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Cannabis Startups and Investing Series

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Are cannabis startups legal in Oregon?

One of four U.S. states, Oregon allows the sale and possession of marijuana for non-medical uses

Innovation series by Ronny Kerr
July 7, 2016 | Comments
Short URL: http://vator.tv/n/4638

Note: The CannaVator accelerator, which includes a 10-week online and in-person program, is accepting applications until August 15, 2016 for its Fall 2016 cohort. More details about the program and how to apply here.

Though cannabis remains illegal as far as the U.S. federal government is concerned, laws regulating the drug on state and municipal levels have been rapidly evolving over the past several years.

Dozens of states have legalized cannabis for limited (typically medicinal) use cases. A few have decriminalized it. And four states (Colorado, Washington, Oregon, and Alaska) have legalized it for recreational use. All told, 39 states have legalized cannabis in some form, according to a recent report by Ackrell Capital.

Even the federal government has taken a somewhat less restrictive approach. Though committed to enforcing the Controlled Substances Act (CSA, which makes marijuana illegal in the U.S.), the Department of Justice in August 2013 issued the oft-cited "Cole Memo," effectively admitting that it wouldn't intervene with state rules except in specific cases, for example the selling of drugs to minors, the funneling of revenue to gangs and cartels, or in cases where substances cross into border states with stricter rules.

Given all the complexity in U.S. law governing cannabis, things can be a bit confusing for your average smoker, not to mention for entrepreneurs hoping to capitalize on the emerging cannabis market.

The purpose of this series is to help demystify the legality of starting and growing a cannabis startup in various U.S. states. My last segment in this series focused on Washington. This segment is on Oregon.

The law: In 2014, Oregon voters successfully passed Measure 91, legalizing recreational use of marijuana, which would be regulated and taxed by the Oregon Liquor Control Commission (OLCC). The state's medical marijuana is regulated by the Oregon Medical Marijuana Program (OMMP).

Buying: Aside from receiving marijuana as gifts or growing their own plants (up to four plants per residence), adults aged 21 and up can purchase seeds, immature marijuana plants, and dried leaves and flowers from approved medical marijuana dispensaries.

You can possess up to eight ounces of usable marijuana in your home and up to one ounce in public.

Using: As in Colorado and Washington, it is illegal to use marijuana in public or in view of the general public in Oregon, including federal lands. That also includes the retail stores that sell cannabis products. Essentially, you can use it on private property as long as no one else can see or smell it.

Business licenses: As in Colorado and Washington, only approved medical marijuana dispensaries can sell recreational marijuana in Oregon. As of June 24, 2016, there are 412 medical marijuana dispensaries in the state. The majority of these are registered to also sell limited amounts of recreational marijuana to non-medical marijuana patients.

The state offers several different kinds of business licenses. Individuals and businesses may hold multiple license types and licenses, and there is no limit to how many licenses the OLCC will issue. (In Washington, licensees can only hold one kind of license and the state has limited the number of retail licenses to 556.)

  • A producer is a grower of marijuana.
  • A processor transforms raw marijuana into another product (topicals, edibles, concentrates, or extracts).
  • A wholesaler buys marijuana in bulk and sells to licensees rather than directly to consumers.
  • A retailer sells marijuana directly to consumers.
  • A laboratory tests marijuana based on rules established by the Oregon Health Authority.

Each license costs $250 for the application fee and must be renewed annually. Additional license fees are as follows:

  • Producer: $3,750 or $5,750, depending on size of plot
  • Processor: $4,750
  • Wholesaler: $4,750
  • Retailer: $4,750
  • Laboratory: $4,750

As of June 24, 2016, only 76 individuals or businesses have had their marijuana business licenses approved: 75 are producers and one is a wholesaler. Another 998 applications are in process, with most of these waiting to be assigned to an investigator or awaiting local government review:

  • Producers: 731
  • Processors: 84
  • Wholesalers: 58
  • Retailers: 194
  • Labs: 7

Retail store licensing isn't slated to begin until October 2016.

Finally, licenses are not transferrable. The state does allow licensees to propose changes to its corporate structure, ownership structure, or who has a financial interest in the business by submitting a form to the OLCC prior to making the change. A new application must be submitted for any licensee who has a change in ownership that is 51% or greater.

Examples of cannabis companies in Oregon

While most of the companies in Oregon's cannabis economy fit into the above categories as producers, processors, and retailers, there are several other companies taking the approach of serving the growing cannabis industry.

Here are a few examples of Oregon-based cannabis companies :

 

CannaGuard Security

  • Based: Beavertown, OR
  • What it is: Provider of compliant security systems for licensed marijuana growers and retailers.
  • Funding: N/A

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Hifi Farms

  • Based: Hillsboro, OR
  • What it is: A craft cannabis cultivator.
  • Funding: N/A
  • How would your business change if cannabis were made legal nationwide? CEO Sara Batterby responded: "National legalization of cannabis can mean a lot of things.  I think that legalization nationally of cannabis for medical use is on the horizon and will be ushered in with the rescheduling of cannabis by the DEA.  It is hard to anticipate how that will affect the recreational markets in Oregon, Colorado and Washington.

    "I think we can look forward to a day when cannabis is legal nationwide for recreational and medical use and assume that we will, at that point, be able to move our Oregon grown cannabis across state lines.  This will be a huge opportunity for our company to access a much larger market and take advantage of Oregon's, and Hifi's reputation for growing some of the best cannabis in the country.  We are in the process of building a brand and a business that is positioned to take advantage of this  opportunity when it arrives which we believe it will."

—————

 

Oregon Cannabis Insurance

  • Based: Portland, OR
  • What it is: Insurance provider for marijuana growers, cultivators, manufacturers, and retailers.
  • Funding: N/A

—————

 

Shango

  • Based: Portland, OR
  • What it is: Producer, distributor, and seller of cannabis products, including flower, concentrates, chocolates, gummies, and cartridges
  • Funding: N/A
  • How would your business change if cannabis were made legal nationwide? The nationwide legalization of cannabis would remove most of the barriers that currently inhibit our normal business operations and growth. Unfettered access to financial, investment, legal, insurance, accounting and other critical business resources would enable Shango to operate, compete and prosper just like thousands of other American companies.

    Full access to the banking system alone would transform almost every aspect of our business. This would also eliminate the need to keep massive amounts of cash on hand and create a far safer work environment for our employees and vendors.

    The investment community would consider Shango as bona fide, long-term opportunity. We would have greater access to the capital required to expand our production and distribution operations, and to sell our products in retail and B2B markets across the country and around the world.

    We would consolidate and simplify our corporate structure to vastly improve operating efficiencies and increase profitability. We would gladly pay our fair share of taxes, but take our fair share of deductions, as well.

    Federal legalization would free us from the constant threat of criminal prosecution under various drug and racketeering laws. Hopefully, it would also provide us with a more coherent, standardized regulatory environment.

    All of this would enable Shango to compete more confidently and effectively for leadership in America’s next great industry – the Cannabis Industry.

—————

 

Southern Oregon Cannabis Company

  • Based: Rogue River, OR
  • What it is: Organic cannabis grower.
  • Funding: N/A

Related companies, investors and entrepreneurs

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Ackrell Capital, LLC
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Description: Ackrell Capital is an investment bank founded by senior technology investment bankers and entrepreneurs. We are headquartered in San Fran...

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