In the Weeds: Illegal Grow Operations, Cannabis Control Rules and Dispensary License Caps

Newsworthy Highlights

• Michigan Proposes Ban on Cannabis Billboards. This spring, lawmakers in Michigan introduced a bill to ban cannabis advertisements on billboards. As a reason for the proposal, one of the bill’s sponsors cited concerns regarding children’s exposure to the signs. The bill proposes to ban advertisements on all roads in the state. Michigan’s administrative code includes marketing and advertising rules, such as restrictions on marketing to individuals under 21 years of age and compliance with all municipal ordinances and state laws that regulate signs and advertising. As proposed, the bill is a broad advertising restriction for the cannabis industry, which is of particular concern given the general industry advertising limitations.
  
  
• South Dakota Caps Dispensary Licenses. On Sept. 7, 2021, the City Council of Sioux Falls, South Dakota, approved an ordinance to cap dispensary licenses operating within the city at five. The council also amended the ordinance to allow City Hall to make recommendations for revocation of a dispensary license as opposed to having the power to unilaterally revoke a license in the original proposal.
  
  
• Oregon Seizes $50 Million of Illegal Grow. Law enforcement officials in Douglas County, Oregon, recently uncovered a large-scale marijuana grow operating under the guise of a legal hemp operation. The marijuana plants were uncovered and destroyed after concerned citizens provided tips. Approximately 150 greenhouses containing 49,152 marijuana plants were located on the property. Based on testing conducted, no hemp plants were on the property. The investigation is ongoing.
  
  
• California Investigates Nonpermitted Commercial Cannabis Cultivation. Law enforcement in Mendocino County, California, recently conducted investigations into nonpermitted commercial cannabis cultivation in locations around the county. Such sites were allegedly operating without a county cultivation permit or a state cultivation license, and/or cultivation was taking place in violation of county code requirements. The marijuana plants at all sites were abated. Mendocino County maintains a cannabis complaint hotline for compliance complaints.

Grassroots Federal/State Legislative Highlights

• Missouri Cannabis Tax Bill Defeated. Missouri Gov. Michael L. Parson recently vetoed proposed Senate Bill 226, which would have allowed Missouri’s legal marijuana businesses to deduct certain expenses from their state taxes that are disallowed in federal returns. Missouri has seen approximately 140 medical marijuana dispensaries open over the past year. Similar legislation may be attempted next year.
  
  
• California Cannabis Control Department Seeks Comments on Proposed Rules. California’s Department of Cannabis Control, the newly created entity to oversee the state’s cannabis industry, released a draft of its new rules to “consolidate, clarify and make consistent cannabis regulations including aligning license application requirements, ownership and financial interest of a cannabis business, and establishing uniform terminology and definitions across license types.” The draft rules also include narrowing the definition of cannabis business owners in the state and allowing nonvertically integrated cannabis companies to sell branded merchandise from other businesses. Among other changes, the proposed rules implement new standards to allow certain cannabis operators, such as manufacturers, growers and distributors, to share their product samples with other cannabis operators for free. The department believes the trade-sample allowance will assist small cannabis operators in showcasing their products to other operators and compete in the marketplace. Following a brief comment period, the proposed rules will become effective at the end of September 2021.

Investments and Transactions Highlights

• Ayr Wellness Acquires Garden State Dispensary. On Sept. 15, 2021, Ayr Wellness Inc. (CSE: AYR.A, OTC: AYRWF), a vertically integrated cannabis multistate operator, announced it closed on the purchase of 100 percent of the membership interests of Garden State Dispensary, one of the 12 existing vertical permit holders in the state of New Jersey and one of the state’s original six alternative treatment centers.
  
  
• General Cannabis Corp. Closes Acquisition of TREES Englewood Dispensary. On Sept. 8, 2021, General Cannabis Corp. (OTCQB: CANN) announced the closing of the acquisition of the TREES Englewood Dispensary. General Cannabis also announced it is now doing business as TREES, pursuant to a Colorado tradename filing.

“In the Weeds” is McGuireWoods’ biweekly ounce of highlights in the budding cannabis, hemp and CBD industries. For more information, see our newsletter archive, our Edible Bites podcast series, or visit our Cannabis, Hemp & CBD practice.