Oregon Cannabis Licensing: OLCC Increases Application Scrutiny

We recently wrote about the new Oregon Liquor Control Commission (OLCC) rules for marijuana businesses, and observed that those rules were issued with the stated intent to stave off diversion of cannabis. In addition to its public-facing actions, we have seen an apparent shift in internal OLCC review policies and procedures. A few weeks ago, we covered the apparent adoption of new settlement policies. Today, we cover what appears to be increased scrutiny for each of the following: new license applications (those submitted prior to June 15^th), license renewal applications, change in business structure applications, and change-in-ownership applications. OLCC investigators are looking at all of these submissions more carefully than ever.

It was never easy to get an OLCC license. It only felt that way, given the stricter and more tedious requirements faced by cannabis program applicants in other states. In Oregon, the application process was somewhat cumbersome initially (remember the narrative-based forms, released in 2015?), but the state quickly progressed to “check the box” paperwork in combination with its online data entry system. Today, there are a few interesting quirks in that protocol, but it’s navigable and sensible and clean overall.

So what changed? Generally, the administrative environment is different these days. Licensing has existed for a couple of years, OLCC has refined its processes, and investigators are better trained than before. Specifically, investigators have raised the bar for the content of application submissions, are they are looking under rocks that previously would have been left unturned. In many cases, they are finding things.

Gone are the days when an applicant could submit a business document in the belief that, regardless of that document’s contents, the inspector would summarily tuck it into her file essentially unread, and pass the application along to “final review.” OLCC investigators are now actively requesting and reviewing legal documents, and doing a really good job of it. Here is a sampling of investigator questions we have seen in the past month or so, that never would have surfaced even a year ago:

• “Does this lease’s rent reconciliation provision mean that the landlord is entitled to a percentage of profits? Explain that.”
• “Was this asset purchase agreement ‘deposit’ escrowed? Or have these funds used in the business operations already?”
• “Why does this business structure form contain an LLC member who is not listed on the state business registry?”
• “At what point did the seller transfer these utility bills into the buyer’s name?”

Etcetera. We have seen businesses tripped up (badly) in the both the change-in-ownership and renewal processes by questions like these. In the worst case, these inquiries can result in proposed license cancellation and/or non-renewal by OLCC. Those situations can be incredibly frustrating and stressful for a business, especially one with sunk costs and accumulating obligations. They should be avoided if legitimately possible.

In all, the new licensing paradigm leaves us with a couple of key takeaways going forward. The first is really simple: Run your business like a real business and ensure you have everything in place prior to OLCC submission. This means writing things down, to start, and using appropriate forms to do so. The second takeaway is to enlist help when needed. That doesn’t mean you need to pay an attorney or a consultant thousands of dollars to process your application. In our Portland office, for example, we have experienced marijuana licensing paralegals who process OLCC applications literally all day every day, and who talk with OLCC investigators on the regular. Our cannabis business lawyers only enter the picture to draft documents, or deal with nuanced or delicate matters.

Going forward, we expect OLCC to continue to ratchet up standards for both applicants and licensees on everything from rulemaking to license review to site inspections. That’s a good thing for compliant operators and for businesses that want to do things correctly. Really, it’s exactly how it should be.