From Pipe Dream to Reality: Opening a Pot Shop in Denver

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1 From Pipe Dream to Reality: Opening a Pot Shop in Denver Presented on November 19, 2014

2 From Pipe Dream to Reality: Opening a Pot Shop in Denver Presented on November 19, 2014

3 We ve Come A Long Way

4 We ve Come A Long Way

5 Now picture yourself, in Denver, in late 2015

6 Cannabiz Meeting Attorney s Office

7

8 Section 16 of Article XVIII of Colorado s Constitution Personal use and regulation of marijuana (1) Purpose and findings. (a) In the interest of the efficient use of law enforcement resources, enhancing revenue for public purposes, and individual freedom, the people of the State of Colorado find and declare that the use of marijuana should be legal for persons twenty-one years of age or older and taxed in a manner similar to alcohol.

9 Controlled Substances Act (CSA) Penalties - Marijuana

10 Colorado Rule of Professional Conduct 1.2(d)* A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. *as of Mar. 24, 2014

11 Comment 14 A lawyer may counsel a client regarding the validity, scope, and meaning of Colorado Constitution Article XVIII, Sections 14 & 16, and may assist a client in conduct that the lawyer reasonably believes is permitted by these constitutional provisions and the statutes, regulations, orders, and other state or local provisions implementing them. ln these circumstances, the lawyer shall also advise the client regarding related federal law and policy.

12 Retail Marijuana Business License Application Process

13 DOJ Cole Memorandum of August 29, 2013 Enforcement priorities are to prevent: Distribution of marijuana to minors Revenue from marijuana sales going to criminal enterprises, gangs, cartels Diversion of marijuana from states where legal Use of state-authorized marijuana activity as cover for trafficking of illegal substances

14

15 Visit To Mari Juanita s Fields

16

17 Growers Must Have Closed greenhouses under lock and key Colorado water supply Product grown from seeds acquired within Colorado 24/7 security State of Colorado Department of Revenue Rule R 500 Series (Cultivation); Rule R 600 Series (Manufacturing); Rule R 700 Series (Testing Facilities) and Rule R 800 Series (Transport and Warehousing)

18 Employees Of Grower Cannot have felony or illegal drug convictions Must live in Colorado during employment Must have 2 years residency preceding employment State of Colorado Department of Revenue Rule R 500 Series (Cultivation); Rule R 600 Series (Manufacturing); Rule R 700 Series (Testing Facilities) and Rule R 800 Series (Transport and Warehousing)

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21 Location, Location, Location

22

23 Danger of Federal Criminal Prosecution - 21 U.S.C. 856 (a) Unlawful acts Except as authorized by this subchapter, it shall be unlawful to (2) manage or control any place, whether permanently or temporarily, either as an owner, lessee, agent, employee, occupant, or mortgagee, and knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, the place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance. (b) Criminal penalties Any person who violates subsection (a) of this section shall be sentenced to a term of imprisonment of not more than 20 years or a fine of not more than $500,000, or both, or a fine of $2,000,000 for a person other than an individual.

24 Danger of Civil Forfeiture of Property - 21 U.S.C. 881 (a) Subject property The following shall be subject to forfeiture to the United States and no property right shall exist in them:... (7) All real property, including any right, title, and interest (including any leasehold interest) in the whole of any lot or tract of land and any appurtenances or improvements, which is used, or intended to be used, in any manner or part, to commit, or to facilitate the commission of, a violation of this subchapter punishable by more than one year s imprisonment.

25 Danger of Civil Forfeiture of Rent - 21 U.S.C. 881 (a) Subject property The following shall be subject to forfeiture to the United States and no property right shall exist in them:... (6) All moneys, negotiable instruments, securities, or other things of value furnished or intended to be furnished by any person in exchange for a controlled substance or listed chemical in violation of this subchapter, all proceeds traceable to such an exchange, and all moneys, negotiable instruments, and securities used or intended to be used to facilitate any violation of this subchapter. (Emphasis added).

26 The Lease Terms Tenants will comply with all Colorado laws governing marijuana Tenants will not create any nuisance or disturb the neighbors quiet enjoyment of their property. Operation of a retail marijuana store at the premises does not, in itself, constitute a nuisance No marijuana use (either smoking or eating) on the premises or in the parking lot, no excess noise or objectionable odors from the premises, and no unusual crowding Tenants can terminate lease if they cannot obtain a license

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28 Money In The Bank?

29

30 Agencies With Oversight

31 Department of Justice Guidance DOJ staff will focus their enforcement resources and efforts, including prosecution, on persons or organizations whose conduct interferes with any on or more of [the following] priorities, regardless of state law : Preventing the distribution of marijuana to minors; Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels; Preventing the diversion of marijuana from states where it is legal under state law in some form to other states; Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

32 Department of Justice Guidance Preventing violence and the use of firearms in the cultivation and distribution of marijuana; Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use; Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and Preventing marijuana possession or use on federal property. - Memorandum to All Assistant United States Attorneys from Deputy Attorney General James M. Cole, Aug. 29, 2013

33 Department of Justice Guidance 2 key points: Cole Memorandum rest[s] on the expectation that states that have enacted laws authorizing marijuana-related conduct will implement clear, strong and effective regulatory and enforcement systems. If a marijuana-related business s activities don t implicate these factors, prosecution for these offenses may not be appropriate. (emphasis added). - Memorandum to All Assistant United States Attorneys from Deputy Attorney General James M. Cole, Feb. 14, 2014

34 FinCEN Guidance to Banks 2 key points: In general, the decision to open, close, or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution. Thorough customer due diligence is a critical aspect of making this assessment.

35 What is Thorough Customer Due Diligence? Verifying with the appropriate state authorities whether the business is duly licensed and registered; Reviewing the business s license application (and related documentation); Requesting from state licensing and enforcement authorities available information about the business and related parties; Developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers); Monitoring publicly available sources for adverse information about the business and related parties; Monitoring any suspicious activity, including filing appropriate suspicious activity reports (SARs) with FinCEN; and Refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.

36

37 Insurance Assurance

38 Premiums $10.70 for every $1,000 in gross sales

39 Limits on Insurance Insurance does not cover business if someone gets high and commits a crime or engages in any wrongful conduct

40 Limits On Business Business cannot sell any prescription medication Business cannot sell cigarettes (tobacco or electronic), beer, wine or alcohol

41 Requirements Underwriter will require detailed plans if use or eating of marijuana in the store or on store s property is intended Marijuana must be grown indoors and there must be security for the facility, and if pesticides are used, such usage must be documented

42

43 Zon[ed] Consultants Meeting

44 At the offices of COME FLY WITH ME, LLC

45

46 Licensing A retail marijuana license can be denied for good cause subject to judicial review. Good cause exists: The applicant has violated, does not meet, or has failed to comply with the provisions of the Colorado Retail Marijuana Code or the Denver Retail Marijuana Code or any rules and regulations promulgated pursuant thereto. The applicant seeks to a second or additional retail marijuana store license, granting the additional license would have the effect of restraining competition. There is evidence that issuance of the license will adversely impact the health, welfare or public safety of the neighborhood in which the retail marijuana store is proposed to be located.

47 Public Participation

48 The Public s View

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50

51

52

53

54 Addressing the Opposition: The Good Neighbor Agreement Meet regularly with the registered neighborhood association Provide emergency contact numbers Use best efforts to prevent loitering outside the premises Implement security protocols Notify the police of any suspected criminal activity and cooperate in any investigation by the police Secure all cash and pot in a floor-bolted safe overnight Notify patrons to leave the premises and parking areas in a quiet and peaceful manner

55 After the Hearing

56

57 Advertising Up In Smoke

58 [M]arijuana should be regulated in a manner similar to alcohol * * * Colo. Const., art. XVIII, 16(1)(b).

59 The Commission commends the industry for its adoption, in mid-2011, of a 71.6 percent 21+ standard for new advertising purchases, and it expects all industry members to adhere to this new standard.

60

61 R 1111B. Outdoor Advertising Generally Prohibited. Except as otherwise provided in this rule, it shall be unlawful for any Retail Marijuana Establishment to engage in Advertising that is visible to members of the public from any street, sidewalk, park or other public place, including Advertising utilizing any of the following media: any billboard or other outdoor general Advertising device; any sign mounted on a vehicle, any hand-held or other portable sign; or any handbill, leaflet or flier directly handed to any person in a public place, left upon a motor vehicle, or posted upon any public or private property without the consent of the property owner.

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63 R 1108 Advertising: Targeting Out-of-State Persons Prohibited. A Retail Marijuana Establishment shall not engage in Advertising that specifically targets Persons located outside the state of Colorado.

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65 Commercial Speech Under Government restrictions on commercial speech that concerns lawful activity and is not misleading violate the First Amendment unless (1) the asserted governmental interest is substantial; (2) the regulation directly advances the governmental interest asserted; and (3) the regulation is not more extensive than necessary to serve the asserted governmental interest. Utah Licensed Bev. Ass'n v. Leavitt, 256 F.3d 1061, 1066 (10th Cir. 2001), citing Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557, 566 (1980). - Fifth Amended Complaint, We Are Pueblo LLC v. Brohl, 14-CV-370 (U.S.D.C., D. Colorado)

66 Limits Of Commercial Speech The First Amendment does not protect commercial speech regarding transactions that are illegal under either state or federal law. See United States v. Williams, 553 U.S. 285, 297 (2008) ( Offers to engage in illegal transactions are categorically excluded from First Amendment protection. ). - State Licensing Authority s Motion to Dismiss, We Are Pueblo LLC v. Brohl, 14-CV-370 (U.S.D.C., D. Colorado)

67

68 Opening Day!

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70

71 Thanks To Michael Solender and Ernst & Young for hosting this evening s program and for logistical support Arnold & Porter for hosting production meetings and rehearsal Emilie Cooper and Josh Greenblatt for the program s slide presentation Michael Phillips and Fensterstock & Partners for preparation of CLE materials Ilene Siegel Deutsch for the edibles Cassandra Johnson and Emilie Cooper for music editing Maria Scungio for creation of the Bar Bill and service as Prop Master

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