman advised that “a big chief tablet” is ok, as long as you are tracking the necessary information. What the state requires will be published shortly and I will send out an email link to this information.

4. Employees deemed unacceptable by MMED:

Will there be an opportunity to terminate the employee if deemed unacceptable? Yes.

5. Ongoing construction, permits, etc.:

Does all construction work need to be completed by 7/1/11? No. You must be making a concerted effort to complete the work and permits should be requested by 7/1/11. However, if the local licensing authorities require the work to be completed and deny you for this reason, the state will not interfere and will enforce the denial.

6. License fees:

What are the licensing fees? These are not set, but MMCs will be less than the application fee, OPCs and MIPs will be more (perhaps even double). The license will be good for one year and will begin when the state notifies you that the fee is due and payable.

7. Key employees:

What is a key employee versus support? The answer is “case by case” and the answer will turn on how the employee is used, whether there is any contract with employee in place (key), and the businesses decision to classify someone as an “independent contractor” will have little or no bearing.

Also, payment of growers “by the pound” will be under serious scrutiny. If that is the arrangement, Mr. Hartman advises that this arrangement makes the grower an owner and the business will be required to revise its ownership structure, corporate documents, etc., accordingly. Mr. Hartman advises that you should pay the grower a salary and that bonuses are ok.

8. Business under denial/appeal, i.e., City of Boulder:

What is the state going to do about businesses locally denied (not banned), where an appeal is pending and the local licensing authority permits continued operation? This is a tricky one. The state will honor the continued operation order until such time as the business prevails or appeals to the district court. An order from the district court permitting continued operation will be required. The license will be issued by the state as a “provisional license” and the state will await final outcome of the case.

Further, Mr. Hartman advised that he will be speaking with the City of Boulder to discuss this matter (and others). Stay tuned, as I expect this policy to change (for better or worse) once the situation between the City and the State is further clarified.

9. Transactions of businesses:

Do all of the various sales, mergers and tranfers of MMBs have to be completed by 7/1/11? No. However, be reminded that any transfer requires (1) local approval; (2) state approval, including a meeting with the parties with MMED before the sale/merger/transfer occurs. Simply put, you need MMED’s blessing before the transaction can occur.

10, Sales below cost/free:

Does the “sales below cost or for free” provisions of HB1043 preclude the incentive programs, i.e. “buy one get one, free pre-rolled,” etc.? No, and there will be new rules developed in connection with the industry to help clarify this situation.

However, Mr. Hartman advised that MMED will take a very dim view of businesses “flooding” the market with cheap meds to drive out other businesses. Beware.

11. Independent contractors, i.e., trimmers, growers, etc.

What do independent contractors, vendors, etc., need to file with MMED? Everyone needs some sort of license to handle meds. If you are an employee, the employee application needs to be completed. If you are a vendor, the vendor application:

http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251721405112&ssbinary=true

If you are an independent contractor, i.e,, trimmer, etc., you need to complete an occupational license application. It is unclear what this means. If you fall into this category, we can schedule a meeting with MMED to discuss your situation.

Again, the relationship between the individual and the MMB will be viewed by its substance, not what you call it. Be careful.

12. Contracts between MMC and MIP:

Is there an approved contract, recommended language or necessary inclusions for the contracts between MMCs and MIPs? No. The contract should deal with the amount paid for the trim, the weights to be delivered, the parties, etc. Also, be advised that the parties cannot pay “in product.”

13. Inventory and MIP sales:

Does the trim, etc., sold to MIPs count against allowable inventory, 70/30? Yes and no. If the MMC sells trim to the MIP, i.e., 10 lbs, and the MIP makes the infused product and provides all of the infused product to the MMC, then no. However, if the 10 lbs. sold to the MIP is then used to make infused products sold to other MMCs, even if 1/2 of the infused product goes back to the selling MMC, then all 10 lbs. counts against the selling MMCs 70/30 inventory numbers. Be aware that this is somewhat different from prior information provided by MMED.

14. MIP issues, misc.:

Does the use of alcohol in infused products require a liquor license required? Not as far as MMED is concerned. However, Mr. Hartman advised that the Liquor board may have a very different view and a big problem with this. I suggest a candid discussion with the liquor board be had before proceeding further with alcohol infused product manufacturing.

Does the liquid weight versus MMJ weight count against an MMC’s allowable inventory? This was not a clear answer. In general, no. However, if the MIP product is clearly labled “2 ounces, 1 gram, etc. MMJ in each product,” Mr. Hartman advises that he would have no choice but to count it against allowable inventory.

What about MIPs in jurisdictions with no MIP approval process, i.e., Fort Collins? If there is no local approval, there will be no state approval. Sorry to all the Fort Collins’ MIPs.

15. Expanded plant and ounce recommendations:

Is a MMC ok to honor the recommendation and incorporate patient center assignments of this variety into its allowable inventory? Yes.

Does the MMC have any duty to investigate the propriety of the recommendation? No. However, Mr. Hartman advises that the expanded plant recommendations will be under great scrutiny by the Department of Health and that doctor recommendations patterns are likely to be tracked. In these cases, the doctors will be required to medically justify the recommendations. Be advised that this is going to be a big deal

If patient designates “self and MMC” can both the patient and MMC grow 6 plants? This answer was not clear. In general, yes, but it appears that this issue has not been considered by MMED and is likely to see revision in the near future.

16. Sales Taxes:

What is the form of monthly reporting to MMED? This will be handled by the sales tax folks, not the MMCs/MIPs. However, monthly, not quarterly payments are required.

17. Other:

Does a scale need to be attached and incorporated into the point of sale system? No.

Can someone own a % of both a MMC and a doctor referral business even if no $ is exchanged between MMC and the doctor referral business? No. Mr. Hartman believes this is not appropriate. I am not sure if his opinion will be legally supported, since the only prohibition is payments from MMCs to doctors/doctor referral businesses.

Can investors receive a % of the profit? Yes, but there are then deemed owners, not investors and must follow all of the MMC/MIP ownership rules (residency, felony rules, and local/state approval of their ownership).

Can existing MMC’s apply for new retail locations in 2011? No. New OPC locations in 2011? No.

How is the MMC going to verify patient center assignment? MMED and the Department of Health are working on this. For now, keep track yourself, including accurate records

What will MMED do about MMCs/MIPs currently in litigation between partners for pending licensees? Mr. Hartman will issue the license provided both parties are license eligible. So, if the litigation is between owners with felonies and owners without felonies, the license will be denied. The same is true for residents and non-residents. Mr. Hartman wants notice of the lawsuit and periodic status reports. He does not want copies of pleadings.

However, the state may grant a license to “an employee if the employee has a state felony (not federal) conviction based on possession or use of a controlled substance that would not be a felony if the person were convicted of the offense on the date he or she applied for licensure.” I anticipate this was amended to: (1) ensure that employees were specifically included in the prohibition portions of this section; and (2) to recognize the reclassification of marijuana charges from felonies to misdemeanors. I assume that the reclassification would have to be in the state where the conviction was entered. This means that if the conviction was in Florida and is still a felony in Florida, but not in Colorado, it is still a felony for purposes of licensure.

Finally, I want to take the opportunity to re-clarify the “35 day” rule based on ongoing confusion. Up to this point, the State prohibited selling to new patients who were not in possession of their card (see, MMED’s 9/27/10 Memorandum regarding its position on the 35 day rule, http://www.colorado.gov/cs/Satellite?blobcol=urldata&blobheader=application%2Fpdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1251659488306&ssbinary=true).

CRS 12-43.3-402(5) was changed to state that “the employee of the medical marijuana center making the sale shall verify that the purchaser has a valid registration card… or a copy of a current and complete new application for the medical marijuana registry administered by the Department of Public Health and Environment that is documented by a certified mail return receipt withing the preceding 35 days and a valid identification card that matches the name on the registration card.” The “certified mail return receipt” is the green postcard that is signed by the Department mailed to the sender, not the USPS receipt for paying the certified mail postage fee. Also, in such a case, the employee must contact the Department of Public Health and Environment to determine whether the purchaser’s application has been denied. This section does not apply to license renewal applications and these patients must have their card.

In any event, the following is a summary of the new law applicable to MMJ businesses:

1. Pending licensees will be able to continue to operate while local and state licensing authorities are completing the pending application process;
2. There will be no new licenses issued until 7/1/12, i.e., another 1 year moratorium;
3. Businesses issued their licenses will be apply to apply for changes to the license, a new license or license type (i.e., size of center). It is not clear whether this means the licensed businesses can add OPCs or MMCs. I will speak with the state and let everyone know what “change” and “new” mean to MMED;
4. Pending licensees in “banned” municipalities can apply for a new license with a local licensing authority and transfer to the new location. Good news for all those folks who encountered fear, ignorance and local politics! It is unclear how this will actually work and whether the business can continue to operate post-transfer. I will speak with the state and let everyone know;
5. MMCs (not MIPs) can sell up to 6 clones to patients and up to 1/2 of the # of plants that exceed 6, based on a doctor’s recommendation. The definition of clone or “immature plant” is 8″ x 8″ in a 2″ x 2″ container and has nothing to do with rootedness;
6. The 2 year residency requirement only applies to owners and no longer applies to employees;
7. MMCs can sell to patients with an application, ID and recommendation while the state is processing the application (no more 35 day rule), However, the MMC is required to call CDPHE and confirm that the application has not been denied. Also, MMCs cannot sell to a patient with a renewal application, only a new application;
8. MMCs can use an automated dispensing machine. I am not sure why anyone would want to, since patient loyalty and customer service is what will distinguish success from failure;
9. Laboratories must obtain an occupational business license (according to MMED, the same applicant licensee requirements will apply) and CANNOT have any interest in a MMC or MIP;
10. No sales below cost or giving MMJ away unless it is to a patient who has been determined indigent by the State. This means no more “give aways” or “two for one” deals. Spread the word, so that this practice is ceased and everyone is on the same page;
11. An OPC can provide MMJ to more than 1 MMC, as long as the holder of the OPC is a common owner of all of the MMCs. What this really means is that multiple MMC locations, commonly owned, can use one OPC facility;
12. MIP products must be sealed and labeled. It is not yet clear what the label will say or whether the packaging must conceal the product inside;
13. The bill confirms that MIPs can never sell MMJ and are limited to growing up to 500 plants (there is a business need waiver process for more than 500 plants); and
14. No agricultural zoned cultivation. It is unclear whether the “no agricultural zone” issue applies to PCs or patients. I will look into this; and
15. MMCs can trade MMJ in equal amounts, but the MMJ cannot be “re-traded.”

Regarding primary caregivers:

1. The PC must register with the State the location of the cultivation and provide registration information for the PC’s patients;
2. The PC must comply with local regulations, including zoning. For instance, Boulder only permits care/cultivation for 1 patient in a residential zone. This provides the local governments some “teeth” for their widely different primary caregiver rules;
3. PCs may delegate duties to another PC, provided that the original PC maintains an ongoing relationship with the patients.

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

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

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

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

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

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…

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

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

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

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

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

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

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